April 13, 2022

Investing in the Age of "Overvalued" Stocks & Homes with Nick Maggiulli

Investing in the Age of "Overvalued" Stocks & Homes with Nick Maggiulli

What bubble? Should we invest elsewhere, or just keep buying?


Today, my friend Nick Maggiulli (COO of Ritholtz Wealth Management & former data scientist, as well as author of Of Dollars & Data and his new book, Just Keep Buying) joined me to talk about something that’s been (justifiably) freaking me out a little bit lately. To boil it down to its most layman's terms is the government’s money printing the reason why stocks and homes are worth so much more now, and does that mean we’re headed for a crash? 

More to the point: What the hell do we do about it?

I think you’ll enjoy the little history lesson throwback (Kansas farmland in the 1970s, anyone?), the explanation of quantitative easing and expansionary monetary policy (I wish my Econ 101 professor could see my B+ self now), and—most importantly—the conversation I had with Nick about what we’re supposed to make of all this.

Here's the Politico article referenced.

Point of clarification: We reference the S&P 500's current PE ratio (25) and Shiller PE ratio (36) in this episode. These are two different measures of trying to assess how over- or underpriced a stock or index is.

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Full episode transcript below

Transcript

Katie: Welcome back rich girls and guys to the Money With Katie Show. I have a confession to make y'all, the more I learn about money and investing and macroeconomics in general, the more I realize that I don't know shit. So, I think it's good to be regularly humbled and cut down to size, but there is one boogieman, so to speak, that's really been tormenting the back of my mind in the months since the pandemic, and it's this idea that stocks only have crazy valuations right now because the central banks have added so much money to the system.

Katie: Now, that is an oversimplified way to describe what's actually happening, no doubt, partially because if you were to literally hold a gun to my head and tell me to perfectly explain what's happening, I don't actually think I'd be able to. It's kind of challenging though, to reconcile this historic faith in the stock market and its relentless climb upward with the reality that so much new money has been added in recent years, that it almost feels like we're in the midst of something different now, that the reality we're living in is somehow different from the past and that maybe our confidence is misplaced.

Katie: So let me describe in the most basic terms with a little analogy, what it feels like is happening right now. And remember, this isn't necessarily perfectly accurate, but this is in my head, how I'm conceptualizing it and what I really wanted to take a deeper look at today. So there used to be X dollars in the system and those X dollars were allocated across the population in cash that people were spending in properties, in companies, in stocks, whatever.

Katie: So we've got this set amount of money, right? And it's changing hands and it's being invested and it's being spent. Now, imagine you inject twice as much of that amount into the same system. There's this sense that dollars have to pool in assets, that if you add excess cash into a system, it's going to find its way into home values and it into stock values and whatever else, right?

Katie: That drives asset prices up artificially because you've introduced more dollars to chase the same amount of goods and assets. That's also kind of where this idea of inflation comes into play. But the kicker is that, and this is what really concerned me when I was researching for this episode is that it's artificially inflating values because those values aren't actually rising if you control for the amount of new money being added.

Katie: And so in my mind, I'm like, well, it doesn't feel like that means we're headed for a crash, so to speak, it's just that all this excess cash in the system, it's almost like none of these gains were real, question mark. So that was the fear that I was coming into today's episode with, this fear that because of quantitative easing, and that is what we'll dig into today, the stock gains that I've seen in the last couple years are basically an illusion because new money was added as opposed to the value of things actually going up.

Katie: And again, this is just my theoretical conceptualization of this idea. It's not necessarily true, same for houses that have experienced wild appreciation. And you'll almost see people arguing about this on Twitter, right? Like, is the appreciation real? Well, it's only real because someone else is willing to pay more for it. Well, isn't that value actually is, et cetera. And the lag indicator here will be continued inflation because again, there's more money in the system. The prices of things are going to rise. So the phrase that I used earlier, quantitative easing, we should probably rewind and do a little history lesson about QE.

