Speaker 1: Boke No Trillions.
Speaker 2: I'm Joel Weber and I'm Eric Balchernas.
Speaker 3: Eric, I'm really excited we have Nick Madjulie back on
Speaker 3: the podcast today.
Speaker 1: I checked. He was on three years ago for his first.
Speaker 3: Book called Just Keep Buying, and he's just out with
Speaker 3: the second book, The Wealth Ladder, and I want to
Speaker 3: know more about the Wealth Ladder, how about you?
Speaker 2: Yeah, No, this is a Nick is an advisor, and
Speaker 2: advisors are the biggest consumer of ETFs, so you always
Speaker 2: want to hear from them.
Speaker 4: They are the users of ETFs, but.
Speaker 2: They're not they're using ETFs, but that's just one tiny
Speaker 2: part of what they do, and their people use them
Speaker 2: as behavioral coaches, life coaches, tax plan It's really a
Speaker 2: whole deal.
Speaker 4: And Nick is what I would consider like a cool advisor.
Speaker 2: Oh a little younger, you know, the average advisory age
Speaker 2: is like sixty sixty five.
Speaker 1: No jug no judging.
Speaker 2: Nick is part of Ritholtz and there have really really
Speaker 2: changed the way that advisors are even viewed because they're
Speaker 2: really they do conferences, they're in the media, they write books.
Speaker 2: They're just like just tons of content coming out of it.
Speaker 2: And his last book was called Just Keep buying, which
Speaker 2: is when he was on our podcast like three years
Speaker 2: ago and that was a huge hit, and I told
Speaker 2: him this, I thought that phrase just keep buying, really
Speaker 2: captured the moment. It's funny because he put it out
Speaker 2: right before twenty twenty two when the market went down
Speaker 2: a lot, but people in at least etf users they
Speaker 2: bought through it, and they also bought through the beginning
Speaker 2: of this year. So people have taken that motto to
Speaker 2: heart or he captured what they do with a perfect phrase,
Speaker 2: and so it's cool to see him back with a
Speaker 2: new book.
Speaker 1: Okay, this time Nick Majulie.
Speaker 3: He's the chief operating officer and a data scientist at
Speaker 3: written Bolk Wealth, this time on trillions the Wealth Letter.
Speaker 5: Nick, welcome back, Thanks for having me on guys.
Speaker 1: Okay.
Speaker 3: The book is The Wealth Ladder, Proven strategies for every
Speaker 3: step of your financial life. What is the Wealth Ladder?
Speaker 6: The Wealth latter is a new framework for viewing your
Speaker 6: finances and the main idea here is I break wealth
Speaker 6: into six distinct levels. We can get into those in
Speaker 6: a moment, but based on which level you're at, based
Speaker 6: on your net worth, it can help influence your spending decisions,
Speaker 6: your income decisions, your investment decisions, et cetera. And I
Speaker 6: think the main analogy I use, like in the intro,
Speaker 6: is like a fitness instructor would give different advice to
Speaker 6: someone who's like obese versus someone who's like a well
Speaker 6: trained athlete versus.
Speaker 5: Yeah, yeah, exactly.
Speaker 6: So I think that same analogy can apply to your
Speaker 6: financial advice. Right, So if you're like just starting out,
Speaker 6: you're going to give someone very different advice than if
Speaker 6: someone's you know, trying to get to let's say ten
Speaker 6: million plus or one hundred million plus, et cetera.
Speaker 1: Does it have to be a ladder? Can it be
Speaker 1: an escalator?
Speaker 6: It could, in theory be whatever analogy you want. I
Speaker 6: think the term the wealth ladder has been used a lot,
Speaker 6: but there's no official like, oh, this is the person
Speaker 6: that coined it or anything. It's just been kind of
Speaker 6: used as like there's like these stages to wealth, and
Speaker 6: so I just wanted to actually finally put you know
Speaker 6: my name on this phrase and actually define it.
Speaker 3: And wealth escalator just wouldn't sell it in the same
Speaker 3: way that the latter might. Yeah, So one of the
Speaker 3: things you say is we've been looking at wealth the
Speaker 3: wrong way. Why and how do you want us to
Speaker 3: look at it?
Speaker 6: I think people they understand this intrinsically, Like the difference
Speaker 6: between zero having no money in ten thousand dollars is
Speaker 6: pretty large for people, Like if you go from zero
Speaker 6: to ten thousand, that can like reduce a lot of stress,
Speaker 6: et cetera. But then even someone going from like one
Speaker 6: million to two million may not change their life all
Speaker 6: that much, I mean relatively right. And so of course,
Speaker 6: like ones a million dollar change the other ones a
Speaker 6: ten thousand dollars change, Like, it's not linear in terms
Speaker 6: of the happiness, enjoyment changing your life, et cetera. And
Speaker 6: so there's this kind of diminishing marginal utility of money.
