'Just Keep Buying'
Nick Maggiulli is someone that I follow and respect in the finance industry. He recently released his new book, ‘Just Keep Buying’, which breaks down many hot topics in the finance world.
Nick incorporates history, math and human psychology throughout the book. This book is certainly one I would recommend to investors.
Although there are a wide variety of topics discussed in the book, here are three key take-aways I wanted to share with you:
1. “Buy investments like you buy food—do it often.”
When it comes to investing, some of the common questions I hear include: “is this a good time to buy?” “have we reached the bottom yet?”
I will never pretend to have the answers to those questions and I don’t like to waste time thinking about it.
Instead, I recommend that you spend your time and energy focused on doing the right things - developing sound financial habits and doing those consistently.
How can you truly accumulate wealth? By consistently investing in income producing assets.
Historically, some companies or funds may have been out of your reach due to their high share price. But now you can buy fractional shares, so lets put that excuse to rest.
Remember - Don’t try and time the market, consistency usually triumphs.
You make the most money during down markets, you just might not realize it at the time.
We must endure all the temporary declines to get all the permanent ups. There is no ‘free lunch’ when it comes to investing.
As Nick states: “Three primary reasons why you should invest: To save for your future self. To preserve your money against inflation. To replace your human capital with financial capital.”
2. Investing in Individual Companies
Within the book, Nick makes the argument against investing in individual stocks. The main argument against investing in individual companies is that index funds have a long history of outperforming active investors.
I personally continue to speculate in individual companies, but, in an ideal world, I keep these holdings under 10% of my total portfolio balance.
The majority of my investments are in ETFs and Mutual Funds.
I just want to own the market.
While you can certainly hit a home run with an individual company or sometimes equity is part of your compensation at work, investing in individual companies can be a lot of work.
Whatever your preference is, just keep these points in mind:
Only bet what you are willing to lose, and make sure that any investment loss wouldn’t completely derail your financial future.
“Of the 28,853 companies that traded on U.S. markets since 1950, 22,469 (78 percent) died by 2009.” In fact, “half of all companies in any given cohort of U.S. publicly traded companies disappear within 10 years.” - Nothing lasts forever
I would rather own a basket of stocks/bonds - chances are I will end up with more money and endure less stress along the way.
Finding a winner could boost your ego to the point you start taking unnecessary risk. Also, will you be able to sell a company that you fell in love with?
Remember, if a stock has the ability to double in price within a year, then you better believe it can certainly get cut in half within the same timeframe.
3. Should you Max Out Your 401k
Maxing out your 401k is standard financial advice. And I would recommend anyone who has the ability to do this, should definitely consider.
But Nick lays out some points that might make you reconsider. As I’ve stated before, always contribute up to the company match (if there is one) AT A MINIMUM.
Let’s start with some of the characteristics that make retirement accounts attractive:
Avoidance of capital gains tax (these accounts are tax deferred, or with a Roth, no taxes at all).
The idea that you can’t access the money until 59 1/2 instills the discipline that is needed in investing. Don’t interrupt compounding unnecessarily.
You are helping your future self.
But, it’s important to understand some of the downsides to retirement accounts, specifically 401k’s:
Illiquidity and not being able to access this money immediately if you are in a crunch (places limits on what you can do NOW).
Limited fund options.
Fees inside the 401k.
This is a debacle I’ve recently found myself in.
My investments recently have been as follows: contribute a substantial amount of my income to my 401k each pay check and fully fund my Roth IRA.
I feel like I’m doing all the right things.
But from a straight liquidity stand point, I feel stressed.
That’s why, and Nick makes this point, investing is more art than science.
There is no right or wrong answer.
What I have found is that you want to give yourself options. Spread your investments out in different funds and accounts.
This will provide you the financial flexibility you need when the unexpected pops up in your life.
Even if finance books aren’t up your alley, this is a great book to better understand some of the most common personal finance topics and one that I would certainly recommend.
Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual.