Just Keep Buying: Proven ways to save money and build your wealth

by Nick Maggiulli

As Henny Youngman once said, “Americans are getting stronger. Twenty years ago, it took two people to carry $10 worth of groceries. Today, a five-year old could do it.” Unfortunately, Youngman wasn’t talking about the increasing strength of American youth, but about the declining value of the U.S. dollar. Youngman’s joke highlights why inflation, or the general increase in prices over time, is an unavoidable reality.

Barton Biggs, the author of Wealth, War, & Wisdom, came to a similar conclusion when examining which asset classes were most likely to preserve wealth over the centuries. He stated, “considering their liquidity, you have to conclude equities are the best place to be with the bulk of your wealth.”

Despite all the praise that I have just given to stocks, they are not for the faint of heart. In fact, you should expect to see a 50%+ price decline a couple times a century, a 30% decline once every four to five years, and a 10% price decline at least every other year.

You can choose to buy individual bonds directly, but I recommend buying them through bond index funds or ETFs because it’s much easier. Though there has been a debate in the past about whether there is a material difference in performance between individual bonds and bond funds, there isn’t. Cliff Asness, founder of AQR Capital Management, thoroughly debunked this notion in the Financial Analysts Journal in 2014.69 Regardless of how you buy your bonds, they can play an important role in your portfolio beyond providing growth. As the old saying goes: “We buy stocks so we can eat well, but we buy bonds so we can sleep well.”

A REIT is a business that owns and manages real estate properties and pays out the income from those properties to its owners. In fact, REITs are legally required to pay out a minimum of 90% of their taxable income as dividends to their shareholders. This requirement makes REITs one of the most reliable income-producing assets.

However, like most other risky assets, publicly traded REITs tend to sell off during stock market crashes. Therefore, don’t expect diversification benefits from REITs on the downside.

Battling emotions is just the tip of the stock picking iceberg. I know because I used to pick stocks years ago as well. In addition to the emotional difficulties, you also have to deal with periods of underperformance and the possibility that you don’t actually have any stock picking skill. As a result, I’ve since given up picking individual stocks and I recommend that you do the same. But, my reasoning for why you shouldn’t pick individual stocks has evolved over time. Originally, I gave up on buying individual stocks because of what I will call the financial argument. It’s a good argument and one you may have heard before, but it pales in comparison to the existential argument against stock picking.

I’m not the only one who has argued against stock picking either. Consider what Bill Bernstein, the famed investment writer, said on the topic: “The very best way to learn about the dangers of individual stock investing is to familiarize yourself with the basics of finance and the empirical literature. But if you can’t do that, then, sure, what you have to do is put 5% or 10% of your money into individual stocks. And make sure you rigorously calculate your return, your annualized

return, and then ask yourself, ‘Could I have done better just by buying a total stock market index fund?’”83

As you can see, most of the time, Average-In underperforms Buy Now. This isn’t just recency bias either. If we were to look at U.S. stock returns going back to 1920, we would find that Average-In underperforms Buy Now by 4.5% in each rolling 12-month period, on average, and in 68% of all rolling 12-month periods.

When deciding between investing all your money now or over time, it is almost always better

to invest it now. This is true across all asset classes, time periods, and nearly all valuation regimes. Generally, the longer you wait to deploy your capital, the worse off you will be.

The main purpose of this chapter is to reiterate that saving up cash to buy the dip is futile. You would be far better off if you Just Keep Buying. And, as we saw in the previous chapter, it’s generally better to invest sooner rather than later. Taken together, the conclusion is undeniable: You should invest as soon and as often as you can.

