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Hey everyone, really quick before we start the show, friend and popular finance author, Nick Maggiuli has a new investing book out called Just Keep Buying. To support Nick and continue to put good information in the hands of our listeners here, I personally purchased a box of them to give away. To claim your free copy of Nick's book, all you have to do is write an honest written review of this show in the Apple podcast app.
Take a screenshot of your written review and email it to me at podcast at you stay wealthy.com. If you don't have an Apple device, go buy one, write a review and then return it. I'm kidding kind of, but really, if you don't have an Apple device, I'll leave it up to you to get creative and just support my goal of helping other retirement savers like you find this show. And hopefully the other podcast apps out there will get their act together one of these days and allow for written reviews.
Until then, thank you for your continued support. Let's dive into today's show. Welcome to the Stay Wealthy Podcast. I'm your host, Taylor Schulte, and today we are talking about investing. Specifically, I'm joined by data scientist and author, Nick Maggiuli, and we're talking about three big things. Number one, how to invest in high inflationary environments. Number two, why you shouldn't wait and quote, buy the dip. And number three, an actionable formula that you can use to invest during market drawdowns.
So if you're ready to dive into the data today and get answers to some of the biggest investing questions, this episode is for you. For all the links and resources mentioned today, just head over to youstaywealthy.com forward slash 150.
I want to start with a current event. Inflation has been on everybody's minds and March CPI data just came out and reported a 8.5% year over year increase. I don't think anybody's surprised by that. One estimate I came across said that households are spending an additional $327 per month due to the recent spike in inflation.
Before we talk about maybe how inflation might impact your investments or how to think about investing in higher inflationary environments, I would just love for you to share your thoughts on just the recent inflation news. What do you make of the recent inflation reports and inflation in general? Is it concerning to you? Are the news headlines overblown? I'd just like to start there.
Yeah, so I'm not an expert on macroeconomics, so I'm not going to try and predict whether or is inflation going to continue. Is it going to go up more? I don't know. Obviously, a lot of stuff that's happened recently has been very structural. There's a lot of supply chain issues. That's a lot of the things people are talking about.
And it's concerning because most of my life I've lived in a 2% inflation environment, 2% to 3% basically all my life. And now we're finally seeing real inflation rear its head. I think I was a little surprised because I thought when I heard the White House say inflation expectations would be extremely elevated, I thought we were seeing 10%. I think that would have shocked people if it went from whatever 7.5 or whatever the last print was to 10. I think that would have shocked a lot of people.
So for me, I mean, inflation is obviously scary. Prices keep going up. You're like, what? My Chipotle bowl used to be $12. Now it's $16. What's going on here? And I'm seeing that type of stuff happen. Somehow the New York pizza slice is still a dollar though. So I live in New York City and that has not changed. No one's talking about that. That price has not moved in literally probably 20 years. And either the quality is getting worse or I don't know, somehow they're making up for it. So it's an inflation-proof business somehow. Yeah.
But yeah, I think in general, like I understand why it's scary. Like it's even for me, it's like, well, you know, price keep going up. Like, is my income going to keep up with this? Is my, all the other things I'm doing going to match this over time? And that's something that's going to be very concerning. If you don't have income, right? It's like, you're just living off your investments. And unless your investments are going up to match inflation, right? It's even scarier because now like, you know, yields are generally lower than they've ever been, you know, retirees are, you know, rely on income at the same time, like, you know,
prices are going up. They can't go out and just like, oh, I'm just going to, don't worry, I'm going to get that through my work. My income is going to rise with inflation. If prices go up, no big deal. That's how most younger people can do that. But I think that's why it's a little bit scarier now than it's been previously.
So with that and thinking about investing and thinking about making sure your money keeps up with inflation, especially in retirement when you're not in the working world, how do you think about investments and how do you use data to support some of your approach to investing during these high inflationary environments? You wrote this recent op-ed for CNBC. One of the titles was high inflation won't really hurt stocks in the long run. So shifting to bonds, shifting to cash, putting all your money under the mattress is obviously not
prudent for somebody who needs their money to keep up with inflation. So in your mind, what should investors do? How should investors be thinking given the current environment?
Yeah. So if you actually look at the data going back to, you know, the seventies, I think the assets that did the best, you know, relatively the best, right. So I'm going to preface that. I'll get to that in a second where, you know, stocks, equities of some sort, whether it's us international and then REITs, right. Those are the ones that did the best. People say, Oh, gold's an inflation hedge at some periods. It has been at other periods. It hasn't been, I think over the long run, I don't think it is. I mean, anymore, but,
So really, that's where most of that inflation hedge comes from. I think bonds don't really do as well. And when I was writing that op-ed, I was basically saying like, okay, in the short run, it's not good because stock returns usually do pretty poorly relative to their average during periods of high inflation. So for example, I think the number was like when inflation exceeds 7%.
