Speaker 1: It's great to have back on the show today.
Nick Majali, who is the CEO at Ritholtz Wealth Management, also founder of Of Dollars and
Data, a data focused personal finance blog and also author of the new book Just Keep
Buying Proven Ways to Save Money and Build Your Wealth.
Nick, the book is killing on Amazon.
It's crazy what's going on.
Speaker 5: I appreciate you.
It's been a crazy few days so far, Speaker 1: so, you know, one of the questions
I often get from my viewers is our financial advisors a scam.
And what I try to explain is at the individual level, the answer is no.
I mean, sure, there are financial advisers whose practices are scammy and there's financial
advisors that that are not.
But what I say the scam is, is that the financial services industry has sold the idea to people
that basic personal finance is really complicated and you can't handle it yourself.
And what you do in your book is, you explain in really clear terms, the most important,
you know, eight to 10 principles about managing money.
And you really explained that it's not as complicated as may be.
The industry wants you to believe.
Is that fair?
Speaker 5: Yeah, I think that's true at times, I mean, obviously, it depends on your situation,
and I think that when financial planning makes the most sense is the more complex it gets,
especially with taxes.
So usually I think for most people, it doesn't make sense to be paying a fee if you don't
have a lot of assets, very simple.
I mean, unless you just want the peace of mind.
So that's what a lot of people really that know I work in the wealth management industry.
Full disclosure, of course, a lot of people come to us for the peace of mind is not necessarily
like, you know, it's not that they couldn't do it themselves.
A lot of times there's like, I don't want to do it.
I'm going to spend my time doing something more valuable.
And I think that's why for a lot of people, it's it's worth the price they pay.
Speaker 1: One of the things that you talk about in the book and you back it up with
data is kind of the futility of this idea of when should I be investing, how when is
the right time to sort of get in and to get out?
And this is something I've talked to my audience about a lot.
And every time that the markets are shaky and we saw this in March of 2020 at the start
of the pandemic, we've seen it over the last two months.
So many people, you look at Twitter, you look at Reddit, you look at all these different
places.
They're saying, I'm going to give it five more days or I'm going to wait.
Or this isn't exactly the right time statistic, aside from anyone's opinions about their ability
to predict the future, which is not very good where humans are not particularly good at
that.
Lay out the statistical case for why it doesn't really make sense to be doing that.
Speaker 5: Yeah, so if you're trying to wait, so waiting to buy a dip is one thing and then
just waiting at all is usually a bad idea.
And the reason why is because most of the time markets, you know, generally increase
over time.
And of course, they're going to be cases where markets crash and things like that.
But you know, if you're going to compare someone who's trying to, even if you know, using the
book Chapter 14, it's called Even God.
Could it be dollar cost averaging?
And I basically say, I'm going to tell you when the dips are and you're going to save
cash and buy those dips like the lowest point between two all time highs, like on a monthly
basis.
And that strategy actually underperforms someone who's just buys every month like 80 percent
of the time.
And the reason why is because by the time you wait for that big dip, by the time it
happens, that price, that dip price is higher than where you could have bought originally,
right?
So you're like, you're always ended up buying at a higher price.
And so there's always be reasons to sell out.
You can all your always can, you know, psych yourself out about this stuff.
And don't get me wrong, sometimes people are going to move to cash and they're going to
be right once in a while, right?
And they're going to be right in the short run.
But I think the behavioral reason why you shouldn't do it is you're going to be wrong
in the long run, right?
If.
Imagine every time you imagine it and you know, after 2009, you're like, Wow, this,
I'm going to stay out of the market for a while, 2010, 2011, you say you're like, Wow,
look, I'm smart or whatever market's recovered a little bit.
But then you stay out for the next five 10 years and you miss one of the biggest bull
markets in history, right?
And that's what's happened has been people saying the stock market's been overvalued
since 2012 2013.
The market's been on an upward tear since, so one day they'll be right.
But they're going to be wrong most of the time, and that's the issue here.
Speaker 1: The other concern I would have with such a strategy and many of my friends
do this stuff and I tell them, I think you're I think you're wasting your time is that I'm
big on systematize.
What I'm trying to do with my finances.
And even if you believe that you would be really good at figuring out, OK, we've hit
the bottom, now is the time to start buying again.
It's not a systematic approach, and the systematic approach has the advantages number one of
being in my mind, far less stressful and anxiety causing.
Number two, if you continue your investment plan on the way down, you're actually getting
more value for your money in the sense that $100 buys you more shares when the market
is down than when the market is up.
And thirdly, and correct me, if I'm wrong, you're continuing to accumulate dividends
during that time, and somebody who is just waiting is not going to be doing that.
So it seems that the systematic aspect has both psychological and financial benefits.
Speaker 5: Yeah, I completely agree.
And so the whole like, my argument is like, you know, do something better with your time,
right?
