Why contributions beat returns early

#673: Welcome to Greatest Hits Week – five days, five episodes from our vault, spelling out F-I-I-R-E.

Today's second letter I stands for Investing. This episode originally aired in April 2022, but the framework remains one of the most practical guides we've shared for building wealth at any age.

Nick Maggiulli joins us to reveal why most young investors obsess over the wrong metrics — and shares his Save-Invest Continuum that shows exactly when your savings beat your investment returns, and when that changes. 

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When Nick Maggiulli was in his twenties, he spent countless hours obsessing over his investment portfolio – tweaking his asset allocation, running net worth projections, and building complex spreadsheets. 

Meanwhile, he was blowing $100 every weekend partying in San Francisco.

It took him years to realize the absurdity. His annual investment returns on his tiny $1,000 portfolio might earn him $100 – the same amount he'd spend in a single night out.

Maggiulli joins us to explain why young investors focus on the wrong things and shares his framework for knowing when to prioritize saving versus investing. 

He introduces the Save-Invest Continuum, which compares your expected annual savings against your expected investment returns. 

When you're starting out, your ability to save dwarfs any investment gains. A $6,000 annual savings capacity beats a $100 investment return every time.

We discuss the math behind saving 50 percent of future raises, not for guilt or deprivation, but to maintain lifestyle balance while building wealth. 

This rule applies only to real raises above inflation. If you get a 3 percent raise during 3 percent inflation, you haven't actually gotten ahead.

The conversation turns to unconventional income-producing assets. Beyond stocks and bonds, Maggiulli explores farmland investing, which offers returns uncorrelated with traditional markets. 

He shares the story of someone who bought the royalty rights to Jay-Z and Alicia Keys' "Empire State of Mind" for $190,000. The song earned $32,733 in royalties the previous year — an 11 percent return if that income stays constant.

We examine why 85 to 90 percent of your portfolio should generate income through dividends, rent, interest, or business profits. 

Maggiulli keeps his speculative investments — cryptocurrency, art, and individual stocks — under 10 percent of his net worth. He admits his two individual stock picks are down 60 to 70 percent, proving his own point about avoiding stock picking.

The episode reveals that time remains your most important asset. Warren Buffett would likely trade his entire fortune — and go into debt — to be 35 again. 

This perspective shapes every financial decision, from choosing income strategies to deciding between assets that merely appreciate versus those that pay you while you sleep.

Timestamps:

Note: Timestamps will vary on individual listening devices based on dynamic advertising run times. The provided timestamps are approximate and may be several minutes off due to changing ad lengths.

(00:00) Nick's mistake of obsessing over investments while partying away returns

(05:31) The Save-Invest Continuum explained

(08:11) When savings matter more than investment returns

(12:31) Focusing on both saving and investing in midlife

(13:11) Crossover point: when investment returns exceed spending

(14:11) The 2X Rule for guilt-free spending

(15:31) Save 50 percent of future raises

(20:41) Five ways to increase income

(26:31) Selling time versus selling skills

(28:11) Teaching and creating products for income

(30:11) Climbing the corporate ladder

(31:11) Converting human capital to financial capital

(32:31) Income-producing versus speculative assets

(36:11) Individual stocks and cryptocurrency allocation

(43:51) Farmland investing basics

(45:31) Royalty investing example

(49:31) Art and non-income producing assets

(51:11) Inflation and debt strategies

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