Over the next year, US stocks only returned 7.3% compared to 10.3% when inflation is below 7%. So when you're in a lower inflation environment or maybe not as extreme an inflationary environment, stock returns are higher. So just from that alone, it's like, oh gosh, well, if I know stock returns aren't going to be as good as they're normally going to be, shouldn't I go into bonds? Shouldn't I just buy more US treasuries? Well, the issue is
When inflation exceeds 7%, the real return on five-year treasuries is negative. It was negative 2.6% over the next year. You're like, oh, I'm going to move to treasuries. That's my solution, but bonds are probably going to get hit worse than stocks during this inflation run.
So that's where you have to really think about if you're trying to make tactical moves. And I think for a lot of people, you can't make tactical moves. And there's a lot of retirees who are already probably heavier in equities because bonds aren't paying anything. And so to even be to go back, you're not only going to move more into bonds, you're going to probably lose more doing that. So I mean, really, that's why I say my result of looking at this data is there's not much you can do. You just got to kind of wait it out and hope that stocks still provide some return over the next decade.
Now, of course, in the short run, that's not great because remember stocks are going to perform relative to the short run during lower inflationary periods, but over longer periods of time.
So for example, over a two year period, if you just look at like periods of high inflation, so over 7% versus below 7%, the median return over all those rolling two year periods is nearly identical. It's like 18% over a two year period, right? That's inflation adjusted. So when you look at it that way, you're like, wow, actually that's, so like over a one year period, it's going to probably not be great, but over a longer period, the inflationary effects are kind of muted. Yeah.
in some way. So that's what the, that's what the data shows historically at the medians are similar. Of course, if we end up in one of these weird scenarios where we're in an edge case that there's nothing you can do about the median, right? Like you have to live with what you, whatever the universe gives you. Right. But it's just kind of, it's a little comforting to think, Hey, you know, yes, these things happen, but it's usually just a short-term phenomenon. And, you know, over time, these things will kind of work themselves out.
Yeah, I'm sure that's comforting for some people. You know, when I use the word long-term, I'm talking 10, 20, 30 years. When you're referencing the data here, talking long-term, you're just saying, Hey, let's just get out from looking at the 12 month data and let's just look at 24 month data. And those numbers start to pair up nicely. There's not really much of a difference between those high inflationary environments and low inflationary environments. Do you know off the top of your head to how far that data goes back that you're testing there?
So I think, oh, that was going back to like 1926, I believe. Yeah. Cause I use a, yeah, I don't think I'm going to say the data source, but I've actually, no, I can probably say, so we work with DFA a little bit. There's not a plug for them, but we're saying we use their data. So they have a CPI data and they also have, you know, us stock data. So I can just easily, and then treasury five-year treasury data.
So that's what I use, just adjusted. I said, so every two year period from 1926 to the present, you adjust for inflation and then you just say, okay, what happens when inflation is high versus low? Right. And then compare it. Now, obviously there's a lot more low inflation period. So it is skewed. Their sample size is smaller, but the data is what it is. So.
So in case anybody missed that, I'll just read from your op-ed. It says the median inflation adjusted return of US stocks over the two years following periods of high inflation to high inflation over 7% was nearly identical to the two-year return following periods of lower inflation.
You referenced 18.5% versus 18.7% respectively. And you concluded by saying this suggests that investors with a slightly longer time horizon don't need to worry about inflation's impact on their portfolio. And again, when I talk about long-term, I'm saying 30 years. And even those who are retired today, we're looking at a 30-year time period that they're going to be investing. So two years, 30 years, these are certainly longer term time periods than what's happening tomorrow or next month.
Yeah. And I think the one thing you can do as a retiree is like, you can think about, you know, flexibility in terms of your spending and things like that. And obviously you can't delay things too much because if you're like, oh, I want to go on a big vacation this year, but oh, whatever.
you know, inflation, maybe things will calm down and the market will roar up. So then I'll have more, you know, principle I could sell down and I can do it next year. You can think about that, but then there's health concerns. You don't know how your health is going to be in the future. So there's a lot of trade-offs you have to think about and it's not easy, but you know, if there's any flexibility you have, like that can be helpful in certain times or like, Hey, you know what? That thinks to cost it went up more than I expected. Maybe I'll do some part-time work for a little bit, you know, just because I enjoy it. And also to offset these costs, like
there's, there's ways you can do it. Like I, to think that, you know, Oh, there's nothing I can do. I'm hopeless because inflation, I think that's not true. There's always some flexibility. There's always something you can do to try and offset this, you know, at some point. So I have to ask, and I know you wrote about this in a, in a prior inflation piece, but cryptocurrency often comes up in the conversation to hedge against inflation. What are your thoughts on, on buying crypto or adding crypto to your portfolio as a hedge against inflation?
