Nick Maggiulli, financial writer, data analyst, and author of The Wealth Ladder, joins the show to challenge conventional wisdom around money and success.
We explore why budgeting won’t make you rich, how income—not frugality—is the key to mobility, and what most people misunderstand about wealth’s role in happiness. Nick walks us through his six-level Wealth Ladder framework, revealing how each stage requires a different mindset, strategy, and definition of “enough.”
This one will make you rethink what it means to be rich and why sometimes, the biggest shift isn’t financial, but psychological. I hope you enjoy it as much as I did. We’ve shared some highlights below, together with links & a full transcript. As always, if you like what you hear/read, please leave a comment or drop us a review on your provider of choice.
— Jim
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Highlights
Risk-takers Only
“Like by definition if you're not a big risk taker,…I don't know how you get to $100 million besides marrying in or literal inheritance or […] even a lotto ticket, I would say is somewhat a risk-taking behavior. Maybe not to the same extreme as like an entrepreneur, but there's some risk involved. So, like if you're not a risk taker, you just by definition you can't get there. …If you're in a negotiation to sell your company and you're super agreeable, someone will say, hey, I'll buy it for, you know, a terrible price, […] And you'll say, oh yeah, that sounds…wow, that's so much money. […] So you're not going to meet those people. You're going to meet the people that know my business is worth 2x of whatever you think. And then you guys fight and fight and get to the fair price, right? So that's the truth, that's where the disagreeableness comes in, actually helps you generate wealth in that sense, right. Because that's where, you know, there's only a few of those conversations that really impact, you know, especially someone in level five or level six. You're going to have a handful of conversations in your life. They're going to have an outsized impact on your wealth, assuming you're some sort of entrepreneur.”
The Limits of Money’s Magic
“Killingsworth and Kahneman sat down together and said, okay, you know, there's nothing that can prevent unhappiness, no matter. There's no income level, basically. And so however, increasing your income does start to prevent unhappiness, and then it stops preventing it at some point. […] if you're poor, like if you're very poor, I'll just say level one, more income or wealth will probably make you happier. If you're happy, more income or wealth will probably make you happier. But if you aren't poor and you aren't happy, more income and wealth won't do a thing, right. And so that's kind of the main takeaway. I think generally happy people would be happier with more income or wealth, but I don't think that's necessarily true when it comes to unhappy people. And so that's the issue here.”
The Non-Financial Side of Wealth
“I'm not going to be come out here and say, oh, that's not rebranding hustle culture at all. But I think it's when I say, raise your income, there's gotta be different ways in which you can do that. So, if you're someone who's already working multiple jobs, I'm guessing these are not high paying jobs, obviously, based on the, how you phrase the question, I think the thinking is more of, along the lines of, is there something I can do with any free time I have to increase a skill so I can get a higher paying job, so I can start saving money so I can get out of this. And it's not just that. In the book, I say there's a lot more wealth that people own that's not just financial. And so are there people you can rely on in your life to help out, whether that means having someone watch your kids for a while so you can go work on your skills or whatever it is. There's a lot of little things people can do. And I don't think…you just need to look at the dollars and cents. I think a lot of times, it's the network or something like that. And if you don't have a network, if you don't have good friends or family you can rely on for this type of thing, then it makes it even more difficult. So, it's a lot of people in this situation are between, you know, a rock and a hard place and there's no great answers. And I wish I could be like, oh yeah, just do this.”
Steady Investing > Sitting on Cash
“I talk about that in Just Keep Buying. And let's say you started in 1980. You start buying, just buying. And it's, I think, it's $1 a day. That's what I did. Just to keep it, just an average. The same purchase over time. Yes. There were times when the performance was quite bad in the ‘90s, 2000s, but you run that through today and you've basically kept pace with inflation, which don't get me wrong, that is not great, that is not a great result. You don't want to have just kept pace with inflation type of argument. But if the worst case outcome is keeping pace with inflation, I'm not saying that is the true worst case, but it's like 90% of cases, you know, you're going to at least keep pace with inflation. I think it's a pretty good bet to take compared to if you had held cash, you would have gotten screwed in basically every period. So, think about the trade-offs there. And so, it makes me very optimistic. And so that's what I would say to somebody..”
Reading List
What Works on Wall Street; by Jim O’Shaughnessy
Just Keep Buying; by Nick Maggiulli
The Wealth Ladder; by Nick Maggiulli
Portfolios of the Poor; by Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven
Invest like the Best; by Jim O’Shaughnessy
Experienced well-being rises with income, even above $75,000 per year; by Matthew A. Killingsworth, Daniel Kahneman, and Barbara Mellers
🤖 Machine-Generated Transcript
Jim O'Shaughnessy:
All right, here we go. Well, hello, everyone, it's Jim O'Shaughnessy with yet another Infinite Loops. Today I am very very happy because I have on someone I've known quite a long time, who, actually, Nick, you were, for a very brief period of time, an intern at O'Shaughnessy Asset Management, as you were raiding to go conquer Ritholtz Wealth Management. My guest, who I affectionately call Nikki Numbers, is Nick Maggiulli, the chief operating officer of Ritholtz Wealth Management, author of the bestselling book Just Keep Buying (I do have questions about that), the very prominent blog Of Dollars and Data, a fellow data junkie like myself…and today we're going to talk about his new forthcoming book, The Wealth Ladder: Proven Strategies for Every Step of Your Financial Life. Nikki, welcome.
Nick Maggiulli:
Thanks for having me on. Jim, great to chat.
Jim O'Shaughnessy:
So. So my first question is, I started it as a joke, and I don't think it's a joke. Remember when I said that you were going to have a proprietary indicator that would probably be able to identify market bottoms within a week or two, and that was the amount of harassing texts or slamming that you got for the book Just Keep Buying. Have you been using that?
Nick Maggiulli:
I haven't used it too much, but it has come up a few times. So, the most critical review of the book on Amazon, like, you know, the one that people find the most helpful, that was also a negative review, was written in October 2022, which was the market bottom in ’22. But the review even said, like, all I did was listen to this author and all I've done is lost money. So, like, it came out in April. So, they really gave it, they gave it, you know, a good solid six months and they abandoned the strategy. So, hey, you know, at least they gave it six months. But yeah, and then since then, the market's up. I don't even know how much I should…I should know that off the top of my head. But, yeah, that's my proprietary indicator and I've seen it pop up a few times, but not too often yet. We're still kind of in a bull market for the most part, despite the volatility we just had in April.
Jim O'Shaughnessy:
Yeah, I, you know, I have an imbued, saturated intuition about that because of all the time in my career I spent in asset management. And it's real. Like the, the number of people who quit, who fire you angrily, who say you're full of sh*t. Yeah, Jim, these systems that you published in What Works on Wall Street used to work, but they don't work anymore, and we graft it and guess what? They spike near every market bottom. Like, it's why I say, you know, that arbitraging human nature is the last sustainable edge. Because as much as we know, right, as much data as we have, and this drives guys like you and me crazy, we have mountains of data showing people don't do that, don't do that, don’t do that. And yet they do that.
How do you think The Wealth Ladder is going to put a little tiny dent in that type of behavior?
Nick Maggiulli:
I think that the thing about The Wealth Ladder is I got a lot of different data on how people build wealth over time. And so, you know, unlike most of the data we look at with wealth snapshots, that comes from the Survey of Consumer Finances, which the Federal Reserve, and there's plenty of that in this book as well. But that data set is looking at different households. It's just a snapshot in time. So, we can see how aggregate wealth is changing. But I can't actually follow the same households. So, I think there's a lot of interesting things you can do when you follow the same households. And for that I used University of Michigan's panel study of Income Dynamics, the PSID data. And so, I could follow households over time and I could say, oh well, what actually happens?
What's the difference between the households that end up building more wealth and those who don't? What are the different characteristics we can look at, at least to the financial characteristics. And so, in terms of like the data and what I see in there, and obviously it's about each level of the wealth ladder. We can get into that a little bit, but it's just very interesting to understand how those factors impact long-term wealth accumulation.
Jim O'Shaughnessy:
Yeah, it's, the data is very noisy, as I know you know, so that seems like a clever way to get after it. On The Wealth Ladder. Isn't there an unseen level zero before safety that is kind of the pre financial level where for whatever reason, mindset, environment, you know, poverty, trauma, a whole host of things influences whether a person even attempts to go onto the wealth ladder. And if that exists, how would you convince them they got to do that?
