Just Keep Buying

Proven ways to save money and build your wealth

Nick Maggiulli

• Publisher: Harriman House
• Year: 2022
• ISBN:
  9780857199263
• Topic: Business
• Subtopic: Wealth Management
• Index: Business

Everyone faces big questions when it comes to money: questions about saving, investing, and whether you're getting it right with your finances.Unfortunately, many of the answers provided by the financial industry have been based on belief and conjecture rather than data and evidence—until now.In Just Keep Buying, hugely popular finance blogger Nick Maggiulli crunches the numbers to answer the biggest questions in personal finance and investing, while providing you with proven ways to build your wealth right away.You will learn why you need to save less than you think; why saving up cash to buy market dips isn't a good idea; how to survive (and thrive) during a market crash; and much more. By following the strategies revealed here, you can act smarter and live richer each and every day. It's time to take the next step in your wealth-building journey. It's time to Just Keep Buying.

II. Investing

10. Why Should You Invest?

Three reasons why growing your money is more important than ever before

The concept of retirement didn’t exist until the late 19th century. Before then, most people worked until the day they died. No golden years. No new hobbies. No long walks on the beach.

But in 1889 the Chancellor of Germany, Otto von Bismarck, changed that by designing the world’s first government-sponsored retirement program. At the time, those over age 70 became eligible to receive government income.

When asked why he created such a program Bismarck replied, “those who are disabled from work by age and invalidity have a well-grounded claim to care from the state.”59 Though the retirement age in Germany was initially set at 70, it was lowered to 65 in 1916.

Bismarck’s revolutionary idea would eventually be the inspiration for government-sponsored retirement programs across the globe, including in the United States.

Why did such an idea take the world by storm? Because people started to live longer.

In 1851 only about 25% of people in England and Wales survived to age 70. By 1891, that number had reached 40% and today over 90% of people make it to age 70. Similar increases were seen in the U.S. and other developed countries over the same time period.60

This large increase in global lifespans was the catalyst for our current idea of retirement. And with the creation of retirement came increased demand for investing and preserving wealth.

Before this time, there was no need for investing simply because there was no individual future to invest for. But, advances in health and medicine over the last 150 years changed all of this.

Now we have a reason to invest. We have a why that didn’t used to exist. But it’s not the only reason to invest, just one of the most important ones.

In this chapter we will cover the three primary reasons why you should invest:

1. To save for your future self.
2. To preserve your money against inflation.
3. To replace your human capital with financial capital.

We will review each of these ideas in turn and discuss why they are important for your personal finances.

1. Saving for Your Future Self

As we just discussed, saving for your future, older self is one of the main reasons why you should invest. Since one day you will either be unwilling or unable to work, investing allows you to have a pool of resources you can draw upon in old age.

Of course, it can be hard to imagine an older version of yourself, because that person can feel like a stranger. Will they be like you or will they be vastly different? What experiences might shape or mold them? Would you even get along with them?

Despite how different your future self might be from your present self, research has shown that thinking about your future self is one of the best ways to improve your investment behavior.

For example, one experiment had a group of people look at “age-progressed renderings”—digitally aged photos—of themselves to see whether it had any impact on how they allocated money to retirement. It did!

Individuals who saw the older versions of themselves allocated about 2% more of their pay (on average) to retirement than people who didn’t see such photos.61 This suggests that seeing a realistic older version of yourself may be helpful in encouraging long-term investing behavior.

Other researchers came to similar conclusions when examining which motives had the biggest impact on saving behavior. They found that, besides saving for an emergency, those who cited retirement as a savings motive regularly saved more than those who didn’t.62

This means that other financial goals like saving for your children, saving for a vacation, or saving for a home were not associated with improved savings behaviors. However, saving for retirement was. The researchers found this to be true even when controlling for the standard socioeconomic indicators such as income.

As I highlighted in chapter 3, income is one of the biggest determinants of savings rate. However, this finding suggests that, even when we control for income, those who use retirement as a savings motive are more likely to save regularly than those who don’t.

The...