Pod Insights The Prof G Pod with Scott Galloway How to Build Wealth on Less Than $60K a Year + Investing for Retirement Income (ft. Nick Maggiulli) About this episode In this special Office Hours episode, Scott Galloway and Nick Maggiulli, COO of Ritholtz Wealth Management, answer listener questions on building wealth at every stage of life. They talk about paying down debt on a modest income, generating retirement income without over-obsessing on dividends, and whether young families should keep investing or wait on an inheritance.
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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1:33 Scott Galloway? Welcome to Prop G on Personal Finance, a special episode where we're joined by Nick Majuli, the Chief Operating Officer for Ritholtz Wealth Management and author of the blog Of Dollars and Data. Together, we'll discuss how to build wealth at every stage of life, from saving on a modest income to investing for retirement to navigating today's housing market. Nick, ready to get into it?
1:52 Speaker 05 Yeah, let's do it.
1:53 Scott Galloway? All right. Question number one. Our first question comes from a listener who texted the office hours hotline. Everyone talks about how to be rich, but no one talks about how to be poor. How would you save for retirement if making under $60,000 a year? How would you structure your debt payments, like student loans, credit, and mortgage? Nick, thoughts?
2:11 Speaker 05 I think the first thing you've got to do is make sure you're making the minimum payments. I think you don't make those and you start getting late fees, all those types of things. So as long as your minimum payments are taken care of, you have your emergency fund. So the first two things. After that, you rank order everything from highest to lowest return, or you could say highest interest rate to lowest interest rate. And then every extra dollar after your minimum payment, you then put into the highest return thing. So credit cards, 18% to 24% is where you're getting charged on that, right? Every dollar you pay off your credit card debt, you're basically earning an 18% to 24% guaranteed return. There's no place you're going to get a guaranteed return of 18% to 24%, right? So you're going to attack your credit cards first. Then you're probably going to go down
2:56 Speaker 05 the line and you're going to find, oh, my student loans are 8%. My mortgage is, I don't know, 7%, six and a half right now, right, in the markets today. So it's like, you start going down the list, you pay off your credit card debt, then you attack your student loans, then you attack your mortgage. Terms of retirement savings, I say conservatively, a diversified portfolio should get 5% a year. So that's it. Of the ones listed, that's the bottom of the list, right? So if I were going through, I would be attacking all the debt stuff, and then I do the retirement savings at the end. So that's how I look at it, is like return per dollar invested. And I think you have to attack the higher interest rate things first before you start going down the chain.
3:34 Scott Galloway? Yeah, that just makes a lot of sense. And the only couple wrinkles I would add is also see if there's a way to elegantly refinance some of that debt to lower interest rates, whether it's, you know, some institutions like SoFi, if you go to a quote-unquote, went to an elite institution, will refinance your student debt at a lower interest rate. Are there ways to transfer your credit card balance to lower interest rates, refire your mortgage? Like, how do you bring your interest rate costs down? But Nick's absolutely right. The best investment is getting rid of debt that's at a rate that you probably can't comp, can't, can't match in the markets. The only thing I would add is, once you get your debt under control, there is some good debt. I would argue that a decent mortgage
4:16 Scott Galloway? is, that's good debt. It's, it's tax deductible, it's fairly low interest usually. Usually, you can do better in the market. But once you get sort of manageable debt, and it's mostly just your mortgage payment and maybe an auto loan if it's decent interest rate, try and figure out a way to have automated savings or automated investing that's tax advantaged. Almost every state and country has some sort of tax advantaged savings or investment vehicle you can take advantage of. And the key is never to see it or never touch it. And that is have it taken right out of your paycheck such that you're not tempted, like 98% of it, to spend or increase your standard of living to whatever it is that comes through your hands. But on the whole, I agree that the lesson, the key lesson
5:01 Scott Galloway? here, what Nick said, is attack your debt. That's the best investment you can make. All right. Question number two.
5:09 Scott Galloway? Hi, Scott. My name is Scott, too. I'm calling from El Paso, Texas. My wife and I are in our early 60s. We run a micro, small business out of our house. We own our house. Our business has almost zero overhead and a small recurring revenue stream that pays our bills and a bit more. And we have about $1 million liquid net worth in addition to our house. For quite some time now, we felt that this market is overvalued. At our age and with our concerns about the market, we're wondering how we might deploy a chunk of our net worth to produce more stable, regular, recurring income, plus some reliable
5:50 Scott Galloway? appreciation. Thank you for what you do, Scott. You're a good example for us all. You do well and you do good. I would like to follow your lead. Thank you, Scott. Thank you.
