526: The Wealth Ladder

If there’s one thing that separates the truly wealthy from everyone else, it’s their relationship with risk.

Not blind risk. I’m talking about conviction — the ability to see an opportunity before everyone else does, to lean into it while others are frozen, and to hold through the storm until the payoff is undeniable.

The extreme example is Bitcoin. In 2012, when it was trading for less than the price of a cup of coffee, most people laughed it off as internet monopoly money. But a handful of people had conviction. 

They understood the asymmetric nature of the bet — the downside was capped at the small amount they put in, while the upside was exponential. Those early adopters didn’t just make returns; many became billionaires.

Of course, most people hadn’t even heard of Bitcoin in 2012, so that might not have even been an option for you. So let’s take another example that you almost certainly did live through.

Real estate after the Great Recession in 2008 was radioactive. Nobody wanted to touch it. Yet those who bought when fear was at its peak ended up riding one of the longest real estate bull markets in U.S. history. 

Data from the National Association of Realtors shows that home prices more than doubled from 2012 to 2022 in many markets. Imagine the rewards of being on the buy side in 2012.

I’ve said it before and I’ll say it again: I believe we are in a similar scenario with real estate right now as we head into a descending rate environment following a real estate bloodbath. 

Properties are severely discounted, and values are almost certain to go up as rates fall. But you have to see the big picture and not be scared. That’s not easy to do when everyone else is. 

Real estate moguls and business owners are the ones most likely to take their wealth to the next level. Real estate is accessible to you — and so is business ownership. 

Look at the Forbes billionaire list and you’ll see a pattern: nearly 70% of the world’s wealthiest people are business founders or owners. They didn’t get rich clipping coupons from the S&P 500. 

They got there by creating or buying businesses that became valuable, saleable assets. The risk was obvious: most startups fail. But the payoff for the ones that succeed dwarfs anything you’ll ever get in your brokerage account.

Now, the reality is that most high-paid professionals never play in this arena. They’re comfortable and don’t want to rock the boat. Some call it the “golden handcuffs” — you make enough money to feel comfortable, but that same comfort prevents you from ever taking risk. And you know what? That’s totally fine.

Just know that doing your 9-to-5 and investing into your 401(k) is not going to create life-changing money. If all you’re looking for is life-sustaining money, keep doing what you’re doing.

But ask yourself this question: What’s the life you dream about? If it’s the life you already have, then congratulations. If not, are you on a trajectory that even makes it possible to get there? If not, you’ve got to change course.

My guest this week on Wealth Formula Podcast has done a great deal of research on the wealthy and has written a book based on what he has learned.

Transcript

Disclaimer: This transcript was generated by AI and may not be 100% accurate. If you notice any errors or corrections, please email us at [email protected].

 An s and p 500 index fund would’ve outperformed like, you know, 75% of active managers. These are people who, it’s their job, they’re paid and compensated to try and beat the market, and they can’t.

Welcome everybody. This is Buck Joffrey with the Wealth Formula Podcast, coming to you from Montecito, California. And, uh, before we begin today, wanna remind you. There is a website associated with this podcast. It’s called wealth formula.com. Go check it out. There’s lots of resources there for you, uh, including, uh, a chance to join our credit investor group.

Our credit investor group is exactly what it sounds like. It’s a investor club and uh, it’s basically an opportunity to see deal flow where you might not otherwise see. I do think it’s, uh, you know, uh, following, uh, Richard Duncan’s, uh, podcast last week. I think it is something that you really ought to be thinking about.

We, I mean, even, even Richard, who generally is pretty negative about, uh, the economy and, and that kind of thing really sees a big boom, uh, and sort of a takeover of the Trump, uh. Take over the Fed by the Trump administration. Forcing rates to go down. Descending rate environment means increasing asset prices.

That’s just what it is. And if the Trump administration does what it wants, you’re gonna see rates going down, asset prices going up, liquidity going up, dollar going down. What that means is asset prices skyrocket. Dollar falls. I mean, listen, if you’re not buying real estate, fine. I don’t buy real estate here.

If you’re in our credit investor club, you know, we we’re continuously, uh, going after these distressed assets. Um, and, uh, but they may not be your cup of tea. Maybe go buy something yourself, you know, buy some stocks or buy some, uh, buy your own, uh, real estate, uh, whatever, whatever works. But I do think that.

Again, I’m not trying to give you financial advice. This is commentary. My commentary is this, is that I think the playbook that the Trump administration is trying to follow is pretty clear. Now it’s possible they, they’re unable to do it, but I doubt it. I mean, they’re gonna fire their way to controlling the Fed and if they can fire their way to controlling the Fed, they can control the Fed interest rates and they can control the bond market through quantitative easing.

So, anyway, just a reminder on that. I just feel like people need to wake up on this one. Okay. Let’s talk about today’s show. It’s, you know, it’s about, it’s a little different. It’s about wealth, right? So, um, I wanna talk about generally the idea of, you know, building substantial wealth and, and what does that even mean?

Right? Well, I would just say this, it’s the, it’s life changing, right? So that’s gonna be different for different people if you. Are going from, uh, you know, $50,000 a year job and all of a sudden you’ve got a million bucks. That’s life changing, right? So, uh, if you make a million dollars a year and you know, all of a sudden you’ve got, uh, eight figures of wealth, um, that it, that can be life changing, right?