Well, I mean, just, I mean, isn't crypto down like 50% from its high and like inflation is the highest it's been? If you look at the data, just correlation between S&P 500 returns and CPI, and let's just say Bitcoin, that's the most popular one and CPI. And you will find that the S&P 500 is more correlated. The returns are more correlated with CPI changes than Bitcoin.
And that's been true. It was true a couple months ago. And I know it's more true now because Bitcoin has not gone up as inflation has gone up. So I know the correlation is getting worse. So I don't believe that. I think it's not true. I think Bitcoin is a risk asset. And for the foreseeable future, it will be a risk asset. Maybe one day it will be a currency. But as of right now, I see it as a risk asset. It is not a stable coin. It is not something that is where the value is a little bit
more stable. I mean, even you could even argue the US dollar is not as stable because if, you know, 8% in a year, that's, I mean, it's not even 2% a year, no big deal, but 8%, that's a little bit more sizable, right? So even the stability of the measuring stick, the universal measuring stick of the dollar is not as stable as it once was. So,
I'm just a little skeptical of the whole crypto is an inflation hedge thing. Everyone's saying that, but now that we have actual inflation, Bitcoin should just be going up and it dropped. Now it's at, I don't know, it's at 40 or something. By the time this comes out, who knows what it's going to be at, but it's at 40,000 right now. And I remember it peaked at 69 and it just dropped multiple times back down, up and down around those prices. So I don't see the inflation hedge argument really working out.
Well, moving on from crypto and Bitcoin and inflation here, I want to get into dollar cost averaging versus lump sum investing. And specifically, the stock market has been screaming upwards for the better part of the last 12 years, let's call it. And one comment that you and I often hear from investors who have cash to invest, maybe they've had a liquidity event or they've been saving and they've got cash on the sidelines. One comment we often hear is that they're going to wait for a dip in the market to put that money to work.
I've touched on this on the past on this podcast, but you've got a great chapter in your new book, Just Keep Buying, that takes a deep dive into the data around this. And I'd love for you to talk through just some of the key reasons why investors probably shouldn't wait to quote, buy the dip.
Okay. So I want to clarify something just really quick, because technically I think you just brought up two different problems and I'll explain. And the issue I believe is in definitions. And I think the issue is that the term dollar cost averaging actually has two definitions, which mean different things like in the investment community. So the original term dollar cost averaging was, I think it was come up with by Ben
Benjamin Graham. And he said it as like, you know, imagine just buying over time. You're just dollar cost averaging to the market. So you imagine you get paid every two weeks and you put your money in just like you would in your 401k or something, right? You're buying over time. Now that is the first definition and that's the definition I use.
The second definition, when you're saying, oh, dollar cost averaging versus a lump sum, that's a different definition. Because what that is saying is imagine you have a bunch of money right now. Let's say you sold a business or something. You have $100,000, right? And you want to put it into the market. You can either put it in all now, lump sum, or you can slowly, what I call average in in the book and just keep buying. I say I call this averaging in. So you average into the market.
The problem is people call that dollar cost averaging too. So you can see that there's a difference here in these two terms because one of them is just talking about like a general behavior. You're buying every two weeks, right? But what you're really doing is you're taking a lump sum payment and you're buying it immediately.
It's not like in your 401k, you take that payment and you say, okay, I'm going to take this payment and spread it over time. No, as soon as you get paid, you invest like immediately, right? That's a lump sum. That's kind of a lump sum type of investment. Even though it's a small lump sum, it's a lump sum, right? It's really about the timing. Everything's about like buying. Are you buying now or are you waiting to buy?
So I think that's the framework I want to think about this. I don't like using the term dollar cost averaging versus lump sum because I think it confuses people because the dollar cost averaging I know is just buying over time, which I think is a great strategy. So just to kind of keep... Everything's about timing, right? To just get back to the core fundamental issue is should you buy now or should you wait to buy at some future point, right? And in this case, you're saying, should you wait to buy the dip? And the issue with that generally, the theoretical problem is
Most markets, or at least let's just use US stocks for now. This is true even across international markets. I show this in the book. This is true even in Bitcoin and gold and all these other assets that aren't necessarily income producing assets. But with US stocks, the markets generally goes up and to the right. It goes up over time. Of course, there are periods where it doesn't. There's a 10-year periods. There's five-year periods where it's not up from where it was five years prior. This happens.