God Still Has the Last Laugh One of the most important things I learned while crunching all the numbers for this chapter is how dependent our investment lives are on timing luck (formally known as sequence of return risk, which will be covered in the next chapter). For example, the best 40-year period I analyzed in this chapter was from 1922–1961, where your $48,000 (40 years × 12 months × $100) in total DCA purchases grew to over $500,000 (after adjusting for inflation). Compare this to the worst period 1942–1981, where your $48,000 in total purchases only

grew to $153,000. That is a difference of 226%, which is much larger than any divergences we saw between the DCA and Buy the Dip timing strategies! Unfortunately, this illustrates that your strategy is less important than what the market does. God still has the last laugh. With that being said, the role of luck in investing is where we turn in our next chapter.

Adequately diversify with enough low-risk assets (e.g., bonds). Having a large bond portion as you enter retirement may be able to provide enough income to prevent you from selling equities at depressed prices. Consider withdrawing less money during market downturns. If you had originally planned on withdrawing 4% a year, temporarily lowering your withdrawal rate could help mitigate the damage done by a market crash. Consider working part-time to supplement your income. One of the benefits of retirement is that you get to decide what you want to do with your time. This means you could start working on something new to generate income instead of selling down your existing assets.

Therefore, if you want the upside—building wealth—you have to accept volatility and periodic declines that come with it. It’s the price of admission for long-term investment

turmoil, you should come up with a set of conditions under which you would sell beforehand instead of relying on your emotional state when you are thinking of getting out of a position. This will allow you to sell your investments on your own terms, to a predefined plan. After coming up with a list of reasons myself, I can only find three cases under which you should consider selling an investment:

To rebalance. To get out of a concentrated (or losing) position. To meet your financial needs. If you aren’t rebalancing your portfolio, getting out of a concentrated (or losing) position, or trying to meet a financial need, then I see no reason to sell an investment—ever.

For example, from 2010–2019 U.S. stocks gained 257% in total return compared to only 41% for emerging market stocks. However, from 2000–2009, the opposite was true with emerging market stocks appreciating 84% while U.S. stocks were up less than 3%! The point is that underperformance is inevitable and not a good reason to sell.

As a reminder, a 401(k)—also called a traditional 401(k)—is funded with pre-tax money while a Roth 401(k) is funded with post-tax money. The only difference between these account types is when you decide to pay your taxes.

All else equal, if you think your income taxes will be higher now, then contribute to a traditional 401(k), otherwise contribute to a Roth 401(k). Yes, this answer is simple, but it ain’t easy.

For example, if you experience a year of low (or no) income, you can use this time to convert your traditional 401(k) into a Roth IRA at a lower tax rate.

I have friends who used this tactic while they were in business school because they knew they would be temporarily earning next to nothing. The taxes they paid on their conversions were far lower than what they would have paid had they made Roth 401(k) contributions while working.

Lastly, though we have been using effective tax rates throughout this chapter, marginal tax rates are what matter. For example, when you take traditional 401(k) distributions in retirement (as a single person), you pay only 10% on the first $9,875, 12% on the next $9,876 to $40,125, and so forth. This means that if you plan on taking distributions in retirement that would be lower than your current income, then a traditional 401(k) is the way to go.

Jack Whittaker wasn’t a bad man. He supported his wife and granddaughter. He went to church. He even donated tens of millions of dollars to start a non-profit foundation immediately after winning the lottery. Yet, he couldn’t shake temptation’s wings when they presented themselves. Money has that way of changing people.

From 2002 to 2007, I thought I was rich too. Or at least kind of rich. My family owned a big screen TV (it was 2 and a 1/2 feet deep). We had a dune buggy and a sports car. We lived in a three-story house in a gated community that kids at my school simply called “The Gates.” I later found out that this life of luxury was only temporary. In 2002, when my Mom and Stepdad

bought our three-story house, it cost $271,000. By early 2007, the house reached a peak value of $625,000. The entire ride up my family refinanced the mortgage over and over, extracting increasing amounts of home equity. We could keep living high off of this equity as long as house prices kept going up. Unfortunately, they didn’t. As house prices started to crash in late 2007, everything came undone. We lost the house and were forced to sell the dune buggy, the TV, and the sports car. The Gates we once called home were now a barrier to a life that was no longer ours. We weren’t rich after all.