Nick Maggiulli:
Yeah, so I would. There is no Level 0, but Level 1 technically covers any sort of wealth level. So I'll just…for, for the listeners that haven't read the book, there are six wealth levels and they're all based on just your net worth or, you know, all of your assets, which everything you own in your home, your cars, your cash, your stocks, etc. Minus all of your liabilities. Right. Your mortgage, debt, student loans, credit card, etc. So, you get your net worth and depending on your net worth, you're in one of the six levels. Level one, the net worth is less than $10,000. So that includes those people that you just spoke about, Jim, who would have…they're at 0, negative, lots of debt, etc. I just consider them all level 1. Even though there are, there can be differences within level one, right…
Someone that has some money has a positive net worth versus someone deeply in debt. It's very different. Someone in level two, that's $10,000 to $100,000 in net worth. Level three is $100,000 to $1 million in net worth. Level four is $1 million to $10 million in net worth. Level five is $10 million to $100 million in net worth. And then level six is $100 million plus. I just put all those people together even though there can be quite large differences there. So, I think about it in this way because there's these obviously 10x jumps. So, once you know one of the levels, you can figure out all the rest. It's very easy. Just divide by 10 or multiply by 10 to go up or down the ladder.
And I, I came up with this because I was like, hey, I realized that like small amounts of money don't really change people's lives as they gain wealth. Like once you have a million bucks, an extra 10,000 is not going to change your life at all. Like, you can do one nice thing with it, that's it. But your lifestyle is the same. To really change your lifestyle, you need like a logarithmic, a 10x jump to get there. So that's the kind of thing I've been looking into. And even the happiness data shows that it's like really the log of wealth that seems to move your happiness. It's not like, you know, if you have 5 million bucks, an extra million is not really going to change your happiness, you know, for that long.
But if you went from 5 million to 50 million, you could possibly see an actual increase in happiness, etc. right? And there's a lot we can get into there. But the main idea is just in terms of answering your question, those people that are in level one, like I think you can have, just going from level one to level two is probably the biggest jump in happiness you're going to get because you have that security, you have that, hey, I don't have to worry as much. But yeah, we can dig into any one of those topics from there.
Jim O'Shaughnessy:
Yeah, but on that point, and kind of my earlier point about noisy data, right? So Daniel Kahneman, the godfather of behavioral finance, etc. did the very famous study about income and happiness, or net worth and happiness, I think, in the early 2000s, right? And he did it by looking at a half a million Gallup phone interviews and basically concluded that the emotional well-being, the happiness factor from increasing income kind of peaks at 105,000 in 2025 US dollars. But then there's the Killingsworth study, which you seem to embrace, which was like, no, no, no…happiness climbs log linear. Linearly (I can't say it linear) with each income doubling. So, they still detect happiness increases at much much higher levels. Like you're a numbers guy.
If you had to add to this debate, what empirical study would you cite to say, hey, Danny, you're a great man and great idea, but the Killingsworth guys got it right?
Nick Maggiulli:
Well, I would actually cite the study that Killingsworth and Kahneman did together because they've already done this. They actually did this. They looked through Kahneman's original data and they said, hey, you know this figure, the $75,000 figure, which now as you said, is 105,000, you know, inflation adjusted. Hey, happiness doesn't rise above that. So, but Killingsworth was like my data doesn't show that. What's going on? They looked into the data and basically Kahneman's measure wasn't measuring happiness, it was measuring unhappiness. So, there's a very weird, it's kind of a double negative. But basically, once your income's above $75,000, that does not prevent unhappiness. So, you can still be unhappy above $75,000. That's not the same as saying, oh, your happiness can increase. That's a very different. It's actually the opposite statement, right?
So Killingsworth and Kahneman sat down together and said, okay, you know, there's nothing that can prevent unhappiness, no matter. There's no income level, basically. And so however, increasing your income does start to prevent unhappiness, and then it stops preventing it at some point. And so, I think Killingsworth data is the one I rely on because of all that was found there. And then they've even looked into wealth, not just income, and found similar, if not even larger results on the wealth front. So, I think when I'm thinking about happiness and income or wealth, either-or, the main summary I have is if you're poor, like if you're very poor, I'll just say level one, more income or wealth will probably make you happier. If you're happy, more income or wealth will probably make you happier.
But if you aren't poor and you aren't happy, more income and wealth won't do a thing, right. And so that's kind of the main takeaway. I think generally happy people would be happier with more income or wealth, but I don't think that's necessarily true when it comes to unhappy people. And so that's the issue here.
Jim O'Shaughnessy:
Yeah. And, and as you might guess, I actually looked at the results of that joint study and I was fascinated that it broke along Pariato distribution. In other words, they found that 80% of people are in the category where it does in fact make them happier, 20% of the least happy people stay unhappy
Nick Maggiulli:
And nothing you can do.
Jim O'Shaughnessy:
And, and like we're going to get into that much more deeply when we talk more about the levels. But like, is there a way to help that 20%, like climb your wealth ladder or are they just going to be unhappy?
Nick Maggiulli:
Well, climbing the wealth ladder is, I guess, independent of happy. I don't, I actually don't have any studies showing whether happier people are more likely to build wealth than unhappy people. So, I don't know the answer to that, but I think it's a different question. I have no idea. If you're unhappy and you're climbing the wealth ladder, that's fine, but that may not necessarily improve your life. I mean, I think people get stuck in their habits and if their habit is like, oh, I just work a lot, even if I'm stressed and miserable and all this, I don't care because I'm just trying to achieve some arbitrary monetary goal, that's fine. That doesn't necessarily mean that's going to maximize your happiness, but that is maximizing something that you care about in some way.
And so I wonder if that's the mechanism that's causing a lot of this stuff for that 20% of people.
Jim O'Shaughnessy:
Yeah, that's my suspicion. Right. Like the happy man lives in a happy world, the sad man lives in a sad world, the angry man lives in an angry world. And like that's difficult to change. Let's, let's get back to the levels for a second. So, level one, I mean, how do you avoid sounding kind of moralistic when telling somebody that, you know, that's juggling multiple jobs like a single mom with two jobs to, you know, your goal's got to be to raise your income. How is that not just rebranding hustle culture?
Nick Maggiulli:
It, it is a little bit. I'm not going to lie. I'm not going to be come out here and say, oh, that's not rebranding hustle culture at all. But I think it's when I say, raise your income, there's gotta be different ways in which you can do that. So, if you're someone who's already working multiple jobs, I'm guessing these are not high paying jobs, obviously, based on the, how you phrase the question, I think the thinking is more of, along the lines of, is there something I can do with any free time I have to increase a skill so I can get a higher paying job, so I can start saving money so I can get out of this. And it's not just that. In the book, I say there's a lot more wealth that people own that's not just financial.
And so are there people you can rely on in your life to help out, whether that means having someone watch your kids for a while so you can go work on your skills or whatever it is. There's a lot of little things people can do. And I don't think it…you just need to look at the dollars and cents. I think a lot of times, it's the network or something like that. And if you don't have a network, if you don't have good friends or family you can rely on for this type of thing, then it makes it even more difficult. So, it's a lot of people in this situation are between, you know, a rock and a hard place and there's no great answers. And I wish I could be like, oh yeah, just do this.
But if it was easy, then people would have done it already and you know, they would already be out of these situations. So, these are already incredibly difficult situations to be in. I don't have a personal experience being in that situation. I've read, you know, some things on like social work and you know, different books related to this. Portfolios of the Poor is a good book which talks about people who are in really desperate situations. And this is around the world, it’s not even in the US or people that are living on a few dollars a day and how good they are at budgeting because they literally don't have a lot of money and they have to be good at it. So, there's a lot of little things like that I've tried to understand the situation from.
But you're right, it's a very difficult thing. There is a little bit of rebranding of hustle culture of some sort because I don't know how else I would get out of it. I'm trying to imagine myself in that situation and, you know, as the punchline for level one is, you know, atypical results require atypical actions. And if you're already in a very quote, atypical situation, you're going to have to go above and beyond to get out of it. And it's not, it could be no fault of your own, but, you know, you're gonna have to do something to get out of that situation.
Jim O'Shaughnessy:
Yeah, glad you did not answer with platitudes and, you know, the inspirational posters where the cat is hanging on.
Nick Maggiulli:
No, no, hang in theres, Jim, I promise.
Jim O'Shaughnessy:
Yeah, because like I, I think that a lot of that is actually well meant, right. But I don't think it's effective. And so yeah, just you got to jumpstart yourself. And you know, that relates to agency, which relates to success, which relates to all of those things. But it also gets us to level two education, which you rank as between a net worth of $10,000 and $100,000. A couple of questions about that. Like for example, the Mr. Beast Thousand Days apprenticeship. Right. Like let's be honest, who can afford to do the thousand day apprenticeship? Rich kids or well-off kids. What about the people who aren't in that category? How, how do they do it? And then also like delayed gratification is a definite part of people who've been financially very successful.
Jim O'Shaughnessy:
How do you talk to people about, you know, the payment might not come in the educational phase. Your payment, I'm making air quotes here.
Nick Maggiulli:
Yes.