Speaker 6: You know, as you have more of it, it's becomes
Speaker 6: less and less valuable. Right, you need a bigger boost
Speaker 6: or a bigger hit, so to speak, to see the
Speaker 6: same jump and happiness or well being, live satisfaction, et cetera.
Speaker 6: And I think people realize that. And so by defining
Speaker 6: the wealth ladder and the way I did, I think
Speaker 6: it's a better way of looking at money and thinking
Speaker 6: about spending income investments, et cetera.
Speaker 2: Yeah, I like the way you did this and you
Speaker 2: had you posted something on Twitter and I'll just read
Speaker 2: off of what it is. And it was a little controversial.
Speaker 2: Some people debated this. When you talk about wealth and
Speaker 2: like classes, I think people can be touchy.
Speaker 4: But here's what you say.
Speaker 2: Under ten thousand, wealth is paycheck to paycheck.
Speaker 4: Level one ten.
Speaker 2: Thousand to one hundred thousand is grocery freedom, which is
Speaker 2: where you can buy groceries without worrying about it. And
Speaker 2: then level three is restaurant freedom. That's one hundred thousand
Speaker 2: to one million.
Speaker 1: And by the way, if you mentioning, this is net worth, right, yeah.
Speaker 2: This is net worth and household net worth, yeah, not income.
Speaker 2: And then level four is travel freedom one million to
Speaker 2: ten ten million.
Speaker 4: You can travel when and where you want.
Speaker 2: Level five is house freedom ten million to one hundred million.
Speaker 2: You can afford your dream home with little impact on
Speaker 2: your overall finances. And then finally level six, which is
Speaker 2: where I am, but Joel wishes he was one hundred
Speaker 2: million plus. You can use money to have a profound
Speaker 2: impact on the lives of others, you know, businesses engaged
Speaker 2: in philanthropy, et cetera. So I think it was the
Speaker 2: middle upper middle class where you got a little weird
Speaker 2: like if you know, middle class being up to a million,
Speaker 2: I think was part of it. But can you talk
Speaker 2: about the feedback you got from that and what was
Speaker 2: like the points that were most contentious.
Speaker 3: I think I noticed that got two point three million
Speaker 3: eyeballs that post.
Speaker 6: So yeah, so that post said, like, okay, level one,
Speaker 6: which is less than ten thousand, I said, that's lower
Speaker 6: class ten thousand to one hundred thousands. Level two that's
Speaker 6: working class. Level three, I would say that's middle class.
Speaker 6: That's one hundred thousand to a million dollars. By the way,
Speaker 6: that's about forty percent of households. So there's twenty percent
Speaker 6: Level one, this is US household US households, twenty percent
Speaker 6: L one, twenty percent Level two, forty percent in level three.
Speaker 6: So that's now eighty percent of the entire US has
Speaker 6: less than a million. About eighteen percent are in level
Speaker 6: four that's one to ten million, and then the top
Speaker 6: two percent is level five and six, which is ten
Speaker 6: million plus. And when I said, you know, one to
Speaker 6: ten million was upper middle class, of course, some people
Speaker 6: are like, well, if you have you know, six million
Speaker 6: dollars in Alabama, you're definitely upper class. I'm like, yes, okay,
Speaker 6: you can, you know, use these examples. But like if
Speaker 6: you have six million dollars in New York, I wouldn't
Speaker 6: say you're necessarily upper class, right, so I think you're
Speaker 6: upper middle class.
Speaker 5: You're obviously doing well for yourself.
Speaker 6: But you know, with the price of an apartment even
Speaker 6: like it's pretty expensive.
Speaker 5: Right.
Speaker 6: So anyways, I said this, it's very controversial. I tried
Speaker 6: it to make it as useful as possible and like
Speaker 6: agnostic to location, and I think the idea here is,
Speaker 6: you know, what I'm especially what I'm seeing is like
Speaker 6: the upper middle classes. I define it with the one
Speaker 6: to ten million range. There's a lot of people in
Speaker 6: that range, eighteen percent of the US, and it's it's
Speaker 6: tripled since nineteen eighty nine on an inflation adjusted basis
Speaker 6: used to be about seven percent. So yeah, eighteen is
Speaker 6: not exactly triple, it's like two and a half times larger.
Speaker 6: But that's kind of the big change that's happened in
Speaker 6: our society. I'm starting to see it in other ways,
Speaker 6: like the AMX lounge is overrun at the airport. You
Speaker 6: go to a nice resort and like you have to
Speaker 6: go out at seven am to get your pool chair, right,
Speaker 6: because people race to get them.
Speaker 5: So it's like.
Speaker 6: There's some sort of scarcity thing going on where the
Speaker 6: upper middle class is like being overcrowded. And I think
Speaker 6: a lot of people aren't talking about that, and that's
Speaker 6: kind of one of the issues I wanted to bring
Speaker 6: up with this book as well.