But it wasn’t until college that I realized just how un-rich we we...

during my first week of school when I found out that I was one of two kids, out of the 20 in my freshman hall, that had never been to Europe. In ...

This was just like my friend John who couldn’t see his wealth because all he knew growing up was being relatively poorer than his high school friends. Unfortunately, this feeling doesn’t seem to go away even as you move further up the wealth spectrum.

“Have you ever had the impression that other people have many more friends than you? If you have, you are not alone. Our friends have more friends on average than a typical person in the population. This is the friendship paradox…

The friendship paradox is easy to understand. The most popular people appear on many other people’s friendship lists, while the people with very few friends appear on relatively few people’s lists. The people with many friends are overrepresented on people’s list of friends relative to their share in the population, while the people with few friends are underrepresented.”

For example, you would need a net worth of $11.1 million to be in the top 1% of U.S. households in 2019. However, after controlling for age and educational attainment, the top 1% varies from as little as $341,000 to as much as $30.5 million.

Peter attia, a physician and longevity expert, did a talk in 2017 on how to increase your lifespan where he proposed the following thought experiment to his audience: “I would be willing to bet that not one of you, if you were offered every dollar of Warren Buffett’s fortune, would trade places with him right now… And I would

also bet, by the way, that Buffett would be willing to be 20 years old again if he was broke.”105 Consider Attia’s trade for a moment. Imagine having Buffett’s wealth, fame, and status as the greatest investor on earth. You can go anywhere you please, meet anyone you want, and buy anything that can be sold. However, you’re now 87 years old (Buffett’s age at the time). Would you make the trade?

I know it sounds cryptic, but I bet you wouldn’t. You intuitively understand that, in some circumstances, time is worth far more than mon...

Though I could have traveled and dined out less often (experiences I thoroughly enjoyed), those purchases wouldn’t have moved the needle enough to make a difference.

Researchers at the Federal Reserve Bank of New York have shown that an individual’s income grows most rapidly in their first decade of work (ages 25–35).106 Given this information, you can see why my focus at age 23 should’ve been on my career and not my investment portfolio.

The reason for my mistake is that I incorrectly believed that money was a more important asset than time. I only later realized why this was false. Though you can always earn more money, nothing can buy you more time.

For example, in the book The Happiness Curve, Jonathan Rauch describes how happiness in most people starts declining

in the late 20s, bottoms at age 50, and then increases after that. When plotted, lifetime happiness ends up looking like a U-curve (or a little smile).

But why does happiness start to decline in the late 20s? Because, as people age, their lives usually fail to meet their

high expectations. As Rauch states in The Happiness Curve:

Saving is for the Poor, Investing is for the Rich Find where you are in your financial journey before deciding where to focus your time and energy. If your expected savings are greater than your expected investment income, focus on savings; otherwise focus on investing. If they are similar, focus on both. (Ch. 1)

Save What You Can Your income and spending are rarely fixed, so your savings rate shouldn’t be fixed either. Save what you can to reduce your financial stress. (Ch. 2)

Focus on Income, Not Spending Cutting spending has its limits, but growing your income doesn’t. Find small ways to grow your income today that can turn into big ways to grow it tomorrow. (Ch. 3)

Use The 2x Rule to Eliminate Spending Guilt If you ever feel guilty about splurging on yourself, invest the same amount of money into income-producing assets or donate to a good cause. This is the easiest way to have worry-free spending. (Ch. 4)

Save at Least 50% of Your Future Raises and Bonuses A little lifestyle creep is okay, but keep it below 50% of your future raises if you want to stay on track. (Ch. 5)

Debt Isn’t Good or Bad, It Depends on How You Use It Debt can be harmful in some scenarios and helpful in others. Use debt only when it can be most beneficial for your finances. (Ch. 6)