Jim O'Shaughnessy:
Might not come until level four. How do you deal with that?
Nick Maggiulli:
So, in terms of the Mr. Beast thing, my understanding, I don't obviously know his parents’ financials, but he didn't grow up, I would say wealthy, but he had the support of his parents. He was living rent free in his house and they were giving him food and everything. So, he was probably in a level two to maybe level three situation where he could just rely on his parents. And once again, as we just discussed, relying on your network can be used for all sorts of things. And he was able to use that to build, you know, a YouTube audience, which, you know, gave him momentum to do a lot of other things. And then in terms of your second question, which is kind of more related to, you know, waiting and how long you have to wait before you see the payoff.
Jim O'Shaughnessy:
The marshmallow test.
Nick Maggiulli:
Yeah, the marshmallow test. I don't know. I don't have a great answer for this. I know everyone's like, oh, you could just do this or that. I don't know. I don't know how you show someone to delay gratification. I think some of it is a genetic thing. Marshmallow tests, whether people debate whether that's actually…I can't remember if there's a replication crisis with that one or not.
Jim O'Shaughnessy:
Yeah, there is.
Nick Maggiulli:
So I don't think that's as serious or as real of an effect as people think. At the same time, I think it's just…you have to, people have to see it, I think, a little bit in their life and it doesn't have to be something that like they can see right away. It can be in any part of their life. So, if it's like, oh, I'm going to go to the gym, like, wow, you're seeing yourself getting stronger now. You start to understand it and then you can extend it out further and further. Even myself, as much as I want to say, oh, I'm a long-term thinker, I've only really recently started to see kind of the impacts of like the investment stuff that I did early on. I just did it because, hey, the data says to just keep buying.
So I'm going to do that. And I'm saying that from someone that didn't have a family that taught me that. I don't come from it. I don't. You know, investments are not something I've ever discussed in my life until I started learning about them myself. So, I think for me it was like, oh, now I'm starting to see like, you know, it's where the joke I make is, you know, I made more money in a day than I made in like my first year, like working, right? Because of like just the change in my portfolio during a very volatile update. Right. Like that is the type of stuff that can happen.
And I'm starting to see that now where it's like my first year of working after tax, like I've made more, made at least on paper, more in a day than I did when my whole first year of working. Right. And that's something you'll start to see. And then it'll go beyond that. It'll go beyond, you know, on really volatile days, if you're up 10%, you have a very large portfolio. You know, you could see how like you could make multiples of what you work so hard for early in your career. And I think that's the type of thing where you're going to start to see that delayed gratification payoff at least.
Jim O'Shaughnessy:
Yeah. One of the things that our research identified is that a big majority of investors, even sophisticated investors, are very guilty of hyperbolic discounting, especially when things are not going their way, right? Everybody. It's like one of the things that always bugged me was using regular standard deviation of return as risk because that's crazy. Like if markets are going up, you want the highest standard deviation of return you can have. People only get freaked out about it by when it's going down. So that you got to use the semi standard deviation below zero because that's where all the shit hits the fan.
Nick Maggiulli:
Yeah.
Jim O'Shaughnessy:
Have you…have you like…I'm sure you're familiar with the famous story of Sir John Templeton who when asked about, you know, protocols and things that he built in ahead of panic, right? And one of his best answers was, yeah, when I have a group of stocks that I really really love, I put buy orders in with my broker way below the price they're currently trading at. And his discussant said, well, why, I mean why would you do that? And he said, because I know that I do not have the emotional makeup to actually call a broker when it's at that price and tell him to buy. So, I put these pre orders in. Do you have anything in place to prevent your future self which is going to violate one of your core rules? You know that, right?
Jim O'Shaughnessy:
Like it certainly happened with me. Do you have a pre committed automation to protect yourself from you?
Nick Maggiulli:
I actually don't. I really don't. And so that's a good point about whether I'm going to find out what that error I'm going to…that future error I'm going to make and why I didn't have that automation. I guess it's a funny…the Templeton story is kind of funny because what prevents him from calling in and canceling those orders as the market starts to approach his buys-
Jim O'Shaughnessy:
They asked him that and he said, because I forget about it.
Nick Maggiulli:
Okay, that's good. He'll forget about the order. That's good. So, yeah, you do it and forget about, you know, get blackout drunk, put the orders in, don't remember any of it, and then just, wow, that gets…because that's the only way I'll be like, didn't I put a buy order in there? And I'm like…
Jim O'Shaughnessy:
You know what's funny is that's the way Alexander the Great and his generals made decisions. They would discuss them while sober and, you know, decide a course of action. After they had decided that night, they would get shit face blackout drunk. And if they, when they woke up in the next morning, if they still thought it was a good thing to do, they did it. But if they didn't, they didn’t.
Nick Maggiulli:
It's funny, it's funny to think how our brains prevent us from, you know, doing the right thing at different points in time based on what's happening around us, so.
Jim O'Shaughnessy:
Yeah, and I, I believe in that deeply and, as you know, right when I was leaving OSAM, somebody asked me what I was most proud of and it was the fact that I never overrode emotionally one of our models.
Nick Maggiulli:
True.
Jim O'Shaughnessy:
You know, I, I didn't. I. The last time I did that was what turned me into a quant, when I emotionally overrode really beautiful position inputs prior to the crash of 1987 and sold them all one day before the crash.
Nick Maggiulli:
Oh, wow, that's wild. I think I'd heard that. I think I've heard this story before. That's so funny. And that's wild.
Jim O'Shaughnessy:
It literally changed me into a full quant.
Nick Maggiulli:
That's great. That's awesome. That worked out for you, right?
Jim O'Shaughnessy:
It has indeed. But like people, you know, Jason Zweig has that great thing about risk. He goes, what most of us, in trying to help people with their finances do is we show people a picture of a snake and say, are you scared? And he goes, that's not really testing their risk tolerance. What you ought to do is throw a live snake in their lap and see how they react. Yeah, I mean, are there any tools that you know about that would help people better calibrate their risk tolerance?
Nick Maggiulli:
I guess the…if…just…how did you feel during 2020? How did you feel during 2022? I know that's not the perfect answer, but the best way to do it is when the live snake is in your lap and that's when we had the snake was in ‘20. How'd you feel in April that, I mean, this was an unprecedented policy move by an American president that got the markets very riled up. Did you move to cash? Did you want to add more? Did you, like, what did you do? I'm not saying that was the right choice, what you did, because remember this story hasn't played out yet, but how did you feel and how did you react to it, I think is what's important.
The thing I think about, which is like, the whole, you know, influence, you know, Cialdini has these six things, and one is commitment and consistency bias. And so, for me, I think the biggest thing I could do to kind of make this automation so I don't go against my own advice, is like, I literally published a book called Just keep Buying. Like, I literally cannot.
Jim O'Shaughnessy:
You really put yourself down there.
Nick Maggiulli:
I have. I've tied myself to the mast. And if this ship is going down, if civilization ends up ending, I will be the last person at the stock exchange buying, sending, whatever, I don't know, my gold, my canned goods. I'll be handing over cans of beans for shares. I don't know. But something is going to happen and you're going to hear like, wow, yeah, that guy was just stupid. Like, if that happens, that's going to be me. But I think I have to because that's, you know, it would be, I can't in my mind be the guy, oh, I got to move to cash now. That's like the most…that's against everything I know I believe. It's just, yeah, I couldn't do it. So…
Jim O'Shaughnessy:
Yeah, yeah, that. I actually thought that when I was thinking about what questions I wanted to ask you, I was like, well, I think the, the prophylactic that Nick has got here is that book.
Nick Maggiulli:
Exactly.
Jim O'Shaughnessy:
And I had a different version of it with What Works on Wall Street. But while we stay investing, like, what, what do you say to the people who we always used to joke about this? The, the first midwit question for you is going to be, but what about Japan, Nick? What about Japan?
Nick Maggiulli:
Yeah. And. And so I talk about that in Just Keep Buying. And I say, like, if you would, let's say you started in 1980. You start buying, just buying. And it's, I think, it's $1 a day. That's what I did. Just to keep it, just an average. The same purchase over time. Yes. There were times when the performance was quite bad in the ‘90s, 2000s, but you run that through today and you've basically kept pace with inflation, which don't get me wrong, that is not great, that is not a great result. You don't want to have just kept pace with inflation type of argument.
But if you actually look through most of history, you know, even in the US though, some of the worst periods in equity markets, if you keep doing it for like a 10-year period, almost all 10 year periods, where you're buying over time the same amount, you are keeping pace with inflation, right. Which is, trust me, that is not a great result. But if the worst case outcome is keeping pace with inflation, I'm not saying that is the true worst case, but it's like 90% of cases, you know, you're going to at least keep pace with inflation. I think it's a pretty good bet to take compared to if you had held cash, you would have gotten screwed in basically every period. So, think about the trade-offs there. And so, it makes me very optimistic. And so that's what I would say to somebody.