6:01 Scott Galloway? Nick, thoughts?
6:02 Speaker 05 I think they're in a great situation. The fact that they have a business with, as I said, low overhead that basically covers their expenses. All the rest of this is either upside or just planning for the future when they either sell that business or wind it down, et cetera. I think for them, there's going to be two answers I'm going to give. I'll give the answer I think they want to hear, and then I'm going to give the answer which I think is the correct answer. So I think the answer they want to hear, they're looking for, okay, what type of investment should I own, right? I want to own some stable income. I also want some appreciation. For a lot of retirees, they're going to be looking at like dividend stocks or a dividend stock ETF. They're going to be looking at REITs, real estate investment trusts, right? Those are things that pay out a lot of income. You can also maybe add a little bit of short-term debt in there as well. So those three things
6:44 Speaker 05 and like a diversified portfolio of REITs, dividend stocks, and some short-term debt, that's going to do quite well in terms of getting your income and you'll retain their appreciation through the REITs and the dividend stocks. That's the answer they probably want to hear. It's not the answer I would actually give. And I think the problem that a lot of retirees have when they look at like generating income, they overly obsess on things that actually pay income, right? And I think the better answer is you could just buy like an overall stock market fund. I understand they're worried about valuations, but let me just walk through this real quick. You can just buy the overall stock market, and it's going to appreciate over time. And over the last at least decade or so, the overall stock market has outperformed a dividend fund, even when you include total return,
7:28 Speaker 05 right? So even though that dividend fund is paying you income and you look, you see those checks coming and you feel good, the market, the stock market, you just put that in an overall index fund, that would have actually gone up more. And then the best part about that is you can just sell it down when you need to make those payments, right? Like, when you need the income, you can sell. So from a tax perspective, it's also a lot better just to have it in a fund that just goes up more, and you can sell it as if you're creating the income yourself. So I think a lot of things have changed in terms of corporate strategy, in terms of how companies pay out dividends or don't pay out dividends, et cetera. So as a result of that, I think overly obsessing on income is not necessarily the right choice, especially from a tax perspective. But if you really want to do that, once again, REITs, dividend stocks, and maybe some short-term debt are the solution here.
8:14 Scott Galloway? Yeah, I really like that. So the key piece of information that was revealed in the question is that they're still net savers, and that is they're creating more income than they're spending. And so they don't need income. And when you, when you're in a dividend stock, keep in mind, those dividends are being taxed. Whereas when you're in a non-dividend stock, your money is growing tax-deferred. So it should compound at a greater rate. So if you don't need income at this point, you want to take advantage of the fact that one of the greatest wealth creation vehicles or loopholes in history is that stocks compound tax-deferred. They don't spit out the profits every year and
8:55 Scott Galloway? say, you must take this in the form of dividend, at which point it gets taxed between 23% and say 35% if you're living in California or New York. So if you don't need the income, you absolutely want to be in stocks that compound tax-deferred because they don't lose money out to dividends. Having said that, you're basically coming to the same conclusion a lot of us are, and that is the market is overvalued. Now, nobody knows. Everybody thought the market was valued or overvalued in 97, and they were right if you looked at it at 2000. But by 99, the Nasdaq had tripled. It is very hard to time the market. The one asterisk around all of this is I don't think there's ever been a
9:39 Scott Galloway? time where it's more important to understand the power of diversification. And that is, people think they're diversified if they just buy low-cost index funds and SPY. But the S and P, because of the concentration of market cap around the magnificent 10, means that if you're in the S and P, you may feel diversified, but you're not. What I would suggest is you think about diversifying not only by asset class, some bond funds, equity funds, but also geographically. And that is, US stocks now comprise over half of total market capitalization globally. And if you add it in debt, it might be 60% or 70%. And you do see... A cyclical rotation between US and call it the rest of the world.
10:24 Scott Galloway? And you want to be prepared if there's a major drawdown in the valuation of US stocks. Because if you just think you're diversified by being in US stocks, you're not. You're actually more concentrated than ever before. I would argue you're basically making a giant bet on AI. So one, if you don't need the income, let that, let, let that money compound tax deferred with stocks that aren't dividend stocks, as Nick suggests. But also, at your age, given that you've already built up a nice nest egg, you're looking to probably take some risk off the table. And you do that through diversification, low cost index funds, but think about different asset classes, both equities and fixed income.