Like, like David, I think you're probably better suited to be, you know, hosting a YouTube
show and talking about this than spending five or 10 hours a week looking at your investments.
If you think about the return, you're going to get on your personal human capital.
And for someone else that may be like, Oh, I'm a photography person, like, maybe you
should do more photoshoots or someone you know, is a writer, and so they should write
more blog post, whatever it is, whatever you do like, I bet there's some higher value activity
you have than going invest and doing that stuff with your money, especially if you don't
have a lot of money invested.
You have $10000 invested, right?
Let's say you can, you know, increase your returns by, you know, let's say, 10 percent,
right?
That's a thousand bucks.
And let's say you spend 10 hours a week doing that over the course of a year, right?
Still, I'd say 10 times, you know, 50, it's five hundred twenty five hundred hours.
You make a thousand dollars.
I think about that, like, it's so silly, like you would know you should.
You should literally get a part time job.
You'd make way more money, right?
So it's one of those things we start thinking about the math on it.
You're like, Wow, my.
Our hourly wage of doing this doesn't make any sense.
You know, if you have $10 million, that's a little different, but you know, most of
us don't.
Speaker 1: So when it comes to our debt, there's there's some interesting parts of the book
about you talk about mortgages, you talk about debt in different ways.
Debt is very polarizing and I don't mean necessarily politically polarizing.
I'm not talking about the national debt.
I'm talking about personal debt, people's decisions about credit cards, as well as people's
decisions about mortgages.
And very commonly, you'll you'll hear strategies espoused.
I, if I understand correctly, Christian financial guy Dave Ramsey talks about starting with
I don't remember if it's the smallest debt or the highest interest debt.
First, everybody has some algorithm that they will sometimes apply.
What's often missing from those conversations are the sort of psychological impacts of having
the debt.
And so when people sometimes have called, I guess they call me because my background
was in financial planning.
Although I haven't been in that space for 15 years, they'll say, should one pay off
a mortgage, if you have the cash to do it and you can run the numbers calculating what's
your mortgage interest deduction and what's the interest rate, you can do all that.
But at the end of the day, there's an intangible which is like psychologically, what is having
the debt do for your day to day?
And that can be much harder to kind of wrap wrap our minds around, can it not?
Speaker 5: Yeah, I think some of the the data on that's interesting, so the only debt that
didn't have any sort of psychological impact, at least on average across the population
was mortgage debt.
That's the only every other debt messes with people.
If you have credit card debt, that's usually stressful if you have other type medical debt,
whatever that usually affects people's psyche.
They found that mortgage debt generally doesn't affect people.
However, there is a subset of the population that doesn't feel comfortable with any debt,
and that's fine.
And so you're not going to want to hold debt at all.
So even those people like I know people very smart in the financial space, and they paid
off their homes despite the fact that they had like a three percent interest rate, you
know, and they did that because they just want the peace of mind.
And so for some people, peace of mind is going to be better than all that other stuff.
And so you have to think about that, you know, when you're making these types of financial
decisions.
So there's nothing wrong with it, but just you kind of have to know yourself, right?
There's almost as good a story as old as time.
This is like a philosophical point that's been around for thousands of years like know
thyself, right?
So once you know kind of what you like and don't like, that's how you can make better
decisions with your money.
Speaker 1: When it comes to timing and real estate, are the principles different than
when it comes to timing?
The stock market in the sense of if you have a need for housing, you can choose to buy
or you can choose to rent.
And very often, rents will reflect the cost to whoever ultimately owns the property in
which you're going to live.
So there's there's a correlation there, although it may not be perfect all of the time.
Sometimes people who already own a place say, Well, I'd like to move, but I want to wait
until the property is worth more.
But then in in all likelihood, the property you're looking to buy will also have increased
in value unless you've got maybe some market arbitrage because you're looking to move or
something like that.
How does the timing piece affect the purchase of property?
Speaker 5: So, yeah, I think because like every so if you're saying like, oh, I'm going
to buy like a Ritz, right, you're going to put money into like a refund that has you're
only a broad basket of, you know, commercial properties or whatever commercial and residential
properties across the U.S..
I think timing is not going to matter that much.
I mean, obviously there will be ebbs and flows in the market overall.
However, when you're buying an individual property, timing matters a lot because you
can.
The corollary in the stock market is like going from buying the S&P 500 index fund to
just buying Apple.
You're buying a single buying one.
Individual property is like buying a single stock, right?
You have single stock risk in your individual home.
So like, of course, timing is going to matter the sense that there's a lot more risk when
you buy an individual stock or an individual property.
So like, there's no real great way around that right, you're going to have to take that
individual stock risk, so to speak with that individual property and sort of like, yes,
timing is going to matter.
And you're right, that like other properties will go up in value do.
So you just got to figure out like, Hey, is this the right time for me?
And don't try to look at it as an investment.