Even in one of the worst equity markets ever, you basically kept pace with inflation if you kept doing it for a long enough time. Not, not amazing argument, but I think it's a decent one. And so that's the one I'm going to put forth.
Jim O'Shaughnessy:
Yeah. And as you know, we looked at the long-term results and one of the things that we found that you know, but a lot of listeners or viewers might not, is that assets that look the least risky in the short-term, i.e. UST bill, right, are the most risky in the long-term. You invest a buck in T bills back in 1927, it's worth about a 1.80 today. Inflation adjusted, the same dollar in equities is like $500.
Nick Maggiulli:
I haven't looked at some crazy, it might be 5,000.
Jim O'Shaughnessy:
It might be, right. I haven't looked at it in a long time. And yet that gets us back to hyperbolic discounting. It gets us back to, you know, that great idea about the short-term emotions driving us to make horrible and often irrevocable long-term choices in the heat of the moment, right. I think in the first book, my first book, Invest like the Best, I said that like really successful investors do not comply with human nature. They defy it. And, and that kind of leads me to, you know, the idea of content keeping current with like all the, in quote news about the market as a quant. I ignore it for the most part. But you also basically treat…you in your work kind of treat code as an infinitely scaling leverage and content, as you know, very fleeting.
What would a half-life chart of your own blog posts look like with the decline and decay of content? And more importantly, what pieces if you did that analysis, what pieces would stubbornly refuse to decay?
Nick Maggiulli:
This is a great question. I think the content that I think is the least useful or that has the shortest half-life is going to be almost anything I write on tax policy or taxes only because they change so often. I write something related to this tax thing and oh, now it's…I remember writing back before, I think before Trump decreased taxes. I was under the impression that tax rates can only go up from here and then they went down. Like that's every single thing I said was wrong because you know, looking at the deficit, looking at everything going on, our debt, you're like there's no way they're going to ever lower taxes and they got lowered. So, every single person I talked to was thinking tax rate taxes would go up and that's what they think now as well.
Like taxes have to go up and so no one could think that tax rates could go lower. So that's an example of probably the least, lowest half-life. The longest is going to be stuff that is just true regardless of, you know, has the most data backing it and that stuff like Just Keep Buying, which was a blog post that became a book, et cetera. But it varies. Every piece of content has a various amounts of, you know, how long, however green it is. I try to make everything as evergreen as possible. But you're right, there's certain times where I just write about an event that happened. Like I wrote about, you know, meme coins and stuff like- will meme coins still be around in the future? Yes, but are they going to be as discussed? I don't know. I'm guessing not.
But who knows, maybe I'm wrong on that. I still think crypto will be around, but I think maybe meme coins will be just kind of relegated to like the gambling cycle of like online gambling type thing. So.
Jim O'Shaughnessy:
Well, while we're on kind of investor psychology and behavior.
Nick Maggiulli:
Mm.
Jim O'Shaughnessy:
What's kind of the quietest KPI that in your role at Ritholtz as CEO, kind of a low volume signal is something that most advisors ignore but that you've found has proven to have a really good forward indicator of client satisfaction or the way that they're going to behave in portfolios. Have you stumbled across anything like that?
Nick Maggiulli:
So I don't work with clients directly where I like have a sample from talking with them and working with them and those specific types of things. I think the- if I had to guess and remember Ritholtz, for those that don't know, it's like we do a lot of content marketing, you know, like, Barry Ritholtz has, you know, podcasts. He's blogging every single day. You know, Josh Brown is on CNBC. He's blogging. They have podcasts, right. All these different…we have a lot of media coming out. And I would say the thing that probably, if I had to guess, is most helpful for keeping a client on plan or whatnot is probably how much they consume our content, because we are talking about these things, right? And so, if you're someone that's following our content, you're following along.
Like, we're going to have our opinion on all these different issues and they will be out there. And someone who's listening to us and like, oh, yeah, they talked about this before and they said this and look what happened, right? And so I think it's, and it's not that we're right all the time, that's not what I'm saying, it's just that we are thinking about these issues. We're staying tuned in. We're saying, hey, ignore the noise. We talked about this stuff in 2020. We talked about this in 2022, and we made it through all that. And so, I think realizing that we are thinking about these issues and so the clients that actually pay attention to us and actually believe in us and listen to us, I'm guessing probably have less of those behavioral issues than those who don't.
And only because we follow a lot of the similar principles. Even, you know, you and I, Jim, like, I don't try to override the model, right. I understand the behavioral problems. I understand all that stuff. And so, we try and follow those same principles very quantitatively focused as well. Yeah.
Jim O'Shaughnessy:
One of the things that we found at OSAM and my earlier incantations of OSAM was that the volume of outgoing calls, it has to like triple, quadruple during market volatility and down markets and just that simple metric, wow, did that show great predictive on which clients were going to bail and which ones weren't. And one of the things that we noticed, and I kind of…I'm…I'm not a rule…I'm not rules…I'm not an authoritarian, even though I am a quant, so I didn't mandate a lot at OSAM. But one thing was everybody is on the phones when the shit is hitting the fan because, you know, naturally most people don't want, you know, the money you're managing is down 40%. You don't want to call up Bob and say, how you doing, Bob? But that's exactly what you need to do.
For example, in another field, what type of doctor gets sued? Far less than doc, than the majority of doctors, doctors who the patient likes and communicates with. And so even when that doctor, by their continuous interaction, even when things were bad with the client, they stick with them, they don't sue them, etc. Because of that simple thing where just being there when things aren't going really well. So, we found that behavior was very rewarded.
Okay, let's go up to level five. The ownership level jumped.
Nick Maggiulli:
Goodbye middle class. Goodbye upper middle class. Let's talk about the upper class.
Jim O'Shaughnessy:
Yeah, but level three is investing, right?
Nick Maggiulli:
Yeah, that's. Level three is, that's the middle. By the way, that's 40% of U.S. households, which is a hundred thousand to $1 million in wealth. Just for the numbers, just real quick. And then we'll go back to level five. Level one, which is less than ten thousand dollars, that's about 20% of the U.S. households. Level two, which is ten thousand to a hundred thousand, that's 20%. Level three, which is a hundred thousand to a million, is about 40%. Level four, which is 1 million to 10 million, that's your upper middle class. That's about, let's say, 18% on average. And then level five and six, that's the top 2%. With the vast majority of that in level five.
There's only less than 10,000 households in level six, which is over $100 million. So just to put the…paint the numbers there.
Jim O'Shaughnessy:
Yeah, the power law. As I was getting ready for this, I was shocked by that. The Henley wealth report, basically 9,850 centimillionaires in the US. Liquid net worth. And then you look at all the attention we pay to those people. There's less than 10,000 of them.
Nick Maggiulli:
We pay most of it to the top five. Really, if we're being honest. Yeah, right.
Jim O'Shaughnessy:
And I want to get into the specifics of level 6, because there might be a lot, not from you, but there might be like a lot of bad advice being given from such a tiny sample who I'm like, this is really interesting to me. And there's a bunch of questions about, you know, how you can frame that group. But we looked at…I actually did a very quick study. I was, were talking before we started to record about how we have our own AI and like. So, I had it look at meta studies of people in that group and guess what? They're very different, both psychologically and in behavior than the vast majority of people. Like things that came back from looking at the meta studies on- and the meta studies are rare because people worth more than $100 million rarely take them- but, but the…so what came up was like fascinating delusional self-confidence. The, the calibration shows that in studies they give much wider error estimates. You're familiar with this, right?
Nick Maggiulli:
Yeah, yeah.
Jim O'Shaughnessy:
If I ask you for a particular estimate on an outcome, if you're a probabilistic thinker, you give really wide error estimates. If you're not, which most people aren't, you give very narrow estimates. But what's really interesting from the data that I just had our AI spit out to me, yeah, they comply to the wider error estimates, but they still bet on their own estimate. So even though they are giving the correct probabilistic answer, they still are violating it with their own behavior. And then you look at the big five profile, which I think are very instructive. Like these people are super high in openness, extroversion and conscientiousness. They're really low in agreeableness, in other words, conflict and comfort with conflict. And they're really low in neuroticism.
If you look at the big five various profiles, that's a tiny percentage that have that match on the big five. But they're also like, they love risk. Most people hate risk. It goes on and on. They have an internal locus of control, non-conformity. They're very comfortable with conflict. They're persistent. You know, they bounce back- all of these things. I just wonder, and this might apply down in the lower levels, is it right to give advice from a very specific and tiny segment of the population to the broader- qnd I, and I was fascinated when I saw these and I'm like, wow- and then, and right before I, I was getting ready to chat with you, I jumped over to Twitter and I saw my friend Chris Williamson, who I think you know as well.