Katie: So I'm going to need a second to prepare that lesson plan. We're going to throw it to break. And when we come back, we will dig in to what is quantitative easing. So what is quantitative easing? Sounds really fun, right? So it all kind of goes back to the financial crisis in 2007, because in 2007, the financial system was on the brink of collapse. No lie, shit was about to fall apart. And so in response to that, central banks in the US and in other countries decided to use a tool called quantitative easing, or QE to essentially inject liquidity into the system.

Katie: By the way, how smart do I sound today? Right? This is just chef's kiss, another level. Because the Fed basically bought all the debt, the bad debt, the mortgage backed securities that were defaulting, right? Fed buys them. How much? About $2.1 trillion worth. So the important thing to know here is that the federal reserve can buy as much debt as it wants. It can create credit out of thin air, basically. That's the power we've given the central bank.

Katie: And at the time, this was kind of a good thing because otherwise the economy, as we know it, would've literally totally collapsed because it was all propped up on this bad debt. And perhaps the most infuriating aspect about all of that was that the head honchos at the big banks that were responsible for this, didn't go to prison for ruining our financial system. They just got giant bonuses and quietly resigned. But it worked, it worked, things got bad, but they could have been a lot worse.

Katie: The big difference between how QE was used back then though, and how it was used in response to the pandemic is that in 2007 to 2009, that money didn't really make its way into the money supply in the same way, it also wasn't as much, and consumer demand didn't increase that much. So anyway, in 2020, you probably received a few checks in the mail for a few thousand dollars and the whole intent of those payments and the increased unemployment benefits and the PPP loans, and all of that, was to prevent a total economic meltdown.

Katie: I was listening to a Tim Ferris interview with Morgan Housel a few days ago. And Morgan was saying that even though we are now experiencing inflation and some other negative consequences, that if the Fed had done nothing during the pandemic where you've got these unforeseen and biological obstacles preventing the economy from functioning properly, we could be experiencing something right now that would've been to quote Morgan, "Much worse than the great depression."

Katie: So it's complex because on one hand, we've got what some are calling an asset price bubble and on the other hand, we would've really been up a creek if they hadn't done anything. So buying debt is one tool that the Fed has in its toolbox to help the economy. The other tool is lowering interest rates, and both of these things fall into the realm of what's called expansionary monetary policy. Sexy.

Katie: But this expansionary monetary policy has really boosted stock prices. And I would tack on home prices since the housing market is considered an asset class in America. Thank you late stage capitalism, more than it actually for really helped the real economy. That's the theory. That's the rub here. That's the crux of the issue and where I find some anxiety personally, because there's this sense that real growth doesn't necessarily match the inflated asset valuations we're seeing.

Katie: And I'm going to be honest here, monetary policy, pretty complicated. I'm a little bit out of my depth in even discussing this and worrying about it. So I wanted to plug a little excerpt from a political article that I think does a really good job of explaining this. And I will link the article in the show notes. All right, this is a quote, "Between 2008 and 2014, the federal reserve printed more than $3.5 trillion in new bills. To put that in perspective, it's roughly triple the amount of money that the fed created in its first 95 years of existence.

Katie: Three centuries worth of growth in the money supply was crammed into a few short years. The money poured through the veins of the financial system and stoked demand for assets like stocks, corporate debt and commercial real estate bonds, driving up prices across markets. The concern being, it's a risky path that would deepen income inequality, stoke dangerous asset bubbles, and enrich the biggest banks over everyone else. He, being Thomas Hanick, a kind of famed Fed dissenter also warned that it would suck the fed into a money printing quagmire that the central bank would not be able to escape without destabilizing the entire financial system." Huh. All right.

Katie: So that's the quote. Doesn't bode too well for the future, right? Now, one story I came across when doing some preliminary research for this episode happened before I was born and actually probably before you were born too, if you fit into my target demo, in the 1970s. So in the '70s, similar story, you've got low interest rates, you've got high demand for loans, which eventually inflated asset bubbles across the Midwest, including in heavy farming states.