Um, or going from, you know, eight to nine figures or whatever. These are life changing things. That’s what I’m talking about. You know, if there’s one thing. That separates those sort of truly wealthy from everyone else. It’s a relationship with risk that is different. Now, I’m not talking about blind risk, I’m talking about conviction.

The ability to see an opportunity before everyone else does, you know, to lean on it while others are frozen and to hold through the storm until the payoff is undeniable. Okay, so the extreme example. We’ve been talking a lot about Bitcoin lately, right? So in 2012, Bitcoin was, uh, trading for less than the price cup of coffee.

And I think it’s, uh, as of this, um, I’m recording this a little earlier than it’s being released, but it’s at about 117. I think Q4 is gonna be huge. So who knows? By the time, uh, by the time this comes out, it could be greater than 117,000. It could be a lot less, who knows? But anyway. Hell of a lot more than a cup of coffee.

Let’s just put it that way. Okay? But guess what? People laughed it off. They were laughing at this stuff. Even through 2017 when I first kind of got into this world myself in the bitcoin world, people were laughing. They thought it was a joke. They called it buffet, called it rat poison. Blah, rat, rat poison squared.

It wasn’t just even rat. But guess what? There was a bunch of people, not a bunch, but there were, there was handful of people who had crazy conviction, these Bitcoiners, right? And even, uh, you know, they started off, maybe they had a few hundred bucks or a few thousand bucks they put into it. The next thing you know, they saw that grow into like, you know, six figures.

And then they still didn’t sell. Then they saw it had their money go into the seven figures and they still didn’t sell, and some of these folks even became billionaires. It’s crazy. Crazy. What kind of conviction that takes. I mean, I don’t think, man, I don’t think I’d have that kind of conviction. If I saw, if I saw a hundred acts, I think I would kind of probably bail, to be honest.

So maybe I’m, you know, I’m not wired to become a billionaire, so who knows? Um. Got many zeroes to go before I could, uh, call myself that Anyway, so, uh, of course, you know, most people and, and myself, I think maybe I heard about 2000 Bitcoin in 2012, but. I think I was mostly hearing Peter Schiff bash it or something like that.

So then I completely went the other way. But you know, most people hadn’t heard of it then. So it probably really wasn’t realistic for that to, to use that as an example of conviction, because if you’d never even heard of something, then it’s hard to have conviction about it. So let’s take something that’s, well, I know, I know pretty much all of you have recollection of, and that is a great recession of 2008.

And guess what? Real estate was radioactive. In fact, I mean, kind of almost like now, right? Like where, you know, there was this bloodbath and all of a sudden nobody wanted to, you know, people were, people were all over it and then nobody wanted to touch it. Yet those, uh, who bought when the fear was at its peak.

Ended up rioting one of the longest real estate bull markets in US history, which really only ended like, you know, 20 22, 20 23. But it, there was a crash. There was a big crash. Now, data from the National Association of Realtors show that home prices, uh, more than double from 2012 to 2022 and many markets.

Now imagine the rewards of being on the buy side in 2012. If you had that kind of. Conviction. I’ve said it before and I’ll say it again. I actually think we’re in a very similar scenario with real estate right now as we head into this. You know what, you know what I keep calling this descending rate environment with this, uh, uh, Trump takeover of the Fed.

I mean, it’s the same kind of thing. Maybe it’s not quite as extreme as what you saw in 2008, 2009. That’s, that’s kind of crazy times, right? But, but you’re seeing a similar thing where you had this, you know, bloodbath and then now people are kind of. Skittish about getting back in. They don’t know if it’s a good time.

And at the same time, you know, assets are being sold at, uh, you know, 30, 40% discounts compared to just a couple of years ago. You know, the prices are reset. They’re making sense at the current interest rates. And then what happens? Interest rates go down. Cap rates compress, boom. We’re off to the races, right?

But you have to see the big picture and not be scared. And that’s not easy to do when everyone else is. I get it. But just remember, real estate moguls, business owners are the ones that really, I mean, look at the NFL owners, right? They’re either big real estate moguls or they’re business owners. That’s basically it.

Um, you know, real estate obviously is accessible too, but so is business ownership. And if you look at business ownership, the Forbes Billionaire List, you’ll see, you know, nearly 70% of the world’s wealthiest people are business founders or owners. So they didn’t get rich with the stocks, bonds, and mutual funds, and the s and p 500.

By the way, I’ve changed my tone on stocks. I am not a hater. Okay? I’m not a hater. I’m just saying, you know, if you want different results, you have to do things differently. These people became billionaires because they were creating or buying businesses, uh, that became valuable. Saleable assets. They, they did the work.

The risk was obvious, right? But the payoff for the ones that succeeded, um, you know, dwarfed anything that you could get just by investing in, like most people do. Now the reality is that most high paid professionals never play in this arena. And the reason for that is not because they’re not smart enough, it’s just that they’re comfortable and don’t wanna rock the boat.

Some call this the golden handcuffs, right? You make enough money to feel comfortable, but that comfort is a little bit, you know, too comfortable, and it prevents you from ever taking risks. And you know what? That’s totally fine. It’s totally fine if you just don’t really care. You know, just, you know, just know that doing your nine to five and investing in your 401k, it’s not gonna create life-changing money.