Nick Maggiulli:
Yeah, yeah.
Jim O'Shaughnessy:
-put up, he had a post called The Luxury Belief of Success where he cautions against advice from super successful people because he basically says they might innocently and honestly mislead you because their internal locus of control and updating of their memories and everything, they kind of forget what they were like from 0 to 50. And so, what do they say? You really have to establish a life-work balance. And then you look at their behavior. They had no life-work balance during, when they were moving from 0 to 50. So how do you disambiguate all of this, as you know, what you're essentially doing with your book? Let's not jump immediately to, you know, that level six. But isn't the advice very different at the varying levels?
Nick Maggiulli:
Like yeah, so it, we'll just-I can put level five and six together because I think that the people that get to level five are, could have been people that were in level six. I think it's just a difference of- could be luck, could be market opportunity, the TAM of their industry. Most of these people besides entertainers and things of that sort are business owners. So, they had a business, they were entrepreneur of some sort. To get at your question, you're right. I don't think it makes sense to look at just the most successful people and say, okay, let's just, you know, do exactly what they did. That can work in certain circumstances. But it's also like they could be just built different. Like you have to be able to take a lot of risk, right?
Like by definition if you're not a big risk taker, it's…I don't know how you get to $100 million besides marrying in or literal inheritance or a lot of even a lotto ticket, I would say is somewhat a risk taking behavior. Maybe not to the same extreme as like an entrepreneur, but there's some risk involved. So, like if you're not a risk taker, you just by definition you can't get there. Like it's just impossible. So that's why I think these people like that have that particular, you know, and then the agreeableness makes a ton of sense too because if you're in a negotiation to sell your company and you're super agreeable, someone will say, hey, I'll buy it for, you know, a terrible price, you know, half of what it should be sold for, right? And you'll say, oh yeah, that sounds.
Wow, that's so much money. Yes. Oh wow, that's great. That's great, Mr. O' Shaughnessy. I'll sell it to you, right? So you're not going to meet those people. You're going to meet the people that know my business is worth 2x of whatever you think. And then you guys fight and fight and get to the fair price, right? So that's the true, that's where the disagreeableness comes in actually helps you generate wealth in that sense. Right. Because that's where, you know, there's only a few of those conversations that really impact, you know, especially someone in level five or level six. You're going to have a handful of conversations in your life. They're going to have an outsized impact on your wealth, assuming you're some sort of entrepreneur. But to get at your other question, just like genius doesn't always understand itself.
I think there was this great, I can't remember who said it. I quoted it in Just Keep Buying. But people sometimes they don't know why they're good at what they're good at. They think they have theories, oh, I'm good because of this or I'm good because of that or because my parents taught me this. And that doesn't necessarily mean that they can teach that to someone else. So, I think that's another piece of this which is like, hey, and when I talk about level 5 and 6, I only really talk about the entrepreneurship side and not because I'm a great entrepreneur. I know a ton about it, but I just say, hey, that's the path. Go, go talk to business leaders now and learn how to actually do it from them or try and figure out what they do.
Most of the advice I give in levels 5 and level 6 is actually non-financial and we can get into that a little bit because I don't think, I mean the whole point of the wealth ladder isn't just to climb in and make more money. It's like there's more to it and there's a lot more of other things that get amplified as you move up the wealth ladder, which I think is incredibly important and probably under discussed amongst people in levels 5 and 6, which is over $10 million.
Jim O'Shaughnessy:
Yeah. Like let's just jump right into it. What many call the loneliness tax kicks in, right? How, how do people in that category build a governance structure where sycophants can't get in? You know, that's where the 10 million to 100 million is where family offices start to balloon.
Nick Maggiulli:
Yep.
Jim O'Shaughnessy:
And many times that might not be a great solution for let's say somebody with a net worth of $25 million, right? Other things like more money, more problems. Right. Stress and you know, are people, I guess my question is those are obvious things that happen, right? Would you ever counsel anyone to like say, hey, don't put yourself on that anxiety treadmill and because like, are there situations where the expected utility of an action or an investment is actually less than zero, i.e. Emotional framework, that kind of stuff. But the internal rate of return is massive.
Nick Maggiulli:
Yeah, that's a great way of framing because you're like, hey, like, you know, I just added all this money to my life. But then I also added all these other things which could outweigh the, the extra consumption I can now have. Which, I mean, if you're not a high consumer anyways, what's the point? It's like, why do you know, unless you really want a mega yacht or you want to fly private all the time, those are, There's not too many things that someone, you know with 25 million, you know, or let's say with 125 million can get that someone with, you know, 10 million couldn't get there. There really is like the flying private, the mega yachts, you know, a handful of other things. Obviously, you can start buying companies. There's, that's a whole another thing in itself.
But yeah, I would counsel someone say, why are you doing this? What's the real motivation for it? I think understanding that and where it comes from. Because for some people it has nothing to do with the money. It just has to be like, hell, I want to beat that other guy who screwed me over 10 years ago, and I want to show them I can build $1 billion business. And sometimes it's as simple as that. It's a binary for them and has nothing to do with the money. They could care less about the money. And so, I think realizing that, and there's nothing wrong with that goal, but I think realizing that is where you can start to understand your own motivations and why you're doing something.
So that's what I would say to somebody is like, why are you trying to go for this level of wealth? And what if it really is like something like, I want to fly private, I can't stand getting on an airplane, you know, at a typical airport. Fine. That's completely fine. Everyone has their own preferences. I'm not going to hear to judge anyone's preferences. But figuring out what those things are, I think is the most important piece of this.
Jim O'Shaughnessy:
Yeah. And you know, one of the things that you, up here, you frame legacy is action times wealth, right? But could, are there wealth free actions like, I don't know, ideas, open source code, whatever, that could actually outlive capital?
Nick Maggiulli:
Oh yeah, of course. And, and that I would say an open source. And I know it's multiplicative, right. So, like, you don't have to necessarily put any wealth into it. But I mean, the wealth you put in was like the time you created something like, yeah, you create an open source project, the action is massive. Like creating a framework that people end up using for many years later. Those types of actions are incredibly important just because they may not be physical actions. You know, the story I talked about in the book was this guy who replanted this forest over the course of like decades, right. One, one tree at a time, right. And it was like a kind of a cool thing, you know, didn't have any money, just gave his time. But that's the same thing as an open source framework.
It's just not in a physical space, it's just in the Internet or it's on, you know, used for some software development project, et cetera. But yeah, I think you can make a massive impact without having to use any capital at all. But what does it require? Probably requires your time.
Jim O'Shaughnessy:
Yeah. And that also leads to like, I love that story, by the way. I think that was really cool about the replanting.
Nick Maggiulli:
Yeah.
Jim O'Shaughnessy:
The end. Like we found with some of our fellowships. You're aware of our fellowship program, right? Yeah, like, some of the people with the highest rate of return are just people who got grants, like, of $10,000. I just have, on the current episode of my, of this podcast, I have two guys from Africa who each got $10,000. And Nick, the shit they accomplished with $10,000 is just blows my mind. And, you know, it's, it's very, it's humbling really, because you talk to these guys and it's like, I guess I shouldn't be worried about my wi fi is down.
Nick Maggiulli:
Yeah, yeah. First world problems. Yeah.
Jim O'Shaughnessy:
But like philanthropy, you know, philanthropy is another thing. It often mirrors power and obviously wields influence. Right. So how do you stop, like, philanthropic endeavors from just being a vanity metric?
Nick Maggiulli:
I don't know. I don't know the answer to that. That's a great question. I'm, I think I'm too young and I'm too inexperienced. I don't have enough wealth. I haven't done enough donating in my life to really get at that question. I really don't have a good answer. I'm sorry.
Jim O'Shaughnessy:
And so for listeners, you will know that I love answers like Nick just gave to me. I don't know if you have the power to say, I don't know when you're being interviewed. You have a super power. Because most people do not want to say, I don't know. In fact, of course, we men are much worse than women. But yeah, it's interesting because, like, that would seem to me to be like, how do you inoculate a generationally wealthy family from shirt sleeves to shirt sleeves in three generations? I don't know either, Nick. Like, yeah, it's a really difficult question. And I think people don't spend a lot of time on it because, like, one of the things that you do notice is like, inherited wealth can be really rough. Like, I joke about it and call them trustafarians and things like that.
But the idea, you know, wealth amplifies intent, as you point out, and how do you ensure the errors don't amplify, like, really bad intent? A great case study is the Ford Foundation. Like, the, the founders of that dynastic wealth are spinning in their graves by what the Ford Foundation is currently giving money to. Now, I support a lot of the things that the Ford Foundation gives money to, but what do you think about that? I mean, do you think, like, if somebody who is, achieves that kind of success, do you think it would be important to keep the family in control or just say to the family, hey, here's what…you could be as transparent as possible. Do not in any way try to use the wealth to control the child, right.