But if it's going up into the right on average, then anytime you wait to buy the dip, by the time that dip comes is that price you buy at is usually higher than where you could have bought originally. And so, you know, one of the examples I like to use is on a total return basis,
You know, I wrote this, I came up with this idea in early 2017, you know, this just keep buying idea. And people were like, oh, markets are too overvalued. I can't buy it right now. Right. I was like, okay, let's say you had waited. You're like, I'm going to wait till there's a dip and you wait till there's a big dip too. So you wait three years from 2017 to 2020, March, 2020 to be exact. And you wait till the exact bottom, March 23rd, 2020. So not only did you wait to buy the dip, but you bought it on the lowest day. You just perfectly timed it. Right. Even if you had done that on a total return basis, you
You would have bought at prices 7% higher than you could have bought at the beginning of 2017.
And so that's, what's kind of shocking. I remember I'm, I'm giving the dip buyer like this insane information. Like you literally know the bottom and I'm telling you the bottom, like no one's going to have that. Like while the market's crashing, you're gonna say, Oh, I think I'm going to get a deal. But then you're gonna be like, Oh, maybe I could wait and get a better deal. And so even someone, I bet there were people on March 23rd, 2020, when it was the actual bottom, that said, you know what? I'm going to wait until it's down 40%. Then I'm going to buy. But guess what? Six months later, it was at a new all time high. So that's kind of the bunch line, right? And so that's why you shouldn't wait to buy the dip because you're
dips are rare and big dips, the ones that are actually the most valuable to like buy, like they're super rare. And so they don't happen that often. So while you're waiting, the most likely conclusion is you're going to wait in cash and the market's going to rise up and leave you behind, you know, and just leave you in the dust basically. And that's the most likely outcome. Most of the time, most of history, I cover the data in there. It's very obvious. This is true in US stocks.
It's true in other equity markets too. And the only time by the dip works is when you know there's a big dip coming and you can time it perfectly. And no one knows that. Could anyone have predicted March 2020 COVID? No. And anyone who says, so yeah, I knew, no, no one knew that. Maybe you could have known it by January, February as you're studying the pandemic data or the data that was coming out. You could have been like, oh my gosh, it's going to be worse than we think. Those people might've been able to do it, but in
you know, September 2019. Could someone predict that? No, absolutely no way. Like the virus didn't exist yet. So,
That's kind of my counter to people trying to buy the dip because it's just not a, it's not a productive strategy. Yeah. Yeah. One of the things I always like to bring back to the surface, I had mentioned that the market's been screaming upwards for the better part of the last 12 years, but it hasn't been a straight line up, right? There's been a lot that's happened in those 12 years, ups and downs in the market. Most recent, obviously the COVID crash in March of 2020, but there was dozens of events,
prior to that where the market was down. So it wasn't just a straight line up where it's like, gosh, the market's done nothing but gone up for 12 years. And I'm really spooked by valuations. No, we've experienced a lot in the markets over that 12 year time period. Yeah, I agree. And I think the whole thing about evaluations, like, yeah, valuations are high, but like
Yields are low. I mean, don't get me wrong. Yields have been going up recently, but my hot take is that I'm never going to see the 10 year above 5% the rest of my life. I think yields are dead forever. That's my take. I could be wrong and maybe I'll be wrong and I'll eat these words later, but 10 years really half that right now or something like that. But I don't think it ever gets back to 5%. I think that world is done. I mean, with everything, just there's negative yields almost everywhere. There's just no return on that anymore.
given that, if you believe that, then you're like, okay, well, yields are dead. So given yields are dead, stock prices kind of have to rise. Well, I know you're a data guy and you do a lot of research. What led you to make that prediction? And I know it's a prediction. We don't know the future, but what's led you to feel that way? I mean, there was this chart I saw which shows interest rates going back to the 1600s or something and the average rate of interest charged across all these different things. And of course, this data is not perfect. I mean,
They're trying to get data across hundreds of years and put it together and come up with a story. And you look and there's been basically a global decline in interest rates over the average interest rate over time. And I think the story here, and here's my take on it, and I don't think it's completely right, but I think there's some piece of this is accurate, is we've kind of de-risked a lot of the world. Now, what do I mean by that? Like, of course, there are exceptions to this, but like, you know, think about it in 1800, like
what, one third of children died or half of children died before age five. I don't know what it is. It's a high number, like child mortality, childhood mortality was large, right? You making it to, you know, age five was like almost a miracle. I think it was like half of children died until the modern era. Right. And now that's not necessarily true anymore. This is even true, like across the world, even in Africa or other developing areas, like
These places are having their children survive a lot longer. And not only that, but like people are living a lot longer too. So like old people as a class of people, like didn't exist 300 years ago. I mean, there were some old people, but it was very rare. I think, um,
If you look in the UK, I think in like 1850, only one in four people made it to like age 70 or something like that. It was some low number. Now it's like 90% of people make it to age 70. So old people are invented basically as a result of, I mean, as a class, not just like individual. I mean, like literally they're like a cohort now because of medical technology, a bunch of stuff that's happened. And so-
Think about what that does for think about how you discount the future. Right. Imagine if you're 30 and you know you're going to live to 90 versus if you're 30, you know, you're going to live to 60. Right. You're going to change. You know, if the future is promised more promised, the interest rate should go down. What is an interest rate? Think about it's a measure of risk. Right. So if you think about like, oh, I'm going to be dead in two years, like I'm going to charge you more to borrow my money.
right? But, oh, I'm going to be dead in 30 years. I'm going to charge you a little bit less, right? The more the future is promised, the less you're going to charge. So I think this is a de-riskification. And so as risk goes lower, then rates should go lower. I mean, the yields you're going to earn, right? And so generally across the planet, there's not people in mass starvation, things like that. Things like that are kind of going away. People are living better lives. Of course, there are exceptions. There's stuff going on in China right now, but that's not done by the market. That's done by a regime. And I don't want to get into all that right now, but
I'm just saying like generally these types of things aren't happening. I think most people's lives, I think on across the border getting better. There are, there are certain sectors that are not, there are certain places and certain people are not doing as well as they were in prior years. But like the bulk of humanity I think is better now than it was 30, 40 years ago. I think that's why rates are going lower. So I don't think it's the perfect, I don't think it's the perfect answer, but I think that's a part of the answer.
Yeah, no, I really appreciate you sharing that with us and expanding. So back to buying the dip here, you know, let's all agree that waiting to buy the dip is likely not a prudent investment decision. It'd be really challenging to do and have success with.
We will go through another recession. We will see another 30 to 50% drop in the stock market. And when we do, when the world feels like it's ending, it's not always just that simple to just hit the buy button like the textbooks tell us to. So talk to us about your approach to buying during these market crashes.
Right. Like, again, we're not trying to time it, but we're in this catastrophic event here and maybe we do have money to put to work or we're actively investing, you know, on a on a monthly time period here. Talk to us about your approach to investing during these market crashes.
Yeah. So I'm going to try and say this as well as I can, but I think, you know, so in my book, just keep buying chapter 17 is my favorite chapter and it discusses this, how to buy during a crisis. And so it's going to do a much better job than I'm about to do, but I'm going to try and explain it. And basically, so remember there's a difference between waiting to buy the dip and expectation of a dip and waiting.
conditional, oh, you're in a dip. Once you're in a dip, if you happen to have cash, because let's say you close on a business, hypothetical, you sell your business at the end of, let's say February 2020, just by chance it closed. You get all that cash in, market's collapsing, everything. This dip happens. It's like now March 2020, you realize there's a dip.
Then yes, conditional on you being in a dip with cash, you should buy the dip, but you shouldn't hold cash in expectation of a dip. That's the difference right here. But let's say you're in the dip. How do you reframe it? And I came up with this simple, I mean, this is all just simple mathematics in the sense of every percentage decline requires a larger percentage gain to get back to even. So let's just do some quick math, right?
If you're at a hundred, let's say you have a stock, it's a hundred dollars and it drops to 50. That's a 50% decline, right? But for that 50 to go back to recover back to a hundred, you need a hundred percent gain. 50 needs to double. It needs to go up a hundred percent to get back to a hundred, right? So,
So that's how you can just from that, you're like, oh, there's a bigger percentage gain to get back to even. So what I was thinking about in March 2020, at the time, I think the stock market was down like 30, 33%, something like that. So I said, hey, if the market's down 33%, so let's say, let's say it started, the price was 100. Now it's down to 66. To get back to 100, it has to go up by like 33, which is roughly 50%. So a 33% drop requires a 50% gain to get back to even. So I asked Twitter a question into it. I said, hey, you know, the market's down right now about 33%.
how long do you guys think until we recover, until we hit a new all-time high? I said less than a year, one to two years, two to three years, more than three years. I just threw those out there. I thought they were decent options. I don't know what your answer is, but let's just think about it. Try and put yourself in March 2020. At the time, I thought it was going to take probably two years to recover, one to two at least. We can back out what your expected return is then. If you know we're down 33%, to get back to even, we need to go up 50%.