Nobody ever got rich from investing in a, you know, diversified portfolio of stock sponsor mutual funds. People don’t change their place in the economic hierarchy of this country by doing that. If all you’re looking for is life sustaining money, keep doing what you’re doing, and it’s probably easier if you are not that ambitious.

The only thing I’m asking you to do is to ask yourself the question, you know, what is it that you really want in your life? What is it that you dream about, right? As far as you know, you only got one of them, and if it’s the life you already have and you are totally fine with it, you don’t need. Um, dream any further than just keep doing what you’re doing and you can just listen to this podcast and think we’re a bunch of jokers.

Who are the dreamers out there? Um, but if not, you know, uh, the, the thing you gotta do is you have to look at your trajectory, right? Like, if you’re doing something right now, that, and, and there, there’s no motion or any sort of, uh, direction. If that could possibly get you where you wanna be, then you gotta change course.

Right. Anyway, that’s just a little pep talk for me. My, uh, my guest this week, um, on this week’s podcast, he’s done a lot of research on, on the Wealth. He’s written a book on what he’s learned, and I think it, uh, gives a little bit of backup to what I’m talking about, so we’ll have that right after these messages.

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Uh, he is a Chief Operating Officer at WR Hols Wealth Management. He’s also the author of Just Keep Buying and runs the blog of Dollars and Data where he breaks down personal finance and investing using real world evidence. His focus is on what the data actually shows about building and keeping wealth.

And that’s exactly what we’re gonna talk about today. Uh, welcome to show Nick how. Good. Thanks. Having me on. So let’s, uh, let’s start with this. You’ve dug, uh, I guess you’ve dug into, you know, decades of financial market data and from all that work, what are the biggest myths about building wealth that the data, uh, just doesn’t support.

So I think the, the one I’m gonna focus on the most is that cutting your spending is the way to get rich or build a lot of wealth. And for some people that’s definitely true, but it’s the, it’s a very, very small minority, a very small percentage of people where that actually tends to be the case. And if you look at the data, overwhelmingly high wealth is correlated with high income and vice versa.

So it’s very rare that someone has high income and low wealth. Or someone has, uh, low income and high wealth. Right? So those are incredibly rare, and I’ve talked about this a lot, um, in my work over the years. It’s in my new book, the Wealth Flatter, and the second chapter, I just dig deep on income and I can say I basically take wealth and I break it into these six levels.

And then across the levels, within each level, as you kind of move up, the wealth flatter, the amount of income, the median income in each one of those levels just increases, um, pretty significantly as you move up. Mm-hmm. Sure. I mean, certainly I, I mean I’m, you know, I mean, if we’re talking about Starbucks and those kinds of things, uh, for, for high income people, that’s not gonna make a difference.

But, you know, certainly, uh, I mean there, there is probably a little bit of that. Don’t you think? I mean, like, if you take the example of professional athletes and you hear these stories about people making a ton of money and then just blowing through it and all that kind of stuff. Yeah, no, those, those definitely are the exception.

And once again, professional athletes are. You know, like they’re like the exception of the exception of the exception in so many ways. They’re very visible to us, and so they, it feels like they’re very normal. Like these are very normal occurrences, but they’re, they’re definitely not. And that’s, that’s the thing to keep in mind, right?

And so once you actually look at the data, like I think it’s like 95% of people who are, 95% of households that have a income over $200,000 a year have a net worth over $200,000 a year. Now, once again, $200,000 is not a lot of money. Doesn’t mean you’re super wealthy or anything like that. But at the same time, like.

That shows that there’s very, very few people that have an income of that high or higher and are broke. It just, it’s rare. It’s very rare. And that if you know, you probably know someone like that. I know people like that, but they’re incredibly rare. Most people that have a good income aren’t going crazy, and even if they are spending a lot, they still have some access to save.

Yeah. Yeah. Fair enough. Okay, so if someone earns a high income. Is late to the game of investing. What does the evidence say about how much they can realistically catch up? It really depends. I mean, what is high income? How much time do you have? I mean, those are all, there’s all these levers you have, right?

You can really think about building your wealth. You have these different levers, right? You have time. So how much time can you go and, and, and save, right? You have your savings rate. How much can you save, right? And that’s influenced by obviously your spending, but also your income. So the higher your income all else equal, the more you’re gonna save, right?

Assuming you don’t, you know, once again, all else equal, you’re gonna just save more money, right? So you think about the time lever, you think about the savings lever, which is both income and spending, right? And involved. And then you think about your investment returns. So those are the three big kind of things you, you can mess with, right?

And so. And investment returns are probably the hardest one to mess with. It’s really hard to beat the market so. I’m really more of an indexer. Not everyone agrees with that, but that’s kind of my take on that. So that variable solved. And then the other two are like, okay, what can I do on the savings front that’s spending and income.

You have probably the biggest, the most amount of, um, leverage there on those two factors. And then the last one is your time, which obviously if you’ve already, if you spend a couple decades not doing the right things financially, that’s fine. You can’t. Do much about that now it’s already happened. So the one things you gotta focus on are your income and your spending, right?