Katie: So the weird self-reinforcing thing about bubbles is that cheap debt encourages you to take out more loans. And as a result of everyone having more money at their disposal because of the loans, it pushes up the prices of the things that people are buying with that money. Does this sound familiar? Does this sound 2021's housing market to anyone else? And while you would think that rising prices would discourage people from continuing to buy that thing, when that thing is perceived as an asset, people assume that it means the price is going to continue rising in perpetuity. And so they continue taking out more money and getting even more overextended to buy the thing because they take the current rise in price as proof of a future rise in price.

Katie: And the whole thing is very self-fulfilling. So when the Fed kept interest rates low in the 1970s, it encouraged farmers around Kansas City to take on more cheap debt and buy more land. And as cheap loans boosted demand for land, it pushed up land prices. So pretty textbook there. And so on the flip side of the borrowing, the bankers, their logic followed a similar path. Bankers saw farmland as worthy collateral for the loans, and they believed the collateral's only going to rise in value, right because it has been, gives the bankers confidence to keep extending loans because they believe the farmers would be able to repay them because land prices are just going to keep going up, so on and so forth. This is how things escalate into an ever intensifying doom loop. And in the 1970s, the bubbles were not just confined to farmland.

Katie: The same thing was happening in the oil and natural gas businesses. So you've got rising oil prices and cheap debt, encouraging oil companies to borrow money, to drill more wells. The banks built an entire whole side business dedicated to risky energy loans to pay for these wells and related mineral leases. And it's all based on the value of the oil they're assuming they'll produce. In commercial real estate, same shit. It all came to a crashing halt in 1979 and the new Fed chair comes in and he's all, I'm going to beat inflation by hiking interest rates from 10% to 20% in two years, the highest they had ever been. And now this unleashes massive economic havoc, right? Unemployment rate hits 10%, homeowners have to take out mortgages with 17% interest rates. You've got two types of inflation being fought at this point, asset inflation and price inflation.

Katie: And it all kind of stemmed from the Fed's monetary policy. So that's a scary story obviously, but I hear that and I'm like, is that in a weird way reassuring because even though hit the fan for a hot minute, we know that the economy and the stock market recovered, it took a hit, but it came back. So it's resilient, right? And to make things even more optimistic, we've made those mistakes before, the Fed likely knows right now that if they hike shit up too fast, everything implodes because that's what we saw in the past. But that doesn't change the fact that they're kind of in a dicey spot, it's a rock and a hard place. You can keep artificially juicing the economy by adding more liquidity to it, but if you do it for too long and too aggressively and the real growth doesn't catch up, well now you've got a big old bubble.

Katie: All right. We're back. So the bubble that I mentioned before the break is what I think this all comes down to and why people are nervous about the stock market and housing market right now, because it feels like we're all in a spot where we're trying to determine whether we are inside that bubble right now, or if things are going to be okay. And so now this is where it all comes together to tie into the conversations we were having on Instagram stories in March about wage stagnation and income inequality and all of these broader socioeconomic issues that America faces right now, because it is all connected, right?

Katie: Because that's the weird about looking at wage stagnation in America from 2000 to today and comparing it to stock market growth between 2000 and today, it doesn't even look like it's representative of the same economy and to be clear, the stock market isn't the same thing as the economy. And I'm beginning to realize that monetary policy and Fed intervention might actually be the reason why. So remember Tom Hanick, the outspoken critic and former Fed employee I mentioned earlier, he wrote a paper that ties all of this together very well.

Katie: He used to descent anytime they would propose more quote unquote money printing, but he says, "The only part of the economy that seemed to benefit under quantitative easing and 0% interest rates was the market for assets. The stock market more than doubled in value during the 2000 tens, even after the crash of 2020, the markets continued their stellar growth and returns. Corporate debt was another super hot market, stoked by the Fed, rising from about $6 trillion in 2010 to a record $10 trillion at the end of 2019." So Hanick isn't optimistic about what American life might look like after another decade of weak growth, wage stagnation, booming asset values that primarily benefit the rich.