One of the reasons why I think trust fund kids have a difficult time is because at least I believe that if you give a child or saddle a person with an irrevocable trust, where somebody else is making financial decisions for you. You've infantilized that person, you’ve put them in a golden cage. And like, the far riskier thing, if you do want to share wealth with your family, is just to give it to them. And, and yet, like, do you think that, like, is there any solution for this or is it just the way that we are as humans?
Nick Maggiulli:
I think this is a difficult problem. And this is what I talk about. Once you get into level five and six, it's like, you can't write your kids a check and say to make them love you. Like, that's not going to work. Like, they will enjoy the money, but that doesn't mean they're going to actually care about you or love you or anything. Like, all the things like that. When I think about the wealth ladder, like I say, in every wealth level, something gets amplified. Like when you're in level one, the thing that's amplified is bad luck. Right? You know, just a simple, you know, you're, you get a flat tire, you don't have money to get repaired, you can't get to your job, you lose your job. You can just see how this creates a, a downward spiral.
I think the amplification of stuff in level five and six is all the non-financial aspects of your life. You can't buy yourself a better cardiovascular system. Can't be like, oh, hey, I'm just going to upgrade my heart. Not yet. At least one day we'll get there, but we're not there yet. So, because of that, like you have to focus on all the other things. And so, what does that mean? You have to have a legitimate relationship with your children and you can't just be like working all the time because then your relationship with them is going to always be, you know, kind of related to money and you don't want that, right. Then it's like, oh, well, I'm going to control you. It's like, are they an adult? Are they not an adult? Yeah, when they're a child, yes.
You can set up structures and trust because you don't want them doing something crazy with their money at 16 years old. But you know, by the time they're 25, okay, they should have like full reign to do whatever their brains finish developing, etc, whatever it is. Like I think you just have to have those conversations and be like, hey, here are my wishes. You're still your own adult, but you can do what you want. And at the end of the day, like you'll be gone one day and what's going to happen is going to happen and there's going to be good luck and bad luck and all sorts of things and you just have to accept that and just move on. There's only so much you can do. And so, I agree it's not an easy question. I don't have a good solution.
I think the best solution out there is just communication and just being open and honest and transparent about what you believe. And ideally, if you had a good relationship with them, you would hope that they would listen to you and there would be a kind of a symbiotic back and forth and, you know, compromise and whatnot in terms of your legacy and your generational wealth, etc.
Jim O'Shaughnessy:
So, so who do you think is going to benefit the most from this book? From level one, level two people, level two to three. Like who's gonna get the bump that they need from understanding your layout?
Nick Maggiulli:
So my guess is probably most likely people in like level two. I would say those are people who, you know, they're doing okay, they've saved some money, but they're like, what do I got to do to really move up, you know, to get into level three and level four and that's all the investment stuff which we get into. And then the other group is level four, that's one to 10 million. And why level four? Why did I bring that up? We kind of jumped over that level. But level four is what I call the no man's land of like wealth building. Because the things that get you into level four are very different than the things that get you out of level four and into level four five, right.
Like you can have a good salary, save money, invest, etc, you'll get into level four, 1 to 10 million, right. It, it takes time. You have to have a good enough salary, you have to have decent market returns, all that stuff, right.
But to get to level 5, 10 million plus, I think it fundamentally takes a different path you have to take to get there. And that usually means creating your own business and selling it or starting a startup early where you get enough equity and then that startup sells for a ton of money, right.
So it's just a completely different strategy and realizing that people in level four now that are, let's say you have, I don't know, 4 million bucks and you're, you know, you're doing well in life and everything, you know, you're late in your career, you're like, I really want to get to 10 million plus. It's like, okay, if you want to do that, like your current strategy is not going to, it's going to take too long and you won't make it, you know.
And so I think the wake up call is all the data I have on level four, particularly because I think you have to make the decision, do I want to keep grinding harder and take this risk and go down this other path or do I chill out a bit and kind of get into more of a, what's called a coast fire scenario where I'm just, I can go in now, work on stuff I like, but it doesn't matter the financial payoff because I have enough and I'm, I have enough security and I'm set. So, I think that's the big decision point. And for a lot of like upper middle class professionals, they might be like, you know, and the math is very easy. If you have a million dollars and you're saving 100k a year, that's you're adding 10% to your wealth, right.
By the time you have $5 million, that 100k is only adding 2%, right. So, you're just like, you're not making a difference anymore, right. And there was this tweet I saw. It said, if your investment portfolio earns more than you, is your job a side hustle? Right. Which is like, kind of a crazy thing to say, but, like, that's what happens to people in level four. That's a very normal thing where, like, you cannot contribute to your own wealth more than your wealth can, right. And so that's where you start getting into these scenarios where you have to really think, like, what do I really want out of life? What. So, I think that's the big turning point for people on level four. So that's what I would say.
Jim O'Shaughnessy:
Yeah. And I, I think it's one of the things I love about your stuff, is it…it invites those kinds of conversations. Because I think you're absolutely right. I think that the vast majority…I think you're bang on. I, I had the same level when I was contemplating who was going to influence and help the most. And, and and yet we do see this, like, this focus on less than 10,000 people.
Nick Maggiulli:
Yeah.
Jim O'Shaughnessy:
And obsession with it and like, all of the things that made them there. Like, it just, it seems like such a big disconnect to me. And, you know, I even did a, I saw and I did a long time ago, I think 2018 or ’19. I got triggered by like one of these listicles of the…the ten of things the wealthy do before they wake up or whatever. Some idiocy. And like, I just, I got so angry that I wrote the thread right there on the Twitter app, right.
Nick Maggiulli:
It's like, oh, I think I remember that. I think I remember this one, Jim. I remember when you used to do threads like this. And I was like, oh, my gosh, Jim just went off.
Jim O'Shaughnessy:
Because. Because it's bad advice, right? It's…there is…because there's less than 10,000 of these people. Or if you go to the broader thing, there's 5% of these people. The way that they behave might not be a value to you at all. In fact, it might even be destructive to you, right. And that leads me to one of the things, because you do, you constantly are pumping stuff out. I love the fact that it's data driven. And, and so I was wondering, what kind of financial fiction, what popular personal finance cliches are actually fantasy novel tropes in disguise?
Nick Maggiulli:
The, the biggest one is, you know, to get rich, you got to cut your spending. It's, oh, you're spending too much. That's the problem. You have too many lattes, too much avocado toast, etc, and there's just so much data that shows the opposite of this that I'm kind of just tired of fighting this battle.
So, and the- like income and wealth is so correlated-it's-it's like the strongest relationship in personal finance. And so why I want to get rid of the whole cutting-spending, you know, to grow your wealth trope is because it's just-there's no data for it. And like, I'll just give you this is-these are the median U.S. household income by wealth level in the United States. This is like 2022-2023 data.
Jim O'Shaughnessy:
Yeah.
Nick Maggiulli:
So I'm not going to go through all the-I'll just say the level. I'm not going to say the wealth amount for each level. But level one is $32,000, median household income. Level two is $48,000. Level three is $83,000. Level four, that's one to 10 million. That's $197,000. Level five is $724,000 a year. And level six is $4.3 million a year in income. So, you know, going from level four, that's like a, a good, you know, professional making 200k a year. Like, that's your typical, like, solid, you know, managerial profession. That's how you get 1 to 10 million. But to get to level 5, you need an income of $724,000 a year. And it's very difficult to get there in corporate America unless you are a business owner and you have equity or have something that's paying you in addition to that, right?
So it just goes to show, like, income is the thing that's driving these changes, and it's not how much they're spending or any of these other things.
Jim O'Shaughnessy:
So what do you think about the idea about, you know, sort of giving each child born in America $1,000 initial stake in a S&P like, index fund, but make sure that all of the companies in that fund were American companies. In other words, a success dividend, right. You got lucky enough to be born in the United States of America. We're going to give you this ownership marker, right. When you're born, we're going to give you a Social Security number but much more importantly, we're going to give you this thousand dollar investment in this index fund. Do you support, not support.
Nick Maggiulli:
In general, I support it. I think this would help to reduce wealth inequality a little bit. But I think my guess is the knock-on effects of that would-maybe not-they wouldn't create what we think. Like I think, for example, one of the things that are going to happen, we're going to have these government accounts. Who's going to manage these? Like just the government manages it for free. What it's like, oh, it's all private. You got to go to a bank. And now what if the bank starts adding unnecessary fees? Who really reaps the benefit from that? If it's truly going just to the owner, the baby in this case and okay, by the time they're 18, when do they get this account?