That’s where, if you think about this in terms of a formula, like that’s where it comes back to it. Like that’s the biggest factor. And the one I try and have people focus on is income given the data. Yeah. Yeah. And how do you help people with income? You have to talk about, okay, what can you do to raise your long-term income?

And I always mean like, okay, what can I do tomorrow? Like there’s side hustles. Things are out there that are great and you can do some of those things. It’s a long journey. I’m talking three to five years, right? At least, right? At least three to five years of what can I start working on to move in that direction.

Does that mean a promotion in my current job? Does that mean starting a side hustle that becomes a business? Does that mean learning a new skill and kind of pivoting to a brand new industry? Right? And so. A lot and we can start getting into this. There’s a lot to discuss in this topic. Um, but it’s the thing I focus on the most because that’s what the data tends to show.

It’s like, Hey, you’re not gonna, you know, clip coupons and make your way to wealth. Like, you can make some wealth doing that, but it’s, it’s not gonna be a lot. The real lever is gonna be when you raise your income so much that you don’t even have to worry about saving money. ’cause there’s just so much coming in that it’s just, it’s easy to save.

That’s what we, that’s the goal I want for, for everyone ideally. Well, let’s, you know, let’s talk about what you, you know, what you like to talk about. So, you know, give us some ideas on, you know, what do you tell people about increasing income? How do you do that? I mean, you’re talking to a group of, you know, individuals here that typically al are already higher income.

Um, generally, you know, professionals generally going to be making over three, $400,000 a year. What, what kind of advice do you have for them? So for those people, I think the, the main thing, if I, if I say how do you increase your income from here? A lot of those people are probably gonna be just high paid professionals.

And there’s just like the limits of how much you can work and how much you can earn day to day. The long-term solution to that is how much can you get equity ownership in this business that’s gonna pay off a higher income, especially over time if the business grows. Right? And so obviously it’s gonna vary based on if you’re like a lawyer, you’re like, oh, I’m getting paid X.

Well, can you get partnership where one day if the firm grows, you have a bigger book of business, now you’re getting paid. Multiple of X, right? It, it’s, it has to come through some form of equity ownership. There are obviously exceptions to this. There are people who are entertainers or athletes or something where you can get these big salary type contracts.

But once again, those are incredibly rare for most white collar professionals. It comes through business ownership and having income, or at least having a business that you’re reinvesting in. And over time you eventually sell and you have a very massive income event. So there’s a lot of different ways of thinking about this problem.

You either. Siphon the income off to yourself every year, or you reinvest in the business so it’s gets bigger and bigger. Then you have an exit of some sort, which is a very large income event. And so if you look at the data, that’s generally what people in, let’s say 10 million plus in net worth. That’s how they get there, right?

Besides the entertainers, the athletes, et cetera. The vast majority of people in the 10 million plus range, and that’s where I call level five on my wealth flatter framework. Those people are entrepreneurs like through and through. And so if we’re talking about, okay, well what can I do to like raise my income?

There’s this framework from, uh, Naval Akan where it talks about leverage. I don’t mean like just borrowing money, like that type of leverage. I mean, there’s different types of leverage and so obviously hiring people in a business where you’re having someone. Do something that earns more value than what you’re paying them, right?

That’s the oldest form of leverage in history, right? It’s like hiring people, having them, that’s one type. Another type is using money, so that’s owning real estate, right? Going and you’re, you’re using someone else’s money, the banks, and you’re borrowing it X percent and hopefully that real estate is returning a higher return than X.

That’s how you, you’re just leveraging the difference in, in the return versus what you’re paying for your money, right? Which is, you know, the interest on the mortgage. So that’s another type of leverage. And then the two new ones basically in the internet economy are content and code. Content is like kind of what you’re doing right now, buck, you’re putting out, we don’t have to have this conversation with the thousands of listeners or tens of thousands of listeners, one by one where we go to their house and we sit down at a convenient time for all of us.

Like this one episode would take like all the rest of our lives just to do. Right. And every time we’d have to have the same conversation hopefully. And you know, so because we can have this once through the internet and distributed networks, right? We can send it out to lots of people at once. And that’s the same thing.

That could be true of writing a book, that could be putting out other types of content, right. There’s all sorts of ways you can do that. You’re selling a product on the internet, that’s another kind of scalable thing that you can do. And then lastly, it’s code, which is also kind of related to, it’s not content exactly, but you’re, you’re creating a software that’s like software as a service.

That’s why this is such a profitable business model, because the marginal cost of the next user’s basically zero. I mean, it’s not exactly zero, but it’s almost zero. Yet you’re giving them a very valuable thing that they’re paying, you know, let’s say thousands of dollars a month for whether you’re doing business to business or.

Even B2C, you can be, you know, getting someone on Netflix, you know, you’re paying 10, 15 bucks a month, but they are just pumping this stuff out and it’s, it’s a very low cost thing to do. The cost really is in the content. That’s a whole separate thing to discuss. But if you just think about this in terms of like code, and what code can do, like there’s, and now with ai, like so many people are like building apps and coming out with different things where like the code can be created for you.