Speaker 2: So we talk about these levels, right, what percent or
Speaker 2: how would you describe people getting up to these levels
Speaker 2: because this stock market went up a lot versus income? Right, Like,
Speaker 2: if I look at somebody who has a million in
Speaker 2: net worth, is that typically a lot? Like how much
Speaker 2: of that is just because the market went up? So
Speaker 2: we talk about these like scarcity where you have a
Speaker 2: lot of people fighting for chairs and the MX lounge.
Speaker 2: How much of that is on the back of the
Speaker 2: US stock market because I don't are people really making
Speaker 2: that much more money?
Speaker 4: Or is a lot of this the wealth effect because
Speaker 4: of stocks?
Speaker 5: It's a mix.
Speaker 6: And so that data I'm quoting that all the data
Speaker 6: I use for these percentages was twenty twenty two to
Speaker 6: twenty twenty three. It's it's the survey of consumer finances,
Speaker 6: which is across those two years, and at the time,
Speaker 6: if someone's in level four, so one to ten million,
Speaker 6: roughly thirty percent of that wealth on average is in
Speaker 6: their primary residence, and in terms of the retirement account,
Speaker 6: it's about twenty five percent. So over half of that
Speaker 6: wealth of someone in level four is typically going to
Speaker 6: be included in their house and their retirement account. So
Speaker 6: the other half would be other things vehicles, obviously cash,
Speaker 6: other stocks they have if they own a business, anything
Speaker 6: like that. So roughly half of that wealth if you're
Speaker 6: in level four should be in kind of these less
Speaker 6: liquid assets, right retirement home equity. So how much of
Speaker 6: that is being due to the stock market going up?
Speaker 6: A decent portion of it is obviously over half of it.
Speaker 6: But you know, I don't have the new The new
Speaker 6: estate is going to come out next year, and we'll
Speaker 6: look at it then and see like, oh, has that
Speaker 6: gone up, has it gone down, et cetera. But I
Speaker 6: do think there is quite a bit of paper wealth
Speaker 6: here where like, hey, well my house is worth this,
Speaker 6: but you can't really access it outside of like a
Speaker 6: heelock or something. So I think the main thing to
Speaker 6: think about here is just like, well, either way, there's
Speaker 6: still a lot more people in this kind of bucket
Speaker 6: level four, as I call it, and because of that,
Speaker 6: like they are spending more, they're traveling more. I think
Speaker 6: that's what's changing a lot in the United States, and
Speaker 6: it's impacting you know, consumer goods in that sector.
Speaker 5: In particular.
Speaker 3: How walled off are each of these levels, Like how
Speaker 3: often are we seeing people go from level three to
Speaker 3: level four, level four to level five, or you know,
Speaker 3: vice versa.
Speaker 1: I supposed to.
Speaker 6: Yeah, so it depends on the timeframe. So I covered
Speaker 6: this in chapter ten in the book, and this was
Speaker 6: actually kind of one of the reasons why I wrote
Speaker 6: the books. I basically wanted this like mobility matrix, which
Speaker 6: would be like, hey, if you start in level three,
Speaker 6: like after ten years, what's the probability you're going to
Speaker 6: be in level four?
Speaker 3: Because my assumption is that this wall is getting higher, right,
Speaker 3: it's getting harder and harder to advance out of levels.
Speaker 1: There's an entrenchment on ust.
Speaker 6: So I haven't looked in that at in particular, like
Speaker 6: looking at the switching rate, let's say from nineteen eighty
Speaker 6: nine to nineteen ninety nine versus ninety nine to two
Speaker 6: thousand and nine. Obviously that's a weird period because of
Speaker 6: the GFC, But you get my point, and either way
Speaker 6: that in general, most people are in the same wealth
Speaker 6: level after a decade, right, So, and that's that's at
Speaker 6: least true, like across every wealth level. So if you
Speaker 6: start in level two a decade later, you're very likely
Speaker 6: to be in level two. If you start in level three,
Speaker 6: you're seventy two percent of households will still be in
Speaker 6: level three after a decade. If you're in level four,
Speaker 6: seventy two percent will still be in level four after
Speaker 6: a decade. Three percent make it to level five, et cetera.
Speaker 6: And all this data is in the book, right, and
Speaker 6: so we can talk about it just in general, like
Speaker 6: just across all wealth levels, agnostic with the levels, about
Speaker 6: twenty one percent of households will go up one level
Speaker 6: within a decade, about three percent will go up two levels,
Speaker 6: so one in four are going to be up a
Speaker 6: wealth level.
Speaker 5: Right.
Speaker 6: So once again, these some of these levels are pretty broad,
Speaker 6: like level four is one to ten million, so you
Speaker 6: can stay in that wealth level. Doesn't mean you didn't
Speaker 6: build wealth, right, So it's another thing to think about here.