Katie: And this was something he talked about a lot, both publicly and privately and in his mind economics and the banking system were tightly intertwined with American society. What one thing affected the other. So when the financial system benefited only a handful of people, average people started to lose faith in society as a whole. So my thoughts here initially, I'm like, all right, well, it sounds like loose lending is a big culprit in some of what goes wrong. So I'm like, all right, well, if I'm not buying on margin, in other words, if I'm not over leveraged, if I'm not borrowing money to buy assets, am I lowering the chances that I'm going to get wiped out or burned if things are overvalued right now?

Katie: I do think the answer to that is yes. And also, if I'm buying stocks and companies are heavily leveraged, as in the company itself is heavily leveraged, am I really just one step removed from the problem? So to put that another way, I may not be buying company A's stock on margin, but if company A's value is propped up by a bunch of cheap debt and they aren't able to produce revenues that can service the debt and boost profits beyond it, I'm still going to be impacted by the effects of cheap lending.

Katie: And then the housing example, that's interesting too, right? Because most people do not buy homes in cash. I wouldn't. I do not want all of my money tied up in the equity of my primary residents that is not generating any income for me. So to buy property, you basically have to borrow cheap money and as heard in the whole bubble cycle, it does sound reminiscent of what's happening right now. And people will point to limited supply. And yes, I definitely think that plays a role, but some of these home valuations where they're tripling in value over three years, it's not explained by a sudden extreme decrease in supply.

Katie: So, hopefully this all serves as good context for why I wanted to talk to my guests today, Nick Maggiulli. I used to read Nick's blog of Dollars And Data every single week. And once I got enough internet cloud, we became friends. So Nick just published an awesome data driven book called Just Keep Buying. I knew he would have some takes about all of this. So, Nick, welcome to the Money With Katie Show.

Nick Maggiulli: Thanks for having me, Katie. Appreciate it.

Katie: Absolutely. It's an honor. So in your new book, Just Keep Buying you explicitly address high valuations and the fact that some people are bigger proponents of dollar cost averaging into an investment when valuations are high, because the thinking goes that, hey, this asset's overpriced. And if I buy it right now with all the money I have, I'll be overpaying. So to give us some background, can you explain the valuation metric that you are using and give us kind of an explanation of what it is?

Nick Maggiulli: Yeah. So I use something called the cyclically adjusted price to earnings ratio, or known as the CAPE ratio, C-A-P-E. And I think this is considered the gold standard among valuation ratios. It was developed by the Nobel prize winning economist, Robert Shiller. So, they also call it Shiller's CAPE, there's different words for it. So basically the CAPE ratio is just the market cap of the US stocks, so the price divided by the average of 10 years of earnings. So take the earnings over the last 10 years and just take the average. Why do we use a moving average because we want to smooth out any effects from the business cycle. That's basically how it works. You take that price over earnings, that's basically it, but then you kind of, you average it over 10 years to smooth out that number.

Katie: Oh, okay. So on that note, 10 year look back, what if we're looking at businesses that are not 10 years old, do we just take as much information as we have?

Nick Maggiulli: Yeah. I mean, you've got to do the best you can. If you're including those stocks in there, you just, you'll take the information that's in there, you take the ... Because if they're in the S&P 500 or whatever index they're using for US stocks, as they get added in, they have to then kind of maybe even back date those earnings in some way. So, that's my understanding of how it works.

Katie: Oh, cool. So in your research for the book, which CAPE ratios did you explore and how did investors who waited for things to go down fair?

Nick Maggiulli: So I basically broke the CAPE ratio into four groups or what we call quartiles. And so you can imagine the bottom 25% and then the next 25 to 50th percentile, then the 50th to the 75th and then the top 25%, right? Now, if you actually break that out, what CAPE ratio is in which one, basically the bottom 25% is 15 and below. And the top 25% is I believe, I think it was 25 and above, right if you're in the top 25%, something like that, it's 15. It gets 15 one below and then 15 to 20, 20 to 25 and then 25 and above, right? So anytime we've been above 25, technically that's been in the upper 25th percentile.