Whether or not that code’s perfect and good, and whether you actually still need to hire developers is a separate conversation. But you can see the point, like, these are scalable, right? It’s like every, the whole idea of leverage is I put in one unit of time and I get out more than what I’m putting in, and now it doesn’t necessarily happen right away, but that’s, that’s the long-term goal, is you need to divorce.

Your time from your earnings. If you’re a lawyer doing billable hours, right? You are getting paid on those billable hours, which is great, but at some point you need to divorce. How much time you put in with the number of amount of revenue coming in, right? So that’s where you hire other people. That’s where you put out content and brings in more clients.

That’s where you, you know, come up with an app or something. I don’t think lawyers would really do something like that, but you can imagine like there’s a lot of different ways where you can use leverage. To divorce your time from how much you’re earning in a given amount of time. I think the moral of the story, and I, you know, you like a lot of different things that you talked about there, but one I think is really important is that as a high income earner, um, who’s not, you know, when we’re talking about, say somebody who’s making half million, 2 million bucks a year.

Um, you’re not gonna earn your way into, uh, being wealthy. That is a really tricky thing. I mean, of course, if you’re making, well, gosh, Kirk Cousins, uh, sitting on the sidelines for Atlanta Falcons yesterday making $50 million a year as a backup quarterback. Um, yeah, those kinds of things, you, of course most of us are not gonna have.

But by the time you’re done with taxes and all that. It’s extremely difficult, and I can’t tell you the number of people that I’ve talked to, just coming through our own investor group that are making a half million, million dollars a year, and they’re in their mid forties, and I ask ’em what their net worth is, and it might be 2 million bucks.

And you know, I mean, that’s a lot of money, but on the other hand, you would just think, well, gosh, how does that happen? Right? Well, think about expenses, think about taxes, et cetera. So for those of, so for, for, for that cohort. It is extraordinarily important to do a num other things in order to get, become wealthier, you know, and, and, and you bring up a lot of those points and, you know, arguably, um, you know, some of the investment decisions that we make, uh, are a big part of that.

Obviously, you’re, if you’re going to be the SMB 500, you’re gonna do fine, but you’re not gonna, you know, you’re not gonna get rich just by doing SMB 500 for the next, you know, 20 years. You’re gonna do fine. You’re not gonna, you’re not gonna get super wealthy, right? You’re not gonna get super wealthy. And so it really comes down to, you know, asymmetric bets and investing or, and or, uh, business creation side hustles.

Although, uh, I guess that’s kind of what you’re describing, but you’re not all that easy to do, you know, but it, but, but you know, that’s another issue entirely. You kind of have to figure out where you fall into that, you know, framework. Yeah, and I think there’s a bigger question here, and so when I talked about, when I wrote the Wealth Flatter, like there’s this idea of, okay, there’s these levels of wealth and what you’re talking about when you say super wealthy is what I call level five and level six.

Level five is 10 million to a hundred million. Level six is a hundred million plus. The, the level I talk about the most, I think, I mean I talk about all of them in the book, but the one I focus on the most is level four, which is one to 10 million. There’s a lot of very successful people in that level.

It’s about, you know, roughly 18% of the United States in terms of households. So there’s like, you know, millions and millions of people, like, you know, 20 million people, 20 million households in that level, if not more, right? So you think about that, there’s a lot of people in that level. They’re doing very well.

There’s also a lot of them. That’s why the Amex lounge is overrun. That’s why people go on vacations and they have to get up at 7:00 AM to go get a a, a pool chair. ’cause like there’s so many people that have making good money, you know, living a good life and everything is I what I call the upper middle class.

And they’re in this exact situation you talk about where someone’s making 500 KA year, that’s incredible money. You’re in the, you know, you’re in the, you know, 1% among households, right? Or actually at least among individuals, maybe not among households. You know, you’re making incredible money, but then after tax, okay, that’s not cut in half.

Exactly. But let’s say you make 300 k and then you have expenses and everything, you can see how, you know, maybe you’re only saving a hundred KA year, which is still great. That’s amazing. But saving a hundred KA year, you can see it’s not gonna move. It helps initially, but it’s not gonna move the needle.

It’s some point, getting past 10 million is very difficult with that. Right, right. What do you mean when you, when you talk about, uh, just keep buying, what, what is that concept? The concept there is the idea that I, I have a mantra for just keep buying, which is the continual purchase of a diverse set of income producing assets.

And so the idea is, if I only had three words to give you on how to build wealth generally, like I don’t, when I, I don’t mean extreme wealth, I don’t mean 10 million plus. So when I say just wealth, I mean get into level four, let’s say one to 10 million. I would tell people just keep buying, right? So if I only had three words I could give you, right?

Just keep purchasing assets over long haul income producing assets. And the specific mantra is the continual purchase of a diverse set of income producing assets. That idea. It disproves market timing. It disprove it shows that you can do this with diversification and you have to do it for a long time.

Right? And so that’s where I kind of, I, my first book was me kind of showing that in depth, right? It was like one specific strategy and I just kind of proved it by looking at every single data set I could find. Different asset classes, all sorts of things to show all this, um, that this is the right way to go.

Then with the wealth ladder, I zoomed out from just that one strategy and I said, Hey, let’s look at the overall framework of wealth and like, hey, that’s a great strategy by itself. But if you wanna get to Extreme Wealth as you say, or um, you know, you need to do something different and that you’re still owning them from producing assets, but you have to control those things.