Speaker 6: It's just I'm trying to say, like what are these
Speaker 6: big step changes those are the ones that are kind
Speaker 6: of important have probably a bigger impact on our lives.
Speaker 6: And the same thing, how many people fall down the ladder,
Speaker 6: It's about twelve thirteen percent over the course of a decade,
Speaker 6: even though the course of two decades it's about the same.
Speaker 6: So that doesn't really change much, right, So whether they're
Speaker 6: talking ten years or twenty years, the number of people
Speaker 6: that fall down the ladder is about you know, let's
Speaker 6: say one to ten in some fashion. And the number
Speaker 6: of people that go up the ladder, as I said,
Speaker 6: is about twenty four percent over a ten year period.
Speaker 6: Over a twenty year period, it's about thirty seven percent,
Speaker 6: so it's.
Speaker 5: A bit higher.
Speaker 6: So there is still a lot of positive mobility. I
Speaker 6: don't know about the time factor though, which is what
Speaker 6: you brought up.
Speaker 3: It's a good point.
Speaker 4: You have clients in all these ladders, I take it.
Speaker 6: Yeah, we we have clients across the wealth ladder, right,
Speaker 6: we have those. I mean technically we don't have a minimum,
Speaker 6: So we have people with some probably not many, with
Speaker 6: less than ten thousand. Some would just maybe just less
Speaker 6: than ten thousand with us, but they may have obviously
Speaker 6: assets elsewhere, they own a home, et cetera. But for
Speaker 6: the most part, yeah, we have people across that. We
Speaker 6: have people technically in one hundred million plus. We don't
Speaker 6: have too many of them, but we have a handful
Speaker 6: of one hundred million dollars plus clients. And then we
Speaker 6: have obviously our our bread and butter is level four
Speaker 6: and level five, which is you know, one to ten
Speaker 6: and then ten plus.
Speaker 2: Because you do talk about like like this is just money, right,
Speaker 2: and there's also just like happiness and general you know,
Speaker 2: content with yourself and and you talk in here about
Speaker 2: some of the you know, there can be some things that.
Speaker 4: Go wrong when you get a lot of money.
Speaker 2: Relationships, family dynamics, your kids, stress levels.
Speaker 4: Is that something you've noticed.
Speaker 2: Like is already correlation to other things like the more
Speaker 2: money you have, the more paranoid you get, or the
Speaker 2: more you hate taxes in in a weird way, or
Speaker 2: I don't know. I'm just thinking about this because sometimes
Speaker 2: I sometimes think of that famous chart that USA Today
Speaker 2: used to put out with like countries ranked by happiness,
Speaker 2: and like I think Nigeria was like number one and
Speaker 2: the US is like twentieth, And I wonder if there's
Speaker 2: an any kind of other correlations with general disposition or
Speaker 2: happiness or anything like that with these brackets.
Speaker 6: So there is data on happiness and income and then
Speaker 6: also data on happiness and wealth. And so most of
Speaker 6: your audience has probably heard of the conom and deed
Speaker 6: and study, which is like, oh, once you earn over
Speaker 6: seventy five K year, your happiness doesn't increase. Long story short,
Speaker 6: that data wasn't exactly correct. It's the measure was. It
Speaker 6: wasn't measuring happiness. It was measuring unhappiness, which is kind
Speaker 6: of a weird thing. So it was saying that after
Speaker 6: seventy five K year, you can't prevent unhappiness, which is
Speaker 6: a weird as a double negative, right, so it's kind
Speaker 6: of hard to think about. But long story short, a
Speaker 6: guy named Matthew Killingsworth sat down with Condom and they
Speaker 6: look through the data and everything. While Cocondom is still alive.
Speaker 6: They look through it and they agreed that the measure
Speaker 6: was wrong. And so the new takeaways. No, happiness keeps
Speaker 6: increasing all the way up with your income, but only
Speaker 6: if you're already happy. So if you're unhappy, more money
Speaker 6: is not going to make you happy, right, especially if
Speaker 6: you have a lot of money. So if you're unhappy.
Speaker 6: I mean, let me just summarize the findings. If you're poor,
Speaker 6: more money is likely to make you happier. If you're happy,
Speaker 6: more money is likely to make you happier. But if
Speaker 6: you're not poor and you're not happy, more money's not
Speaker 6: going to do a thing, right, That's kind of the
Speaker 6: main takeaway. So they found like, hey, if you're unhappy
Speaker 6: and you're in level three or level four, money's probably
Speaker 6: not the issue. It's something else going on. And I
Speaker 6: think that's the big takeaway from the research. It's not
Speaker 6: out there people still believe, oh the seventy five thousand
Speaker 6: thing that's so old that needs to be like killed
Speaker 6: already and just gotten rid of, because there's new data
Speaker 6: out there that shows like across income and wealth is
Speaker 6: probably even stronger than income. The more you have, the
Speaker 6: generally the happier you are, assuming you're already happy.