I think when you buy a home, it needs to be something more for your personal life.
Societal, reasonable doing it.
Maybe your personal life, stable, now you have a few kids or whatever.
And you know, like, Hey, this is the neighborhood I want to be, and this is everything I want
and you just move, and I think you would think about it as an investment.
It's going to be really tough for you because your home should not be.
I mean, it can be an investment, but you can't eat the equity your home price could double.
You can't do anything about that, especially if you move to another home.
You end up selling at home, buying another one.
What?
What did you actually earn?
Nothing, right?
If the all the prices move so you can't eat your equity?
Unfortunately, until you do some sort of arbitrage, like you said, like the California is moving
to Idaho and et cetera, right?
So.
Speaker 1: So we've talked about stocks.
We've talked about real estate, cryptocurrency, cryptocurrency.
There are so many opinions many of them informed, many of them not informed many of the misinformed
on cryptocurrency.
My view on cryptocurrency has been I want some upside exposure there.
And so years and years ago, as we've talked about before, I got some bitcoin and some
Ethereum, and I kind of determined, given its volatility, what's the right asset allocation
for me?
And for me, it's about three percent of my total assets.
And so if it goes to zero, I lose three percent of my total assets at this point.
It has grown so much and I've sold pieces of it that even if it went to zero, I come
out ahead.
But the point is I'm thinking of the volatility in determining what is my right exposure in
terms of asset allocation.
Is this the right approach when you are dealing with a relatively new and volatile asset?
Speaker 5: Yes, I completely agree with that, I actually did a study, I did some analysis
and I found like the optimal portfolio had like two percent bitcoin, and that's basically
what my crypto allocation spends at three two percent, some go up to five, you know,
I think that's very prudent.
I don't think as much to add.
I think you almost had a perfect answer there.
Speaker 1: So well, I mean, let's so let's then go in this direction.
There seems to be a sort of moral assessment done with crypto that isn't always done with
stock holdings, which I find interesting.
Like, for example, when I hold a total stock market index fund, there are absolutely companies
in there that are probably not great companies.
There's statistically speaking, there's companies in there that are committing fraud of securities,
fraud of some kind.
There's there's the full kind of gamut, but I don't find myself emotionally tied to that
in the way that sometimes people make very emotional reactions to bitcoin or Ethereum.
What do you think it is that causes some, at least, to view these things so differently?
Speaker 5: I think there's just so much fanaticism on both sides, so I think like the pro crypto,
people are so pro crypto, they can only see that way, and most of them, I think, have
like a very large percentage of their assets in crypto lot.
So they are going to be fighting those people on the other side who weren't in on it and
they think it's a big scam and it's worthless and all this stuff, and they're going to be
biased in their own ways.
And I think it's really tough to have a balanced view on this because you're going to bring
some bias in.
I'm saying I have so I own some crypto.
I think I'm trying to do it in a prudent way, but you know, I'm not perfect on it, but I'm
probably slightly biased against it only because it's not income producing.
And so I kind of talk about that in the book like income producing assets should be the
bulk of your wealth, which is like stocks, bonds, real estate, things that actually,
you know, actually produce income.
Now, bonds obviously have done terribly recently, but for most of history, they've been decent.
So you know, there's there's a lot of talk about reducing bond allocations.
So and that makes sense.
Speaker 1: Last thing I want to talk about in terms of all the signals that people can
pay attention to.
If you have a systematic plan, an asset allocation and you just do that every month, it seems
to me that there would be very little financial news that you would really need to pay attention
to in terms of like, what's actionable.
So let me just throw a few things out there and you tell me whether these things even
really matter to the average investor.
More and more articles now talk about when the yield curve inverts.
It signals a coming recession.
That's like one that that that is out there and it's very popular.
Or when the cape ratio goes above or below a certain place, it signals that, OK, so all
these different things, aside from whether these are accurate.
Does it really matter to the average investor if you have a systematic plan because it's
I'm not seeing how you would change your behavior, even if some of these metrics were accurate
predictors.
Speaker 5: Well, so they actually yield curve inversion is a pretty decent predictor of
recession, and so if you actually look at the data after an inversion like, yes, stock
returns are lower, the problem is where we're like, What are your options like all?
Just move to bonds or guess what?
Bonds underperform stocks even after a yield curve inversion.
So like, you don't really have a choice, you just kind of have to like, deal with a terrible
situation.
And that's probably what at some point, you know, assuming history repeats itself, it
doesn't always like the August 29 inversion didn't lead to recession.
I mean, people will say, Oh, there was a recession, COVID, you know, 20.
But I'm going to argue that the yield curve emerged in 2019 was not predicting the COVID.
You know, let's be honest here, I would agree.
So, yeah, so you see my point.
My point is, though, these things happen and they are predictive of lower returns, even
like higher cases predicted, lower returns, a future returns.
I agree with that.
The problem is, what are your options