That’s, that’s the difference between like owning the s and p 500 and owning your own business, right? Like you have a lot more control over your own business. So you can kind of chart your own destiny a bit more than just owning the s and p 500. Now of course, there’s more risk there, right? You could lose everything with your own business.

It’s very unlikely the s and p five hundred’s gonna go to zero, right? Yep. That’s just the way it is. No risk it, no biscuit is what they say. Uh uh. So based on your research, how should, and that should, we don’t need to be giving advice here, but talking about diversification, what does the data show on the optimal mix?

I mean, is it more. There’s a lot of discussion about this, and a lot of times you hear about avoiding concentration risk, but then you have guys like, you know, Warren Buffett and, and, and Charlie Meyer will tell you no, you don’t wanna be just purely, you know, diversified into a million different things.

You find the good things and you invest in those. So what does a data show? I mean, the, if you’re trying to compare like, buffet to the ta, like buffet’s, well, I’m not comparing Buffet, but I think, but I think from, uh, from the standpoint of. The standpoint of, of looking at, you know, I mean, what, what do we know about diversification?

What, what is the data on diversification? I mean, the idea that you should own a basket of diversified securities like that has generally outperformed, you know, trying to. You know, beat the mar. Like, if you look at like just the s and p 500, let’s just use that. You know, you look at, there’s something called the, the Spiva reports, S-P-I-V-A, and over five, 10 year periods like the market s and p 500.

So an s and p 500 index fund would’ve outperformed like, you know, 75% of active managers. These are people who, it’s their job, they are paid in, compensated to try and beat the market. They can’t, only 25% of them can do it over a long period of time. And then the further you go, the the smaller that group gets.

Right? And so 25% is like a three to five year period. You go longer and longer, and the underperformance just starts showing up because of fees, especially like, especially after fees, it gets very difficult. So my whole take with this thing is like. Someone’s like, well, yeah, I’m just gonna buy the good company.

He’s like, yeah, of course. If we could all just buy the stocks and only go up, this would be very easy. I think it’s, it’s easy to seduce yourself that that’s easier than it is. I don’t think it’s easy as people think it is, and we don’t have, we don’t have a good data set on it. ’cause all we have is the winners.

We can talk about the buffets and all the. Successful stock investors. Where’s all the people that said, I’m gonna follow a value approach and then underperformed? They’re not gonna make the news, they’re not gonna make, no one’s gonna write books about them, so you’re not gonna see it. So the truth is, we do not have a data set.

I have not seen a data set of, Hey, here’s 100 value investors. They’re all gonna follow this approach, and we’re putting the line in the sand now and this date, and then let’s just see what happens. Let’s see what happens to those 100 over the next 30 years. There was Warren Buffet and a few of his buddies, and they all did well.

That’s already a weird elite group in some sense. If you know Warren Buffet personally and you’re a value investor, you’re probably already in some sort of elite, you know, group that’s not really representative of like stock pickers as a whole. And so that’s the only, my only pushback. I’m not saying it can’t be done, I do definitely think it can be done, but I think it’s much more difficult than people think it would be.

Like we just got a bunch of kids that. At age seven and said, Hey, these are the best basketball players in the school right now. How many of those kids are gonna make it to the NBA? We don’t know. And maybe, you know, we would’ve had one LeBron James there, and he would’ve made it, but most of the kids wouldn’t have.

And I think that’s the kind of the difference, right? Just because someone shows skill at some point doesn’t mean that they’re gonna necessarily have skill for a very long time. Yeah, no, I, I think the point I’m trying to make is this, is that, you know, you’re, you’re talking about sort of elevating from the different levels on this ladder that you have, right?

And, and that, um, I don’t personally believe that only buying indexes is gonna ever get you there. I don’t think you’re, I don’t think you’re gonna get up that high. I, I think you have to take some level of risk. Now, your form of risk that you’re talking about is through equity and businesses and stuff like that.

Not everybody’s gonna be able to do that. I do think that there is probably a role for things that are a little bit. Uh, a little bit riskier, and that’s where like alternatives come in there. For example, people buying real estate, people, you know, investing in startups. I mean, in, in this kind of space where we have people who can put some amount of money at risk, gives them a real opportunity potentially to see outside gains.

What is your take on that? Um, it’s definitely true and if you look at, you know, as you move up the wealth ladder, you tend to see more ownership of individual stocks, not just like reti, not just stocks and retirement accounts, which is why I think we would think of as like the s and p 500 or an index fund, right?

Um, but overwhelmingly, and you see this even more so. People own businesses, right? And so that’s if I’m like trying to, if I look through each one of these levels, now, once again, this is a, this is a logarithmic scale, so everything’s moving by 10 x, right? Level four is one to 10 million, level five is 10 to a hundred.

Level six is a hundred plus. If you just break up wealth that way and you look like, what, what are the biggest changes from the, for example levels, you know, four to six, what are you seeing? It’s business ownership. Right. So I like Elon Musk probably has 95%. Yeah. But I’m saying like, okay, does that mean that no one’s owning stocks?

No, of course not. Does that mean no one’s owning real estate? Of course not. Right. So those are other, other changes that are happening. I just think of those three between like real estate, you know, buying individual stocks that go up a ton. And business ownership. Business ownership is the one that I think tends to dominate, at least in the data.