That means if you think the market's going to take one year to recover, your expected return of buying in that moment is 50%, right? Because let's say you bought and then one year later, it's back to its old price. You just got a 50% return. That's like mathematically guaranteed.
If you're like, oh, it's going to take two years, then I'm just going to do a linear extrapolation of this. Just take the 50, divide by two, that's 25%. I mean, it's not really that because if you're doing compounding, when you multiply, it's like probably 23%, it's a little bit lower. So like 23% times 23%, 1.23 times 1.23 is probably 1.5 or something like that. So you get my point though, right? Just take the number, divide by the number of years you think it's going to take to recover, and that's how you back out your expected return. So even if you think,
oh, it's going to take five years to recover. That's still like roughly a 10%. I mean, it's probably 8% with the compounding, but that's roughly a 10% expected return. And like, who doesn't want 10%? So like if it's March 23rd, 2020, and you're like, okay, I think the market will be recovered within five years. That seems reasonable. Like from this type of pandemic, then you should back up the truck and buy. I mean, a 10% return, who doesn't want that? Right. So you can do that with any size crash, right?
And the deeper the crash, the better the returns look on coming to the recovery, right? And what really happened, so everyone's like, okay, well, you talked about this 50%. What really happened? Well, within six months, we were back at a new all-time high. So the actual annualized return you would have gotten was over 100%.
So literally one of the greatest, anyone who bought March 23rd, 2020 had one of the greatest returns they're going to ever see in their life. You know, like that one year return is insane. I was like looking at the data. I was like, I don't think we'll ever see better one new returns the rest of our lives possibly. You know, like the best ones I can find before that were 1930, like in a one year period was like 1930s, right? Where people like if you bought in like June 32, the bottom of great depression, that one year returns better, but I don't think there are many others that beat that. So yeah,
There's something to keep in mind. So that that's the framework I use. Like, Hey, we're down this much. Okay. Let's try and make a good educated guess about how long the recovery is going to take. Okay.
So how much do we need to gain? And when you gain 50%, oh, it's going to take three years. Okay. 50 over three, that's your expected return. And who doesn't want a 15, 16% return on their money? That's a huge return in this environment. It's obvious. So that's kind of how I think about it. And you're like, well, Nick, what if it takes longer than three years? What if it takes 10 years? Well, then yeah, then you only got a 5% return and that sucks, but still 5% is better than nothing, right? Where else can you get 5%? You're going to go put it in bonds? Like
There's no argument out of this. There's no argument that can make anything make sense. Your only choice was to really buy if you're rational and you want to grow your wealth. Well, I just love how it puts the investor in control of some things that may feel out of control. Of course, we don't know the future, but again, like...
during these time periods, during these catastrophic time periods, it feels like the world's ending. In hindsight, it looks like, oh yeah, it makes sense. Like we recovered quickly and we came out of COVID fairly easily here. But when it was actually happening, it doesn't feel that way. It's hard to actually go and put that money to work, even though we know that that's probably what we should do. So I just love that it gives investors control over something that they may
not feel like they have control over. They can make an educated decision or an educated opinion about what might happen. And I just love the optimism of it as well. Like instead of thinking like, oh my God, the, you know, everything's going to go to zero here. The world's going to end. It's like, let,
let's reframe the upside is what you call it. So I really, really like that. And again, like we can use history as a guide here. I don't have the numbers in front of you, but on average, it takes, I think two, three, four years for markets to recover. And so to your point, even if we said, okay, well, what if it takes five years? It's still an 8% annual rate of return here if we put our money to work today. Yeah. Yeah, exactly. And so I think that's the thing is just to
When you're doing this stuff, rethink it. And you're like, oh, what if it goes to zero? Well, your investment portfolio is not going to matter. Your investment portfolio needs to include canned goods and guns and who knows what else. It's not important. It's funny because the economic effects of a crash are far more important than what happens to your portfolio, but no one thinks about that.
that right the real reason the great recession in 08 was so bad wasn't because oh market went down 50% no it's because all these people lost their jobs and companies went under that's why it's bad right and like other people lost their jobs and people there's all this economic activity that stopped like the thing about it it went down 50% you know in
into March 08. And then it kind of bounced back out of that. Like within, I think what didn't start in like what September 08, within six months we hit the bottom and then we're out of it. Like six months is not that long. I mean, what happened in 2020 was even more of a cakewalk, right? From February 19th to the bottom, March 23rd, like a month.