Nick Maggiulli: In terms of those who waited, I found that regardless of the CAPE ratio, those who waited for things to drop or kind of slowly waited into the market because they're waiting for the CAPE ratio to come down under performed those who just took the plunge and got invested. And so obviously yes, as CAPE goes up, as the CAPE ratio goes up, the size of that under performance is smaller.

Nick Maggiulli: So generally, when valuations are higher, generally future returns are lower. That is generally true. However, by waiting, those people who generally wait to get invested end up still underperforming despite this fact, right? And so, on average, this is the general truth, right? So, that's the issue. It's not that like, oh, CAPE ratio's higher, expected returns go down. That's generally true. That's pretty clear in the data. The problem is if you wait even longer, you're going to underperform even worse, right? So that's the takeaway is not to wait around to get invested.

Katie: So how do you think about the valuations we're seeing right now? The last I checked the S&P was trading at 25 times earnings right now. I think the Shiller PE ratio is 36 times earnings as of the time of this recording and that relationship to monetary policy. You'll see those charts that graph the M2 money supply to the S&P 500 as of the last few years, and it kind of looks it maps perfectly. So is this chart crime, what are we to make of this?

Nick Maggiulli: So first off 25 times earnings is relatively cheap, relative, even recent history. I remember it hit 30, I think in 2017 and people were saying it was super expensive then. So, that's much more reasonably valued than it has been. So, that's a bullish signal to me, but obviously who knows what's going to happen, right? And then in terms of monetary policy, I try not to focus on it too much because I don't think that's necessarily predictive of market returns in the long run, right?

Nick Maggiulli: And I think I always come back to different examples. Everyone's like, oh, look at the M2 money supply, look at stocks, they go up, there's this great tweet from Joe Weisenthal, right at Bloomberg. And in his tweet he says, "Well, look from 2014 to 2019, over that period, the Fed balance sheet is going down, but the stocks are going up." So, just to say, oh, just because something's correlated, I don't think it's necessarily causal. I don't think you can prove. I think it's very difficult to prove that M2 money is causing all of the asset inflation. I'm not saying that there's none going on because of that. I think that would be naïve, at the same time though, to think like, oh, it's 100% the Fed, I just, it's hard for me to believe that.

Katie: This piece about Joe Weisenthal and pointing out that the 2014 to 2019 Fed balance sheet shrunk yet the stock market sword, can you expand on that a little bit? I'm unfamiliar with that.

Nick Maggiulli: So Joe Weisenthal had this tweet where he basically just like, someone's like, oh, look, the Fed balance sheet's going up, so are stocks. And he is like, well, what do you make of this? Here's a counter example. The Fed balance sheet's going down and stocks are going up from 2014 to 2019. So he's basically saying, it's not always causal, right? Just because the Fed balance sheet could be changing, I don't think it has anything to do with stocks. And sometimes it definitely does.

Nick Maggiulli: I don't want to be naive is what I said. It definitely matters in certain circumstances, at the same time though, the money supply could be going down in some way, or the Fed balance sheet could be going down in some way. And that doesn't mean stocks have to necessarily go up. And here's my real counter here. If you really want to get into this, everyone's like, oh my gosh, the Fed's manipulating the market, then why are you owning the market?

Nick Maggiulli: If they're going to shoot it to the roof, buy it. Are you crazy? Own it? Why would you not? All these people that manipulating market, they're all bears. And they've been saying this since 2012, 2013, whatever. And it's like, the Fed's manipulating the market and you're not going to own the manipulation. I don't remember. I don't really believe that, right? I do think they do affect markets. So I'm not going to say that, but I'm saying to think that they're manipulating the market higher every year, I think it's really tough to make that argument, but it's just like, if they're doing it, then why aren't you owning more ... You should be more bullish than I am. And I'm a bullish person, right? So it makes no sense to me.