And I, no, and I have this in the, I agree with you. There’s no doubt in my mind that if you, if you want to. Sort of become, you know, you want to take it to the next level. You have to own it. You have to own it, own your business. You have to create an asset that you can at some point that you can sell, that can be valued at a certain amount on a multiple.

And people who are high income, W2 wage earners, which is a lot of people in this show, um, they’re just not gonna be able to do that. So that’s what I’m trying to, that’s what I’m trying to get. My head around is like, okay, so what, what practical advice can we have for these, these folks? Right? Yeah. Then the, the thing I would say for them, assuming they’re not gonna go all out on that type of thing, is, you know.

Own a diversified portfolio if you want, you can make these one-off bets in startups, alternative things like that. Of course, some of those are gonna go to zero, like expect that, like that is what happens. You’re gonna have, you know, in 10 investments, one of them may like, you know, three or five x, which is great.

You know, a couple of ’em will probably go to zero and then a couple would just return your money, right? So that’s kind of, at least that’s what the VC on average type stuff happens. It depends what you’re investing in and how much you know, if you have better expertise or things like that. Besides that, I mean, you can think about like, are there other things you can do in terms of income?

Whether that means maybe not, you don’t have to start a whole business, maybe you start a side hustle and you can do on the side, or it’s, there’s different ways of parsing out owning a business, right? Like I technically own a business. I have a full-time job. I’m a COO at a wealth management firm, right?

And so I’ve been there since before we had a billion dollars in assets. Now we’re almost at seven, right? So I’ve seen a lot of changes, you know, just structurally within the org. While I’m doing that, I’m also writing, doing content. It’s not my main thing. You know, it makes some decent money, which is nice, but it’s not like my main thing.

And so I think people can come up with something else that, you know, ends up being beer money or rent money or whatever it is, and that’s still something, you know, or your mortgage payment, whatever you wanna call it, right. So there’s different ways of attacking this problem. And I, I don’t think they all ne need to be home runs to still be helpful.

Like I’m, I would say I’ve hit like two doubles, like I’m hitting a double in in my career and I’m hitting a double in like my content life. And none of them are like home run hits. I’m not like this super, super successful person, but I have two things that are doing pretty good. And so it actually does add up to be quite nice.

So I think that’s another way of looking at it. And that’s kinda what, that’s how I approach it, just because it’s what’s worked for me. I’m not saying that’s gonna work for everyone though. Yeah, yeah. Yeah. Um, let’s talk about sort of the in general economies. Uh, you know, you’ve looked at historical data, I understand, uh, and recessions in recovery.

What lessons can we draw from, you know, some of that history for today’s environment? I think the biggest takeaway is that the market’s gonna price all the stuff in before the headlines do, and so. For example, COVID was getting worse in April, 2020, and the market was already on its way back out. Right?

It’s like the market’s like, oh, well that’s gonna happen, and that, and people just, all that information just hits the market immediately. So you’re gonna be in a, a case where, you know, the market’s already rising. It’s already moving past what the, the, the, the train wreck that’s currently happening, which is such a weird thing to say, but that’s exactly how it works.

Like real estate prices didn’t bond, I think until. 2012 in the United States after the, after the GFC, the market bottomed in in March oh nine, right? So it’s like the market was already on its way back up and re the real estate thing was still going through. So markets move a different. Different speeds.

I think real estate tends to move slower than the stock market, just in general ’cause of the liquidity issues, right? Like selling houses is not easy, you know, buying and selling an index fund or individual stocks is pretty straightforward. So I think the liquidity, and so you’re gonna see that in crypto.

You’re gonna see that in, in. Inequities, it’s gonna move a lot quicker, and that’s gonna tell you a lot more. So if you’re like, Hey, I’m just gonna see what happens and oh, if the, if things are looking worse, like that doesn’t mean that the market’s gonna get worse. The market could have already priced that in and could already be on its way back up.

And that happens so many times. So I would not say, oh, well the headlines are getting worse. If the market has to get worse, that doesn’t necessarily happen. So that’s the thing I keep in mind here. Yeah. So you’ve done a lot of research. Um, what’s the most surprising thing you’ve found, and I guess.

Something that would have changed personally, how you handle your own finances. Yeah, I think it’s this idea of once you get in, the things that get you into level four, which is one to 10 million, are very different than the things that get you out. And I can just, let’s just do a quick thought experiment.

So we’re gonna just use the, you know, you said someone’s earning 500 KA year. Let’s say they’re saving a hundred thousand after tax and, and expenses, whatever. So let’s say you just hit a million dollars in, in net worth. Let’s just assume it’s all in a portfolio just to make this thought experiment very easy, right?

You’re saving a hundred KA year. Let’s say it’s earning 5% a year after inflation. So I’d say it’s a relatively conservative, not, not too crazy of a return. Right. How long does it take you to get to 10 million, you know, with, you know, start a million, a hundred KA year? 5%. The answer’s 28 years. So that’s 28 years of you earning, let’s say $500,000 a year.