Speaker 1: That is it, flatline though, Like oh it kep's going
Speaker 1: to just keeps going.
Speaker 6: Out, but you have to be happy. It only goes
Speaker 6: up if you're happy. So the people who are like
Speaker 6: not even thinking about like, oh I'm not happy right now,
Speaker 6: Oh do I need more money? Like that's it it's
Speaker 6: a very it's very ironic, like the people that aren't happy.
Speaker 6: If you're looking for money is the solution, that's not
Speaker 6: the solution. But if you're just if you're loving life,
Speaker 6: everything's great. If I just gave you an extra million bucks,
Speaker 6: you'd be even everything'd be even happier for you. So
Speaker 6: like that's kind of a weird irony here.
Speaker 2: In other words, if you're not happy and you have
Speaker 2: this big void inside and you're trying to fill it
Speaker 2: with money, it just won't.
Speaker 4: You can never fill it.
Speaker 5: Yeah, exactly, not with money.
Speaker 6: It's something else maybybe accomplishment or something else might be
Speaker 6: able to fill that. But yeah, if it's not, of course,
Speaker 6: and then excluding people who are like very poor, like
Speaker 6: if you're if you're in like abject poverty, Like, yes,
Speaker 6: money is going to make you happier.
Speaker 5: There's no debate there. It's clear in the data.
Speaker 3: It feels like Rosebud fits in here somewhere. Yeah, so
Speaker 3: this is a podcast about ETFs. Let's bring it back
Speaker 3: to ETFs. How do ETFs figure into the wealth ladder?
Speaker 6: I mean, the big takeaway from the wealth Flatter, at
Speaker 6: least on the investment side, is those in levels one
Speaker 6: to three, less than twenty five percent of their assets
Speaker 6: on average are an income producing assets things like stocks, bonds,
Speaker 6: et cetera. That ETFs would you know, you'd hold three ETFs.
Speaker 6: Those in levels four to six have over half of
Speaker 6: their assets and income producing assets. So like that is
Speaker 6: the big difference between those lower on the wealth flatter
Speaker 6: and those higher on the wealth flatters. Those lower on
Speaker 6: the wealth flatter don't own that many assets that produce income.
Speaker 6: Those higher on the wealth flatterer have the majority of
Speaker 6: their assets are actually assets that produce income of some sort.
Speaker 6: So that's you know, you could be retirement account with
Speaker 6: an ETF, individual stocks or you know stock ETFs things
Speaker 6: like that, or owning an individual business. So in terms
Speaker 6: of like what are the things to think about, and
Speaker 6: I kind of show this in chapter three. It shows
Speaker 6: like how much percentage by each wealth level, like what
Speaker 6: percentage is in retirement accounts, what percentage is in businesses,
Speaker 6: is in stocks, real estate, et cetera. And looking through that,
Speaker 6: it's very clear that you know, level four, which is
Speaker 6: like the most the largest wealth level after you know,
Speaker 6: in the upper end they primarily have a lot of
Speaker 6: their money in stocks, retirement accounts, other types of income
Speaker 6: producing assets of that sort.
Speaker 2: When it comes to ETFs, I've always thought, you know,
Speaker 2: and I wrote when I wrote the Bogel book, especially
Speaker 2: low cost Vanguardian type ETFs, that they are kind of
Speaker 2: a gift for advisors in any people because you don't
Speaker 2: have to worry about them, Like, once you lock into those,
Speaker 2: they're so low cost, you can literally just get.
Speaker 4: Married to them.
Speaker 2: You don't have to fuss with your investments that much
Speaker 2: because you know you're in the good stuff.
Speaker 4: Do you find that is true with.
Speaker 2: Those people, that their ability to keep buying, as you
Speaker 2: would put it, is easier because the products they're in
Speaker 2: are lovable and reliable versus thirty years ago when you're
Speaker 2: chasing active managers and active mutual funds, and it's harder
Speaker 2: to be well behaved if you feel like you're not
Speaker 2: in the right fund in a downturn, Whereas if you
Speaker 2: have Voo or something and it's a market down ton
Speaker 2: you're like, well, what the hell's am I going to do?
Speaker 2: I'll just hold it and we all know that's the
Speaker 2: better move.
Speaker 4: We win in the end with that attitude, have.
Speaker 2: You because I always thought, you know, I interviewed Michael
Speaker 2: Lewis for the book, The Bogle Book, and he said
Speaker 2: ETFs have like helped me become a better writer. I
Speaker 2: can just focus on that. I don't have to check
Speaker 2: this stuff at all. So that's something I just as curious.
Speaker 2: From your role as an advisor, they seem like a
Speaker 2: godsend because you just buy these like really easy going ETFs,
Speaker 2: maybe customize the portfolio a little bit, and then we'll
Speaker 2: focus on other stuff.