Katie: Oh my God. It's so funny because I see those bearish signals, like you said, the people claiming that it's a bad thing, but you're absolutely right. And that was partially the conclusion that I came to before, where I was like, well, if we are in an asset bubble, then isn't the answer to just keep buying assets. If things are going to keep getting pumped higher and higher, then it sounds like that's a sign that it's something you probably do want to be buying.

Katie: But you summarized it perfectly there. And a piece that you wrote recently that I enjoyed, it was about how most of the small corrections that we're seeing are not the big corrections, right? And that when the big one comes, your portfolio is probably going to be the least of your worries. And that almost sounds kind of depressing and pessimistic on its face, but in a way it's weirdly relieving to flush out like, hey, let's actually sit back and what is the worst case scenario? Can you speak to that feeling that this idea that fear is back and how your average retail investor could deal with that sense of anxiety, especially with how volatile things have been?

Nick Maggiulli: Yeah. This is a very simple exercise you can do right now to deal with your anxiety, go to Google right now and Google stock market overvalued, and then just insert a year. So for example, go Google stock market overvalued 2012 or stock market overvalue 2013. And you'll find tons of articles written in that year, telling you why the stock market's overvalued and you can do it in 2013, 2014, 2015. Every single year there's always a reason to sell, to be pessimistic yet the market just kept going up the whole time. So, it's very easy to be afraid and be worried. There's always some worry. Now it's like, world war III. And it's this Russia thing with Ukraine. And there's so many worries. One day those people are going to be right. And they have been right in the past, right?

Nick Maggiulli: But they're rarely right. And most of the time they're over worried and that's the record of history. I mean, we're looking at this line going up and to the right, since the early 1900s and people are still arguing, oh, stocks aren't going to build wealth. Businesses aren't going to have earnings, all this stuff. It's like, just not true, right? The data's just there. So I think the key for me is to ignore macroeconomics altogether and just focus more on your personal situation.

Nick Maggiulli: So, well, you can't really change macro or you can't change what's going to happen in the world. What you can change is your career, your financial decisions, your family, those are things you can actually control anyway. So if we experience another great depression like scenario where you said the big one, the big correction, that's all that's going to matter anyways, is what's going on with you, right? So I say focus less on macro economics and how to position your portfolio and all that, and focus more ... spend your time doing something more productive.

Nick Maggiulli: Let's say you have a photography business, spend more time on that, and you're going to make more money than you're probably going to lose in the market, or you're going to be able to save in the market by trying to make these tactical decisions. So I don't agree with that.

Katie: Oh, chef's kiss. It's beautiful advice. I love that. Focus on what you can control. That does tend to be what I like to come back to. And usually my anecdote for anxiety is just earning more money. I'm like, well, let me just get more cash in the door, because then I'm going to build myself a bigger moat or a bigger buffer. And so my last, kind of real question here, your book is called, Just Keep Buying. And I think that ethos is powerful in times like this, where it feels like, ooh, there are all these new and novel factors impacting the market.

Katie: And as I described earlier, it might feel like all these valuations are sky high and maybe it's the Fed's fault. And what do we do about that? And I think what happens next at the individual level boils down to long-term optimism about the US stock market in general, and about the US economy in general. Do your investors believe that American capitalism works and I don't want to oversimplify anything, and I know that's not what you're interested in doing either, but I think you probably understand what I mean.

Katie: So you do sound optimistic. You do sound like somebody that thinks, hey, we have reason to believe things are going to continue on their trajectory up and to the right over the long term. So can you give me a sense of where your optimism comes from? Because I know you're not the type of person that's just relying on anecdotal evidence here.

Nick Maggiulli: So just nearly everything I write about, whether that's in Just Keep Buying or on my blog, I try to back it as much as possible by data and evidence. I don't really try to say, oh, well, here's just my opinion. I just think this makes sense. And there are times if I have an opinion where I don't really know the answer, I'll throw it out there. I'll say, oh, I'm not really sure, but here's what I think makes sense. So my optimism really comes from a place of understanding history. And I understand that most equity markets preserve and grow wealth over time.

