When it comes to financial decisions, most of us are led by belief and conjecture. As opposed to this, Nick Maggiulli offers a somewhat counter-intuitive approach rooted in data and evidence.
“It’s not about when to buy, how much to buy, or what to buy—just to keep buying,” he writes in his latest book Just Keep Buying.
Author Nick Maggiulli is the chief operating officer and data scientist at Ritholtz Wealth Management, where he oversees operations across the firm and provides insights on business intelligence. He is also the author of OfDollarsAndData.com, a blog focused on the intersection of data and personal finance.
Maggiulli splits Just Keep Buying into two clear parts: ‘Saving’ and ‘Investing’ - both crucial components of personal finance. And while summing up the money math, he drives home that time will always remain our most important asset ever. “We can find means to earn more money, but nothing can buy us more time.”
Key takeaways from the book:
1. To save or to invest?
This decision depends on where we stand in the save-invest continuum. Maggiulli offers a simple calculation: compare ‘expected savings’ (how much we expect to comfortably save in the next year) and ‘expected investment growth’ (how much we expect investments to grow in the next year). If expected savings are higher, then we should focus more on saving money. If it is the other way round, more time should be spent on deciding how to invest what we already have. If the difference is not much, then focus should lie on both. However, it makes immense sense to shift focus from savings to investment as we grow older, he adds.
2. How much should one save?
Unchanging rules do not apply here because incomes are never static. Advice like “save 20% of your income” does not factor in income fluctuations, and assumes that everyone can save at the same rate. So, be like the Dolly Varden char, says Maggiulli. This fish species has ‘phenotypic plasticity’—it does not consume the same number of calories throughout the year, but changes its intake depending on the availability of food. Do the same with money—save more when we have the ability to do so, save less when we don’t.
3. ‘No need to cut your lattes’
We can be rich if we just cut our spending—that’s the biggest lie ever in personal finance, says Maggiulli. All of us should definitely see to it that spending is not wasteful, but cutting expenses has its limits. According to him, the most consistent way to get rich is to grow our income and invest in income-producing assets. And the best way to do this is to unlock the financial value of our human capital—the value of our skills, knowledge, and time.
4. Tip for guilt-free spending
Anytime you splurge, invest the same amount of money as well—that’s Maggiulli’s 2x Rule. It’s often not the purchase per se that makes us feel guilty, but its ‘framing’ in our head. So, if we feel that a given purchase will contribute to ‘long-term fulfilment’—much beyond the happiness more money invariably brings—then it’s worth it. If that’s not the case, then it implies there are other areas where that amount can be more meaningfully spent.
5. Is it bad to borrow?
Not always. In fact, debt has its own perks. It can reduce risk in many ways by providing additional liquidity, ensuring smooth cash flow, and keeping uncertainty at bay. In some cases, it can also generate a return greater than the cost of borrowing—like in the case of education loan, business loan, and mortgage. The risk factor is, of course, high if the difference between the expected rate of return and cost to borrow is too small. The crux is: debt is a financial tool, whether it’s good or bad depends on the context in which it is used.
6. Buy or rent a house?
Buying a house is the biggest financial purchase ever. So, do not rush into it. The right time to take the plunge is when we can meet three conditions: we plan to be in that location for at least ten years, have a stable personal and professional life, and can afford it. It becomes easier when one can provide 20 percent as down payment and keep the debt-to-income ratio below 43 percent.
7. When can we retire?
One way to decide is to go by renowned financial adviser William Bengen’s 4 percent rule. This would require us to save 25 times our ‘expected’ spending in the first year of retirement. We can safely retire once we have hit this goal. However, this rule assumes that spending remains constant for retirees, wherein it typically declines over time, points out Maggiulli. Retirement is as much a lifestyle decision as it is a financial one. So, ‘what’ we would retire to should be the more important question here.
8. Keep off individual stocks
Despite their high volatility, stocks are one of the most reliable ways to create wealth over the long run. They are low maintenance, and easy to own and trade too. However, Maggiulli advises against buying individual stocks. The proportion of winning stocks is very low, and even those are not winners forever. Also, we may not be good at stock picking at all. Owning ‘all’ of the stocks—by buying an index fund or exchange-traded fund (ETF)—is a better bet, he adds.
9. Buy quickly, sell slow
There are only three reasons to sell an investment, according to Maggiulli: to rebalance, to get out of a concentrated (or losing) position, or to meet financial needs. However, since markets tend to rise over time, it’s optimal to sell as late as possible. The mantra is: “buy quickly, but sell slowly”.
10. Don't wait to buy the dip
Maggiulli considers it futile to save up cash to buy the dip, because hardly anyone would know exactly where the market bottom lies. There is also the danger of missing out on compound growth as the market keeps rising. So, it is most prudent to ‘invest as soon and as often we can’, which is the core of the ‘just keep buying’ philosophy.