Is it like, oh, you turn 18, you get this massive account and then they just blow it all like what's going to happen? How do we just because someone has money that doesn't necessarily mean that they're going to be able to, you know, have a good life because of that. I do think that's going to help a lot of people who don't have a lot of cash. But I also could see them without the right financial discipline, they could just blow it all right away as well. So, I think I see where it's positive but I also can see how it would be misused and it wouldn't create the wealth, reduce the wealth inequality or create the impact that I think a lot of people think it might.
Jim O'Shaughnessy:
Yeah. My take on it is that I think it's a worthy experiment if it's designed the right way. And I think that it could move a lot of that, a lot of people from the, you know, they're fearful to take risks because they literally don't have- you just listed the numbers, right. At certain levels like risk becomes a really scary thing. And the other thing I like about it is- it may, and I stress may inculcate an owner as opposed to an employee style mentality in the average kid born, you know, 2025 on. All speculation. I do, I agree with you that who knows on the outcomes because unintended second and third order consequences always happen and, you know, just almost by definition you hadn't thought about them.
And, and so you know, you would have to make sure that the government does not manage actively, right. Like Social Security forever and ever it was a brilliant dodge because a number one, when Roosevelt put Social Security in place, do you know why they picked the retirement age of 65?
Nick Maggiulli:
I actually don't, I don't know why they picked 65. Yeah.
Jim O'Shaughnessy:
At that time, actuarially speaking, you were dead. It was the government saying, congratulations, you old coot, you beat the actuarial tables. We're not going to let you die in poverty, right. If you moved up the actual actuarial assessment for Social Security, you wouldn't start getting it until whatever it is right now, I think age 78 in the US, I'm not sure. And that alone is why they chose that age. They weren't stupid. They really thought about it and they're like, okay, well everyone's dead at 65, so let's make it 65. And then the other thing that they did, which was I feel it depends on what your viewpoint is. Like one person might call it marketing or clever framing. Another person might call it a Ponzi scheme. They, they talked about Social Security as a trust fund, that the funds were your funds.
So your average person was like, oh cool, you know, my Social Security Number has this in some account somewhere. Of, of course that's not true. And so, you can't, it would, the legal structure of it would have to be really really tight because, you know, I've never met a politician of either party who doesn't like spending money.
Nick Maggiulli:
And so true.
Jim O'Shaughnessy:
Essentially the so-called trust fund. Remember, you know, you're too young, but back when Clinton was president, they had all of these elaborate metaphors. They called the Social Security trust fund a lockbox. You open the lockbox, all you find in there are IOUs. We promise we're good for it.
Nick Maggiulli:
Yeah.
Jim O'Shaughnessy:
What do you think about that? I think that people who, I am not a fan of politicians of any side of the aisle for the most part. But, but I also find that people who like get heavily into politics, that's not a good mix for being a good investor. Agree, disagree. What do you think about it?
Nick Maggiulli:
Oh yeah, the political stuff in general when you try and like, oh, I'm going to go to cash during every Democratic presidency or during every Republican presidency, etc. Every single analysis I've seen on this, it says you would have been better off just not doing it like being in the market the whole time regardless and not trying to play political games based who's president or who's running Congress, etc. It's just the market just generally goes up over time and regardless of who's president or at least in the United States over a long enough period that these types of political acts don't really make sense.
And in terms of, you know, talking about the baby bonds or the thousand dollars, whatever you want to call them, like I like this idea, but you're right, a lot of the devil's in the details, like who's managing it, like what's going to stop a future government from opening that lockbox now and pulling out, oh, I know we said we'll put it back later, don't worry. And we just take all these, there's all these 18-year-olds waiting for this check and they go there and it's not there, right. And so I worry about that stuff as well, like the incentives. Okay, okay, is that just like another, people already talk about the problem with indexing, how there's already too much money from 401Ks going in every two weeks. Now you have the government adding to the relentless bid.
Is that creating an even more outsized market impacts in terms of the distortionary effects? I don't know. But there's plenty of things to be- plenty of issues with this approach. But I still, I'm willing to try it. We should experiment. I love that idea.
Jim O'Shaughnessy:
Yeah. And like another one that I've changed my mind about recently because all of the empirical data that I have access to at least does not support it, but I do. And that is some attempt at universal basic income. Primarily what drives my change of opinion and maybe naivete because the empirical evidence of what we've done so far has me being wrong here. But I think that we are going into a period, we chatted a little bit about it prior to recording where a fairly significant group of people who are through no fault of their own, - and I underline that - through no fault of their own, gonna find themselves kind of obsolete in a world with all of the tech innovation, the impact of AI everywhere, etc. And so, you know, maybe I'm naive in saying, hey, we got to try something.
But like I worry about like the next ten years. It could cause a great deal of social dislocation. I mean just look at the EU versus us, the United States. They're in my opinion, killing themselves. They are regulating themselves to death. They are essentially, if you read some of their AI promulgations and everything else, there's going to emerge a cognitive chasm that is really hard to cross. And to a lesser extent, I think that'll happen socially, everywhere, not just here in the United States, what are your thoughts on sort of universal basic income and experimentation around that, given what's going to maybe happen over the next ten years?
Nick Maggiulli:
Yeah, so I kind of, I used to be a big supporter of it and then started seeing some of the empirical studies and I started to back off a little. Now I- you could still be right- I have no clue. Like, I see where it comes from. Like, you know, where your motivation's coming from. I think the motivation makes sense. I completely agree with it. At the same time, it's like, it's very interesting to think about a world where it's like, okay, yeah, we, you don't have to work anymore. Like, you get this basic level of- here's your daily bread basically type thing. That's what you're basically getting. And then you have to figure out anything else. If you want to go travel, like, you have to find a way to make money outside of that, right.
And if you're like, well, no one's hiring me, what's going to happen? So, my guess is it's going to take even longer than people think. Like, I, it's very easy to see all the things like, oh, wow, then this is going to happen in this. But, like, just to get there, I think there's gonna be a lot of little things that just take longer than people think. So, I see, I would just extend your timeline, I think 10 years is too short. I think, I think all the things you say that are gonna happen will happen. I think it's just gonna take longer. And maybe I'm wrong. Maybe I'm misunderstanding. Obviously, you know more about AI than I do. So maybe you're seeing things that I'm not seeing. You're like, oh my gosh, we're almost there.
Like, but I just think these things just take longer to play out. And I only say that because, you know, I've worked with a lot of RIAs and stuff. And like this, like, our RIA uses a ton of tech. We do a lot of this stuff. You know, we're trying to do as much forward thinking as possible. And there are so many businesses in this country that are still run on like, not even Excel. There's like literally papers now. They're starting to get to Excel. But Excel, and then you have a database, right? You can see, like, there's like levels of like, you know, there should be like the database, like, ladder, basically. So, you start going up the levels. And so, people started with pencil and paper and then they go to Excel. Then they go to a CRM, right.
And so there's still so many businesses in this country that are being run with the pencil and paper method. And to be like, how is that still around? It's, you know, and it just- these types of things that have been, we solved these decades ago, they're still not everywhere. And so, I think the same thing's going to happen with AI. These solutions will be out and the most cutting-edge companies will use them and gain an advantage. But it's going to take a long time for a lot of the older methods, the older jobs to quite die out completely. That's my kind of take on it, actually.
Jim O'Shaughnessy:
Very insightful. One of the strategies that we're doing with the software vertical at O'Shaughnessy Ventures is we are developing solutions for just the kind of companies you mention where the TAM, the total addressable market is too low for venture guys to be interested in it at all. But it's huge. It's, it's actually, if you're running private capital, it is a wonderful business to be in. Right. And in terms of, there are definite needs when you show them like what they can do instead of the pencil and paper, just on their own computers, they're like, where do I sign up for this? And, and it's an exploitable opportunity set, I think because of the way the various investment styles play out, right.
Like, you know, maybe thirty years from now private equity will roll up all this, but they're not going to do it now because the return profile does not suit them, does not suit anything that could be venture funded because like, hey, I've got a solution for all the foundations in the world. AM's too small for VCs to be interested at all. And yet they really need these solutions. So, a lot of that is emerging. And you're right, the cultural lag is breathtaking. Often. I had a friend who used to work for me at Bear Stearns and then briefly at OSAM, actually. No, yeah, briefly at OSAM. Anyway, he got a job at a really old school asset manager who shall remain nameless.
And he called me a week later and I was really happy for him because he got a, it was a senior job and he got a leg up and he's like, Jim, yeah, they do everything here by hand. And he goes, I walked into my office and it was filled with six mail bags of confirmations, paper confirmations. And so literally he spent two years, they thought he was the best thing since sliced bread. All he did was put them on Excel.
Nick Maggiulli:
That's wild.
Jim O'Shaughnessy:
And, and so you're absolutely right and very insightful at the cultural lag aspect.