Nick Maggiulli: Now, of course there are exceptions. There are plenty of exceptions. I know them. Japan, 1989, Greece, 2008, Russia, what's going on in 2022, the market dropped 80% in a month, right? But I don't think these exceptions disprove the rule, right? And so if you look at the record of history and there's a lot of books you can read about this, Triumph of The Optimists, et cetera, you'll see that generally things are up and to the right.

Nick Maggiulli: Now, how quickly they go up and to the right that's debatable and how quickly humanity advances, that's debatable. But generally I think things are improving. People are living longer. They're having better lives. We're using energy more efficiently, we're trying to, all these things. There's a lot of people working on a lot of things to make all our lives better, right? So that's why I think favorite investment quote is fear has a greater grasp on human action than does the oppressive weight of historical evidence. And I'll say that one more time. Fear has a greater grasp on human action than does the impressive weight of historical evidence. And once you realize how true this quote is, it's hard to think otherwise. So, that's kind of where my optimism comes from.

Katie: I had a lot of very eye opening moments reading your book. And one of them actually was, I can't remember which stock market it was, so I'm going to test your memory here of your own research and your own writing. But I always was under the impression that the American stock market had performed the best of any country. I thought we were the world leaders above and beyond everyone else but in your book, was it Belgium? Am I making this up? What was the-

Nick Maggiulli: I think if I remember, it's either Australia, South Africa and Sweden, two of those three are in the top, I think Australia went 20 something years without a recession or something. I can't remember the exact numbers now, but you look this up, don't get me wrong, the US is near the top, undeniably. And on absolute size, we're definitely the top because those are much smaller economies. So the percentage change isn't as big a deal there. And in terms of absolute size, we're definitely the top, but there's been other markets that have outperformed us.

Nick Maggiulli: They are rare. They happen. But if you just look through our history, there are markets that have done better. And so to think that equity markets can't keep growing wealth is just, it seems crazy. I mean, if we had a nuclear war that I'm saying, and it's not going to matter what your investment portfolio does, this is an upside option, right?

Katie: Oh, the S&P 500 is down, but my home just got blown up. So what am I more concerned about?

Nick Maggiulli: You're not going to care. Investing in markets is an upside option, right? Yes, we're going to probably have a bad decade. We're going to have a decade where US stocks do nothing. You should own international stocks, right? You should own a real estate. You should own farm land. You should own other income producing assets as well. And I kind of get into that in the book. So it's not just about US stocks. And we talked about US stocks a lot here and that's because what American investors care about. But there are other asset classes out there where you can build Wealth, so I say diversify, diversify, diversify.

Katie: Oh, I'm like, say it seven more times, diversify please.

Nick Maggiulli: There's this quote, they say, concentrate to get rich and diversify to stay rich. And I don't love the quote because it's like, how rich you have to be? Yes. If you want to be a billionaire, you have to concentrate. You have to own a lot of a business or something like that, a lot of equity in a company. But how rich do you want to be? I think most people can be decently well off and you can do that through diversification. And that's my goal. If you want to be a billionaire, Just Keep Buying is not the book for you. I'll be honest with you.

Nick Maggiulli: But if you want to have a decent financial life and probably live the goals you want to live and kind of live out your life, I think Just Keep Buying's going to work for most people most of the time, right? Unless you have really fancy taste, you have to own your own private jet, besides those people, if you can get past that, then I think Just Keep Buying's going to help people.

Katie: I love it. It was such a good book. Nick, thank you so much for being here and lending your knowledge to the Money With Katie Show.

Nick Maggiulli: Of course, anytime, Katie, thanks for having me on.

Katie: All right, y'all. That is all I've got for you this week. I will see you next week, same time, same place on the Money With Katie Show. Our show is a production of Morning Brew and is produced by Nick Torres and me. Alan Hambejack is the director of audio at Morning Brew. And Sarah Singer is our VP of multimedia. Sam Kat is as always our executive chaos agent and bean dog is our chief of woof, letting us know when the mailman comes a knocking during our recording sessions.