Speaker 6: I mean, I completely agree with that. I think it's
Speaker 6: allowed passive investors to just free ride off all the
Speaker 6: work that all the active investors are doing to set prices.
Speaker 6: And now, of course, how good is price discovery that's
Speaker 6: obviously debatable, especially as the passive share gets bigger and bigger.
Speaker 6: I think just in general, yeah, it's one of those
Speaker 6: things where like I don't have to worry about it.
Speaker 6: You know, you put and this is only going to
Speaker 6: work for people who get it. Not everyone's gonna get this.
Speaker 6: They're not going to believe that. And if they don't
Speaker 6: believe that, when there's a downturn, maybe they will abandon
Speaker 6: their VTI or their VOO. Most people don't because they
Speaker 6: get it. They're like, I just got to keep buying
Speaker 6: over time and just do this and the market generally
Speaker 6: goes up. And that has been shown to be true
Speaker 6: over a very long period. We can go back to
Speaker 6: nineteen twenty six. You see that in the US market.
Speaker 6: Of course, there are exceptions. There's Japan, there's Greece, there's Russia. Right,
Speaker 6: we can talk. I know all the exceptions very well.
Speaker 6: There's very dark periods for equities where this can happen.
Speaker 6: But if you're diversified across a broad range of assets,
Speaker 6: it's very unlikely that you're going to lose money on
Speaker 6: an inflation adjusted basis over a long period.
Speaker 5: Of time, especially if you're buying over time.
Speaker 6: I agree, if you put all your money in at once,
Speaker 6: there's a little bit more risk, right, because you're not
Speaker 6: diversifying across time with your payments or I'm sorry, with
Speaker 6: your contributions. But that's just something else to consider when
Speaker 6: you're thinking about this stuff.
Speaker 3: Right, I'm going to assume that most of our listeners
Speaker 3: are in level four, maybe level three, let's say the
Speaker 3: wash of.
Speaker 1: The majority as you as you call it.
Speaker 3: What are the actionable takeaways that you want them to
Speaker 3: hear from this book?
Speaker 6: So level three is a little different than level four.
Speaker 6: Level three obviously it's keep investing and usually a lot
Speaker 6: of these people wrote that book already, Yeah, I know,
Speaker 6: just keep buying. Yeah, well that is the lesson of
Speaker 6: level three, So there's not much. I mean, if you've
Speaker 6: already read just keep buying, you and you're in level three,
Speaker 6: that's kind of the main takeaway that if you're in.
Speaker 6: I mean, the other thing you consider is like people
Speaker 6: starting side hustles, thinking about your career, how do you
Speaker 6: raise your income? That's something I focus on a lot
Speaker 6: in level three. In level four, it's actually a different lesson,
Speaker 6: and the lesson in level four is like what got
Speaker 6: you here won't get you there. So the thing to
Speaker 6: get into level three and level four they're very similar,
Speaker 6: just usually takes more time, and that's you know, get
Speaker 6: a good job, save money, invest in ETFs, et cetera.
Speaker 6: You know, diversification in coome producing assets, you'll get there.
Speaker 6: To get to level five, which is ten million plus,
Speaker 6: that's a completely different ball game, and I think that
Speaker 6: requires in general, outside of celebrities, athletes, entertainers, some sort
Speaker 6: of entrepreneurship, right, unless you're making you know, tens of
Speaker 6: millions of dollars a year. You're not going to get
Speaker 6: into level five unless you have a business that brings
Speaker 6: in a lot of income and you either you know,
Speaker 6: save that income for a long time or you sell
Speaker 6: the business for a lot one day. So I think
Speaker 6: the big decision point for those in level four is
Speaker 6: like do I need to keep doing this?
Speaker 5: Do I take my foot off the gas?
Speaker 6: There's ideas of coast fire or fire financial independence. There's
Speaker 6: a lot of these things come up in level four
Speaker 6: because you start to think, like how much am I
Speaker 6: even impacting my finances anymore?
Speaker 4: Right?
Speaker 6: So let me just a simple example. If you're saving
Speaker 6: one hundred K a year and you have a million dollars,
Speaker 6: that's ten percent you're impacting your wealth every year. By
Speaker 6: the time you have five million dollars, it's only moving
Speaker 6: your wealth by two percent. So over time, like your
Speaker 6: labor is going to get less impactful on an annual
Speaker 6: basis in terms of impacting your wealth. So the question
Speaker 6: is like, do I need to keep working? Should I
Speaker 6: take a step back and I do something I enjoy
Speaker 6: more that pays less A treadmill? Yeah, I think it's
Speaker 6: I think it's one of those things where you have
Speaker 6: to think about, like what do I do at this point?