Nick Maggiulli:
Yeah. I wonder how much of this is going to be like technological leapfrogging, where you go from pencil and paper to like an AI solution, right. It's almost like they say with like Africa never really built out a landline network and they went straight to mobile phones. Like, I see the same analogy happening with like, people are just going to leapfrog into this new this.
Jim O'Shaughnessy:
And, and that was the case study that we referenced when we decided to do this. A lot of the leapfrogging, like Europe also had better cell infrastructure than America. Why? Because America had the absolute best landline infrastructure of any country in the world. And so we were really slow in adopting to mobile. Whereas the emerging countries of Africa, we have investments there. We have them in like Bangladesh, et cetera. Bangladesh in particular, like the leapfrog there was just extraordinary. And they're like building out much better health centers because they didn't have to bother with all of the steps that we had to take in America. So, I think leapfrogging is a real thing and if you concentrate on kind of niches, it can be really successful. So, like, what's next for you? Do you got another book idea?
Because, you know, I would be remiss if I didn't try to sell you letting Infinite Books publish your next book.
Nick Maggiulli:
I don't have another book idea yet. Back in, when I before I wrote Just Keep Buying, I had two ideas. One became Just Keep Buying and the other one was The Wealth Ladder. So, I don't have another idea yet. I think I'm just trying to get through with The Wealth Ladder for now and just kind of see where it goes. Because I like the idea a lot. It's very fun, very different than Just Keep Buying. So yeah, we'll kind of see what happens. But I'm…I'm definitely open to considering. I think the publishing industry is changing a lot. You know, my first book was with Herriman. I think that got a lot of financial authors a lot of place. People in the fintwit space joined- did that. Now I'm with, you know, Portfolio, which is under Penguin Random House, so more traditional publisher.
And yeah, I'd be open to considering other things in the future. I just got to kind of wait and see how everything plays out, you know, so that's where I'm at now. But yeah, I'd be definitely open to it.
Jim O'Shaughnessy:
The…it's been super fun for me to watch your career because you're kind of a rocket from when we were working together briefly at OSAM to you becoming chief operating officer. Anything you see on the horizon for people who make their living giving investment advice, any new thing that has particularly captured your imagination and were like, wow, that might actually make a real difference.
Nick Maggiulli:
I'm trying to think of, there's nothing behaviorally I've seen necessarily. I don't, I'm not, I don't follow like a lot of the vendors as closely as some other people do. I do think the direct indexing stuff. I don't want to obviously, you know, we, you know, our firms have a relationship. I'm not trying to plug anybody, but I do think that.
Jim O'Shaughnessy:
Let’s put it this way, my former firm.
Nick Maggiulli:
Yeah, yeah. So I don't know if I can say, I don't know if it's a conflict. I don't want to say anything that's, you know, so I'll just leave it at that. People can google the relationship on the Internet. I'll leave it at that. But I just think that stuff really does change client outcomes. How much they're more likely to adhere to the portfolio. They understand it, they kind of help build it with you. Like there's a lot of pieces of this that I think are very valuable. I've always been a fan of direct indexing, custom indexing, whatever you want to call it. And I do think that's going to have positive long-term impacts on investor behavior. But I mean, that's not a brand new idea.
But it's an idea that I think is catching even more fire and more people are starting to do it and I think we're starting to even see it come down where it's getting cheaper and cheaper. So, the account minimums are getting lower, which I think is a good thing as well.
Jim O'Shaughnessy:
So yeah, I obviously thought that mass customization was the future of investing. That's why I started Netfolio back in the dark ages of 1999 and got -
Nick Maggiulli:
Little early, little early, Jim. But bright idea once again. Just a little. Once again. How long? It actually took twenty more years than you thought. You're like, oh, we're going to have this in 10 years. You're just so you think so far ahead, Jim, you got to like slow it down a little. Like we take, the rest of us mortals take a little bit longer to process what's happening. So.
Jim O'Shaughnessy:
Yeah, but I think you're right. I think that the customization of portfolios is going to be much better for the client because it will, they will feel like they have more of their own like skin in the game.
Nick Maggiulli:
Yep, exactly.
Jim O'Shaughnessy:
If they use any of the modification factors, the ability to tax manage the portfolio, that becomes absolutely huge. And it's kind of like- the- we sometimes let our antiquated notion or our antiquated delivery systems for portfolios, right. So first it was you just had to be a plunger, as they called it. You just buy a stock or two or whatever. And then, of course, you had the prudent man rule which said you got to only buy like the blue chips etc. and then we got mutual funds, became mass and then ETFs replaced them because it was a better package for the investors. And now these customizable portfolios, I think, are just a better way to package. And you're right, they're getting a lot cheaper and people are going to have much more access to them.
And so I, I agree with you on that one. And as far as the human level, like oddly, that's one of the reasons why I don't even fret about public markets. Because human behavior- markets change nanosecond by nanosecond, zeptosecond by zeptosecond, but human behavior barely budges millennia by millennia. And so, like if that's your edge, arbitraging human behavior, you're probably going to do well. And one way to do it is like you recommend, just index and let it, you know, keep just as you would say, just keep buying.
Nick Maggiulli:
Yeah. And focus all your attention on the thing that you're probably more talented at than picking stocks. I mean some people are good at that, but I think most people probably aren't. And so, find the thing you're actually good at and do that thing. So.
Jim O'Shaughnessy:
Perfect, well, as you know, you get a second bite at the apple of being emperor of the world. Nick, we're gonna wave the wand, make you emperor of the world. You, you can't kill anyone. You can't put anyone in a forestry education camp. But what you can do is you can incept them. And we're going to give you the magic microphone. You can say two things into it and the world's entire population, whenever their next morning is going to wake up and say, you know, I very rarely act on these great like what some people call shower ideas. I very rarely act on these. But these two I'm going to actually act on. What are you going to incept in the world's population to make it a better place?
Nick Maggiulli:
First one is be kind. I think I love- there's just a lot right now especially there's a lot of anger, I think more anger than we've seen recently. I don't know if that's just the media, but like there is actual wars breaking out and things like if we could find a way to be kinder to each other as humans, regardless of our race, religion, etc. I think that would- if I couldn't truly incept as you say- I think that's one.
Jim O'Shaughnessy:
Amen to that one.
Nick Maggiulli:
I think, I think that's going to do most of the heavy lifting. I'm trying to think of what else because it's, it's such a big like think about I'm incepting everyone in the world, right? I don't want to say something and then like oh wow, you didn't think about that second or third order effect. I think the second and third order effects of being kind are only good, I hope, right? But I'm trying to think of a second one that I didn't incept. I might not. Can I, has anyone ever not used it? I, because I'm too worried of, I'm so worried about like if I said something else that it could cause something that I wouldn't want. And so, I'm kind of even worried about, I don't want that power.
I don't know if that's a great answer, but for now I would just say be kind because I think that's the thing that comes top of mind for me. Or I could even say something like, you know, consider someone else's viewpoint or have you ever walked in someone else's shoe? Something like that. I think I need more time to think about it, but something like that. Because if you're kinder to people and you're considered their viewpoints a little bit more, maybe you're more open minded to less likely to lead to conflict, which I think is right now the biggest risk to ending humanity, in my opinion. I mean that or possibly climate stuff, but I think the climate stuff is more easily solvable. I think we will solve it in some way. We'll just, people change behavior so quickly.
Like LA it was like, oh, we're in a drought. And then people drop their water consumption so much that they actually end up saving more water than they expected, right? So, I think people can change their behavior enough when they really know. It's like, okay, now is the time where we have to do it. I don't think we're there yet. Or at least I don't think people think we're there yet. So, yeah, I would say be kind and consider thoughts of others or the perspective of others.
Jim O'Shaughnessy:
I gotta tell you young man, that, that, that answer makes me think you're eligible to be appointed President of the United States because it's like the- the- my- one of my favorite authors, Robert Anton Wilson, said, if you briefly- just briefly consider maybe I'm just a cosmic schmuck, it makes you briefly less of a cosmic schmuck. And he goes, and if you persist in this thinking, you will make yourself ineligible for political office.
Nick Maggiulli:
So funny. I am 35 now, Jim, so I actually can technically run. So, I'll count on your vote next time. Thank you.
Jim O'Shaughnessy:
You'll get it too, Nick. The book comes out July
Nick Maggiulli:
Twenty-second.
Jim O'Shaughnessy:
Twenty-second. Well, I wish you absolutely great success with the book. I love your work. I love you, and I think you're, you're just on fire, man. You keep doing what you're doing.
Nick Maggiulli:
I appreciate it, Jim. You've been such a great mentor for so long, and you've helped me so much in my career, everything. My writing, and I just appreciate your friendship and the show and everything. So, thank you so much. It's been great to have our relationship as long as we have. So.
Jim O'Shaughnessy:
It’s been absolutely my pleasure. All right. Cheers. That was great. Thanks.
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