A very good income. Right. And you’re, you know, obviously you have to, you’re sacrificing ’cause you have to save a hundred KA year. So even though you’re, you might be spending a decent amount of money, you’re still saving a hundred k. It’s still, you have to do that for 30 years. That’s after you hit a million.

It could have taken you 10, 15, 20 years to get to a million as it is, right? So you can think, you start doing the math on this, you’re like, wow. Like, yeah, this, this W2 thing. It’s great and all, and you can high paid W twos great, but at some point. It stops moving the needle, right? Like when you have a, when you have a million bucks, a hundred KA year, that’s 10% changing your wealth, right?

A hundred thousand over a million, it’s 10%. By the time you have 5 million bucks, it’s 2%. Like you, you don’t move the needle anymore. And there’s nothing wrong with that. That should happen. But I think the main takeaway, the thing that that spoke to me about this when I’m writing about this, is. Do I keep my foot on the gas or do I kind of relax a little bit and enjoy all the other parts of life that aren’t money?

And I said like, maybe I don’t need to get to 10 million. This is an arbitrary figure anyways. Like I don’t need to be in the, you know, upper class. I can be fine to have an amazing life in the upper middle class. And I think what happens is a lot of people get caught in this level four, like, we’ll call it the no man’s land.

It’s not a bad place to be, but it’s just, you know, you’re making good money, but you’re really like, oh, I want to get to the next level. And like thinking through that. I think you have to realize that maybe that’s not the right decision and maybe the right decision, the rational decision is to say, you know what?

I can take a step back. I don’t need to accumulate another $5 million to live a good life. And I think that is the, that is the big unlock that needs to happen and that I think a lot of people, especially this audience. Probably are not thinking about, ’cause I wasn’t thinking about it. And so that’s what I would say to this audience.

Like, hey, a lot of you’re probably, if you’re in that range, you know, one to 10, especially if you’re like the upper, you know, over five, you probably don’t need to keep accumulating wealth. And I, and, and I think you would’ve to make a very hard sell to prove to me that you do, because I bet you don’t. And that, that just, I, trust me, I work with wealth management clients, like a lot of these people are like, oh, I’m spending.

200 KA year. It’s like you have, using that 3% rule, you’re making 500 K. Like it’s, it’s the math doesn’t math in any way where like you’re never gonna spend down your wealth. There’s just no way this could happen. And yet people keep wanting to accumulate more and I, I don’t know where that comes from.

Yeah. So is there, uh, any data on striking that balance between savings for tomorrow and living today? I don’t know if we have like, good studies on this type of stuff. Yeah, I think it’s just really a question of like. What do you really want and what are the things you’re gonna do to get there? And I think the framework, I really like Sahil Bloom in this book called The Five Types of Wealth, and he talks about all the other types of wealth besides financial I, I obviously focus on financial because I’ve been writing about it for so long.

But he is like, you’re probably chasing more financial wealth, which you’re already like at the 99th percentile on to go and give up health or to give up. Mental health or to give up, you know, relationships, social wealth like or time wealth. You’re maybe you don’t have any time ’cause everything’s being taken up by everything else.

And so what are the trade offs you’re making and are, do, do those make sense? I don’t, I don’t think there’s. Any point in getting to 99th percentile on one metric, and then you’re like in the bottom 25% on everything else, or even on a few metrics, right? I don’t think it’s, it’s worth it to have the, the bottom 25% in, in hell just to have the top 1% in wealth, in financial wealth.

I think it’s a crazy trade off, but I think people do make that trade off all the time and it’s something they’re probably overlooking. Good stuff, man. Uh, well, tell us a little bit about where we can, uh, learn more about your work. So my blogs of dollars in data.com. Um, you can find me on LinkedIn at Nick Maggiulli Instagram, Nick Maggiulli, and yeah, I have my books on Amazon Target anywhere you just search my name, you can find all my stuff.

And, but, and I also, I answer every dm so feel free to DM me on Instagram or LinkedIn and I’m happy to, um, to chat about that. Great. Thanks so much for being on the show. Appreciate you having me on Buck. You make a lot of money, but are still worried about retirement. Maybe you didn’t start earning until your thirties and now you’re trying to catch up and meanwhile you’ve got a mortgage and private school to pay for and you feel like you’re getting farther and farther behind.

Good news. If you need to catch up on retirement, check out a program put out by some of the oldest and most prestigious life insurance companies in the world. It’s called Wealth Accelerator can help you amplify your returns quickly, protect your money from creditors, and provide financial protection to your family if something happens to you.

The concepts here are used by some of the wealthiest families in the world, and there’s no reason why they can’t be used by you. Check it out for yourself by going to wealth formula banking.com. Again, that’s wealth formula banking.com. Welcome back to the show everyone. Hope you enjoyed it. Uh, again, I guess the moral of the story is no risk.

It no biscuit, uh, I can’t remember is the name. Uh, that was the, it was a old Atlanta Falcons head coach who said that. I can’t remember. He is like some guy from New Orleans, but very, very true. And, uh, but again, if, if you don’t, um, if you’re not interested in the. The biscuit, then don’t, don’t worry about the, the risk.

Um, but if you want to invest differently, start doing. So. Just a reminder, you can start investing differently by going to wealth formula.com and, and signing up for Investor Club. Uh, and, uh, we’ll see you next week. This is Buck Joffrey signing off.