Speaker 6: And that's like the big decision idea in level four
Speaker 6: is like do I take a step back? Do I
Speaker 6: need to change my my path completely? If I want
Speaker 6: to get to level five. I'm not saying you need
Speaker 6: to get to level five. I don't think that's necessary whatsoever.
Speaker 6: But for some people that want that, okay, maybe you
Speaker 6: need to take a different route.
Speaker 1: To get there.
Speaker 3: So, as Eric mentioned, he's he's level six, I'm level five.
Speaker 3: What's he doing that I'm not doing?
Speaker 6: He probably just either he had a business that he
Speaker 6: worked on for longer than you, or he sold his
Speaker 6: first business and then learned all those bad lessons from
Speaker 6: selling that one, and then, you know, start a second business.
Speaker 6: That's typically what happens. It's not their first business, their
Speaker 6: second business.
Speaker 1: They got to be something else. Because I don't I
Speaker 1: don't think that's him or ETFs.
Speaker 5: Does he have a lot? Is he an ETF is shuer?
Speaker 3: Maybe No, I think that would be a conflict of interest.
Speaker 3: I'll have to talk to him offline about that. He's
Speaker 3: become suspiciously quiet.
Speaker 2: Yeah, I know, I don't have an answer for this.
Speaker 2: I don't want to reveal my secrets for unlike private
Speaker 2: equity companies, I'm not looking to democratize this great thing
Speaker 2: I have. Okay, all right, but by the way, this
Speaker 2: idea of like, okay, people try to get a good job,
Speaker 2: they try to get a good salary. Then like then
Speaker 2: they invest, and then they tend to the investing really
Speaker 2: powers half their funds.
Speaker 4: Later on, there's this I think the bill.
Speaker 2: Passed, right, so there's a in twenty twenty six, they're
Speaker 2: going to have a opportunity where kids will get one
Speaker 2: thousand dollars put into an account. This is a Trump account,
Speaker 2: and I think it's gonna the.
Speaker 1: What the Trump account?
Speaker 4: Yeah, I mean, I don't know what they're calling.
Speaker 5: Is that what is called the child?
Speaker 6: I mean, yeah, they're putting a thousand dollars per child born.
Speaker 6: I think in twenty two. I don't know if it's
Speaker 6: this year or in twenty twenty six.
Speaker 2: Yeah, next year, it's just twenty twenty six, and then
Speaker 2: parents can obviously do it's like a four to one
Speaker 2: k for your kid in a way, and they can
Speaker 2: put money into it. This was an idea put forth
Speaker 2: by Tyrone Ross, who you know.
Speaker 4: He thought this was the solution.
Speaker 2: To killing the wealth gap in America. He had one
Speaker 2: other stipulation which I liked, which is that you can't
Speaker 2: get the money out as the kid until you're eighteen,
Speaker 2: and you have to pass a financial literacy test. Because
Speaker 2: so many people don't know what the hell's going on
Speaker 2: with investing. The only thing they might have gotten is
Speaker 2: like a stock picking competition in like middle school.
Speaker 4: And I don't know.
Speaker 2: This seems like a good idea. Is there any downside?
Speaker 2: Do you think this will help with the ladder climbing?
Speaker 6: I guess the question. I mean, I think it's it's
Speaker 6: better than not doing it, right. I think a lot
Speaker 6: of a lot of the issues we see. As long
Speaker 6: as the account can't be raided, you can't take money
Speaker 6: out of it like you have to. It's almost like
Speaker 6: a it's like a private equity lock in, right, that's
Speaker 6: actually the it's a pheasic canvas.
Speaker 5: Yeah.
Speaker 1: Right.
Speaker 6: If you can't take the money out, that's eighteen years
Speaker 6: of compounding. Right, even even if we go very conservative
Speaker 6: and say four percent per year inflation adjusted, that's like
Speaker 6: still very good, right, Like it will build wealth. Now,
Speaker 6: the question is, as soon as these people turn eighteen,
Speaker 6: what do they do with the money. And even if
Speaker 6: you pass a test, you can study for a test.
Speaker 6: That doesn't mean, like, just because I know the right
Speaker 6: answer doesn't mean I'm gonna do the right thing right.
Speaker 6: So there is the possibility of someone, you know, they
Speaker 6: finally get there, they have you know, how much is
Speaker 6: in this account. Let's say it's I don't know, fifty
Speaker 6: grand maybe I don't know, and they could it all
Speaker 6: right away. I mean, so it's a question of you know,
Speaker 6: people at eighteen are not necessarily the best decision makers.
Speaker 6: I think we all know that I wasn't the best
Speaker 6: decision maker when I was eighteen.
Speaker 2: But isn't isn't part of the idea that a lot
Speaker 2: of parents would be able to use this money for
Speaker 2: college versus having to borrow it, which can be brutal
Speaker 2: later on.