You know, it's like we went from like a top to a bottom and then back to a top within six months. It's literally the easiest crash. I mean, trust me, it wasn't easy seeing your portfolio drop 10% in a day. But if I have to pick, like that's the easiest crash out there. Like, you know, one month of pain and then six months later it's over. Like that's unheard of in U.S. history. Like that type of that big of a crash that quickly and then that big of recovery that quickly. Right.
Well, that segues nicely into my next question, which is what about markets that don't recover quickly from market crashes? Sure, we've got these market crashes in recent history here, 08, 09 and March of 2020. But sometimes when we talk about these things, Japan is often brought into the conversation where the stock market was below its December 1989 high for the last 30 years. It's done nothing for 30 years.
Greece has had similar struggles since 08, 09. So what about these markets that don't recover quickly? What if there is a crash here in the US that does not recover, you know, in 18 months or three years or even five years? Yeah. So, I mean, the US has had multiple times where it wasn't higher, I think 10 years after a crash. I mean, even if you adjust for inflation and include dividends, I think there's only a couple, maybe three or four where they had like a 10 year period where like 2000 to 2013 is one of those periods. I think, you know,
1930s. It took like eight years. I mean, there are times where this happens, but yeah, about those markets that don't recover as often. This is why we diversify, right? This is why I don't think people should only own US stocks, right? Imagine a Russian investor beginning of 2022. In one month, they saw the market decline by 80%. That's catastrophic.
In one month, like even the Great Depression, which was a 90% decline, it took from September 29 to the summer of 32 to get there. So don't get me wrong. That's still terrible. And it's like destroys you mentally. But in one month, that just like it's unheard of. It's almost like it just fundamentally changes everything you believe in, you know, within the course of a month.
So what do I say? It's like, you have to be diversified. You have to own other assets. And I've never seen a global crash and then no recovery across a global scale. Now, we may have that one day, but if we do, once again, your investment portfolio is probably not the issue. Great Depression affected everyone, so you would have been screwed because it was so bad everywhere. But
What do you do? You know, you can prepare, you can try and take, you know, it doesn't matter. I think the quote is, it doesn't matter how seaworthy your boat is in a typhoon, right? You can try and make every preparation, all this and that. But if you come through a typhoon, it's going to be terrible either way. You're like, oh, I was a hundred percent bonds. Okay. Your portfolio didn't drop as much, but like now you can't find the job. And so you have to just sell your bonds. Like it's better to have some wealth and, but like you can't live for the exceptions. You can't invest based on the one in 100 year event. If you did that, you would never, it would be very difficult to build wealth.
you know? So what I say to people is like, okay, first be diversified. Secondly, I think a lot of these things are snapshot judgments. What I mean by that, if you were a Japanese businessman who sold their business in late 1989, had cash and then went a hundred percent into the Japanese stock market, which at the time was the most highest, you know, Cape ratio market ever. So let's say you did a hundred percent of the Japanese stock market. Yes. You got screwed very badly. You were had made the worst investment decision probably in human history.
However, if you've been buying over time in Japan, I showed this in the book in chapter 17, just say you invested, I said a dollar a day, whatever. I just, I make that up. I'm just trying to get some, some sort of, you know, dollar cost averaging going on. You invest a dollar a day from 1980 through it. There are going to be periods, even with the crash where you're at, you're going to be periods where you're below your cost basis, where you're underwater and there'll be periods where you're above it. And it, and it's not as bad. Now don't get me wrong. It's not great. If you were just a hundred percent Japanese investor, just dollar cost averaging over time, it's not great for you because you weren't diversified. But,
But it's not as, oh, I had a 30 year period where I was underwater. Like that didn't happen unless you put all of it in once and you never bought again. So for people who are accumulating assets over time, it's not as much of an issue.
One of the quotes I've seen you reference a number of times is from Jeremy Siegel. And I'd love to end here and just hear just some of your thoughts on this quote, which is fear has a greater grasp on human action than does the impressive weight of historical evidence. Can you share your thoughts on this quote and why you've used it in several places?