Speaker 6: I mean, that's another option as well. But I guess
Speaker 6: is it the question now? Is is it the child's
Speaker 6: money or the parents money to use for college?
Speaker 1: Like?
Speaker 6: How how is this? Who's the account under? And when
Speaker 6: does the custody transfer or whatever? Like all these types
Speaker 6: of questions matter in terms of how it actually plays out.
Speaker 6: So I think it's a good idea. I actually liked
Speaker 6: the idea of a sovereign wealth fund at the same time,
Speaker 6: like it's better than nothing.
Speaker 5: I think just getting people.
Speaker 6: In levels one, two, and three to own more income
Speaker 6: producing assets is a good thing period, Like full stop.
Speaker 6: I think that will help with the wealth inequality. It's
Speaker 6: not going to solve it completely, because there's just existing
Speaker 6: inequality that's just being exacerbated over time. And if people
Speaker 6: aren't you know, don't have enough income to buy and
Speaker 6: come producing assets, then that's not going to help either. Right,
Speaker 6: A lot of people can't afford or to even put
Speaker 6: money into an ETF.
Speaker 3: Unfortunately, Nick, I'm curious, what do you know now having
Speaker 3: done the book that you didn't know before you did
Speaker 3: the book?
Speaker 1: What'd you learn?
Speaker 5: There's a few things.
Speaker 6: I think The stuff I talk about on level four
Speaker 6: with like the difference between getting out of that level
Speaker 6: versus getting into that level was even more striking than
Speaker 6: I thought it would be. And I use this. I
Speaker 6: used some math to show this, Like once again, a
Speaker 6: million dollar portfolio, you're saving one hundred k a year.
Speaker 6: Let's say you're it's growing by five percent a year
Speaker 6: after inflation, how long does it take to get to
Speaker 6: ten million? The answer is twenty eight years. So like,
Speaker 6: even like you're saving one hundred k year, that's a
Speaker 6: lot of money. You're doing well, you're grinding, it still
Speaker 6: takes you thirty years. And that's after you already hit
Speaker 6: a million, right, which could take someone a few decades
Speaker 6: to get there, right, So you think about that and
Speaker 6: you're like, wow, like doing all these things, the nine
Speaker 6: to five going through that, like it is a rough
Speaker 6: grind to get to ten million from here, and so
Speaker 6: a lot of people rationally so will say, you know what,
Speaker 6: I'm not gonna do that. I don't care about doing
Speaker 6: that and take their foot off the break our foot
Speaker 6: off the game, so to speak. And that was one
Speaker 6: of the big things I learned. And then also just
Speaker 6: seeing how much business interest is at the higher end
Speaker 6: of the wealth flatter. I knew that was true, but
Speaker 6: when I saw it in the data, it's like overwhelmingly,
Speaker 6: you know, the higher you go up the wealth flatter,
Speaker 6: the more people just have their own businesses, right. And
Speaker 6: it's just, of course there's some survivorship bias there. I
Speaker 6: understand all that, but if you just look at people
Speaker 6: in level six, all of them, it's like the vast
Speaker 6: majority of their wealth is in their businesses one way
Speaker 6: or another.
Speaker 3: Last question for you, you're a little fine print at
Speaker 3: the beginning to my father for teaching me the game
Speaker 3: don't move until you see it?
Speaker 6: What's that about Bobby Fisher that it's an old movie.
Speaker 6: He taught me chess when I was, like, you know,
Speaker 6: very young thing. I was four or five when he
Speaker 6: started teaching me, and I started playing as friends, and
Speaker 6: it really made me realize that, you know, like chess
Speaker 6: as an analogy for like life is actually probably more
Speaker 6: true than almost any game out there, because you're looking
Speaker 6: at the board. For any thee that's played chess, you
Speaker 6: look at the board a certain point in time and oh,
Speaker 6: I want to make this move. Oh I can't make
Speaker 6: this move because they could do that a few moves later.
Speaker 6: The board's changed. Now that move that didn't make sense
Speaker 6: can now make sense. And I think the same thing
Speaker 6: was true when I was writing The Well Ladder. Oh
Speaker 6: I could do this now, but maybe that's not the
Speaker 6: right move. Like starting a business when you're twenty two,
Speaker 6: some people have succeeded it, most would fail. I think
Speaker 6: most of the successful business owners are actually in their
Speaker 6: forties because they've actually had industry experience, they have more connections,
Speaker 6: and they have money to start the business. So the
Speaker 6: move doesn't make sense at twenty two makes a lot
Speaker 6: more sense at forty two, right, And so I think
Speaker 6: thinking through that is when you realize, like wow, life
Speaker 6: is more like a chess game than and first glance.
Speaker 1: Nick Majulia, thanks for joining us on Trillions.
Speaker 5: Thanks Pridman, guys appreciate it.
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Speaker 1: executive producer. Sage Bauman is the head of Bloomberg Podcast