Yeah, I think it's easy to be scared when you see headlines and you see stuff like this. But if you actually look through history, there's always going to be some sort of headline or something to be – there's always a reason to be afraid, right? And I think what my colleague and boss, Michael Batnick, likes to say is like –
you know, there are many reasons to sell. There's always going to be an excuse for you to get out of the market every time. Oh, right now it's World War III in Russia. And maybe that's a valid concern. Maybe that is going to cause tons of chaos. But, you know, a year before it was something else. And the year before it was something else. There's always something going on that could cause problems, right? And so I try to say like, why am I so optimistic? Because the record of history, at least over the last few hundred years, is a positive, you know, upward to the right slope across almost every measure we can find. So for me, it's just about, you know,
grounding myself in that and like remembering like evidence matters a lot. You know, people are afraid of, for example, flying on airplanes. Do you know, like, do you realize that you're more likely to die in a car than an airplane? It's not even close. Like the numbers, they're not even close. So don't get me wrong. Airplanes can be scary. I get that. But at the same time, like the data shows like flying in an airplane is far, far, far, far, far safer than flying in a car or I'm sorry, than driving in a car. If you're flying in a car, then it's a whole separate question, but you get my point. Right. And so I think when you just look at data, it's a great way to kind of
philosophical way of looking at the world that I enjoy. Yeah. I probably shared it here on the podcast before, but my dad is a retired airline pilot. He's been flying since he was 18 years old. And I grew up with this weird fear of flying. So I heard those statistics over and over and over again in my household.
Wrapping us up here, we already referenced a few times your new book, Just Keep Buying. I'm giving away 15 copies to stay wealthy listeners, as I mentioned in the intro to this whole conversation today. But just take a quick moment, tell us a little bit about the book, what drove you to write it? How was the writing process? Are you ready to write your next one? Where can people find it? Just love to hear a little bit more about it. Yeah, so you can find the book on Amazon. And the reason I really wrote it was
Because of COVID in some ways. So, you know, COVID first hit March, 2020. I was in New York city, saw the big first wave. Then, uh, you know, the curve flattened. I was like, oh my gosh, guys, we did it. We flattened the curve. Like it's over foolish, obviously. And then, you know, Memorial day happened. And then the rest of the United States got it. And I'm like, oh my gosh, this is dreadful. Like, oh, this is terrible. But I'm like, and then that the curve came down. I was like, okay, now we flattened the curve. I just had to hit you in New York and had it hit everywhere else in the U S so we're good now. Right. Very obvious. Right. So I was still very optimistic.
Then, you know, the first variant in December, 2020, that's when cases went through the roof relative to that time. I've never seen so many cases. I'm like, this is crazy. Right. And then I got super, super pessimistic and I was like, this is going to last forever. And I was like, I have to use this time. Like I have four years of material now I've written on, I just need to organize it into like a general all purpose, personal finance and investing guide where I'm just answering questions and trying to find the truth. Right. Like there's a lot of things out there we're told, Hey, you know, you're not saving enough for retirement or
or debt's always bad, or you should max out your 401k, or you should buy the dip, right? There's all these different things we're told, I think, through the media and in the culture where I'm like, is that actually true though? And so I just questioned a lot of these things and I analyze it with data and I go to show that a lot of these things that we used to believe are just not true. I mean, the data doesn't support it, you know? And so that's kind of why I wrote the book as a way to kind of help people and like say, hey, look, here's what the data shows. Like data is not everything. I know behavior matters. I'm not going to sit here and say it doesn't. But at the same time, like I wanted to highlight like,
like how much like this stuff can help people. Because I think a lot of the messages we get are not based on, you know, actual facts and figures. It's just based on what people believe. Oh, that sounds right. You know, it's like the earth's obviously at the center of the universe, right? You think that that was believed for so long by humans. And then someone comes along and says, no, like based on this, it's not. And obviously people are not okay hearing that, but that's kind of what I'm trying to do here in personal finance and investing is like a lot of these things we talk about, they may sound like they're right. But when you actually dig into it, you, you know, you can't prove those things.
I love it. The book was fantastic. I appreciate you sending me a copy. I've been following your work for a long time at your blog of dollars and data, which we'll link to in the show notes, as well as the book. The show notes can be found by going to youstaywealthy.com forward slash 150.
Nick, I just want to say thank you, number one, for all you do for this profession, all the writing you've done over the years, everything that you've given us. Thank you for joining me on the show today and congrats on the big book launch. And yeah, I appreciate it and hope to have you on again soon. I appreciate it, Taylor. Thank you for that. I really appreciate the kind words and just trying to help people. And I enjoy it because I like helping people, like doing this stuff. And it's fun for me. I love doing it. I did it for years without getting paid or anything, just because I love it. I'm going to keep
loving it right it's one of those things where you know if you're into this stuff that's why you're listening to podcasts you're reading articles because it's fun it's like wow there's like all this stuff out there it's very difficult to understand but it's fun to look at this podcast is for informational and entertainment purposes only and should not be relied upon as a basis for investment decisions this podcast is not engaged in rendering legal financial or other professional services