11:06 Scott Galloway? And what people usually miss is diversified geographically. Any thoughts on that, Nick?
11:12 Speaker 05 No, I completely agree. I think they just need to have a good diversified portfolio for those liquid funds. So that's going to include, as I said, short term debt. You're going to want, yeah, if you want international stocks, you can go into other types of investments as well. If you wanted to get into something like farmland, that's something that produces income, it's obviously very liquid. So, you know, getting into one of those like crowdsourced platforms, things like that. But there's a lot of different asset classes out there that can produce some income. And I agree, you want to, since you don't need the income now, start planning for that because you still have at least, let's say, 20 to 30 years ahead of you. And when are you going to wind down that business? Thinking through that, how that's going to play out? Because if those aren't covering your expenses anymore, then your actual liquid assets will need to do that. So kind of preparing for that transition is, is the big thing to look at here.
11:57 Scott Galloway? Yeah, and the only, just hearing you speak, the only thing I would add to that is that at some point, like my dad died with about 800 or 900 grand to his name. And he should have spent more of it. And that is, my dad was so terminally cheap that, well, having said that, I think he got a lot of joy from asking for his frozen margarita to go. He, he was just so painfully cheap that I don't think he ever really had a chance to enjoy his money. And then at some point, assume, assume you're going to get a 4% return on your money. Assume that at some stage, that 4% is more than your burn.
12:38 Scott Galloway? What I would suggest is you and your wife, maybe at some point, think about, okay, could we spend a little bit more money on travel, on maybe fixing up our house, on maybe giving a little bit of money away to things we're passionate about or people who could use some help? I think the whole point of being as responsible as you've been and working as hard as you've likely worked is that at some point, you know, money, money means nothing from zero to 18. It kind of means way too much, sometimes everything, kind of 18 to 70 or 80. And then as you get towards the end of your life, it means nothing again. And I just wouldn't be afraid at some point to think, how could we have a little bit of fun? You know, could we take a really nice cruise?
13:22 Scott Galloway? Could we give some money away? Could we, you know, buy a piece of art that we just always loved? Could we, you know, whatever it might be, take our family for a reunion? And that is, what I sense in your, what I sense in your, the question is that you're very responsible. And I don't want to say people can be responsible to a fault, but keep in mind, money, I believe money is meant to be at some point spent. So just be mindful, at some point, you may want to ask yourself, could we have a little bit of fun with some, some of this money?
13:53 Speaker 05 Yeah, I, I'd agree with that completely. I think one of the things, and if you actually look at the data on this, it's, it's very surprising because like, if you look at people who have, let's say, a 60, 40 portfolio, they're following the 4% rule and you do that for 30 years and you go back through history and you just do that every single year as in a simulation, you're more likely to end up with four times your wealth than you are to be below your starting balance. So in this case of this couple, if they start with a million dollars and they just started using the 4% rule in the 60, 40, they're more likely to have $4 million and, you know, adjusted for inflation in the future than they are to be below a million after 30 years. So I think the spending more is something that we don't talk about enough here.
14:33 Scott Galloway? Okay, we'll be right back after a quick break.
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17:59 Scott Galloway? Welcome back. Question number three. What should the average family with young children be focused on in this economy? My husband and I are in our early 40s with some under 30K savings and two children under two. We moved to a lower cost state to be near family, part time childcare, and a house in an upscale area we will inherit someday within 10 years. Do we hold off on investing in our future and hunker down through this storm? Thank you so much for what you do.
18:24 Speaker 05 You know, do you want to live in that other house is the big question I would ask. Like, do you want to live there? You know, is that where you guys want to take over at some point? Or are you happy to like sell that home in the future if you just find a home that you like, right? So I think it's, it's a question of like, it's more of a personal question than a financial question in this case.
18:41 Scott Galloway? They, they're working, they have two kids, they have a small, they have a start in terms of savings, but not enough to quite frankly feel comfortable yet. And they have two children. This isn't a Hallmark channel advice, but I, I traded off a lot of time with my kids and I focused on work because I wanted to figure out a way to, to make more money than I was spending, which was really difficult living in New York. And they did what ultimately I did, and that is they did a geographic arbitrage. And I moved to Florida where the school we sent our kids to was 12,000 or 14,000 a year, not $58,000 a year at First Presbyterian or, or Avenues. So we did the geographic arbitrage, which it sounds like what they've done.
19:24 Scott Galloway? At this point, what I would say more than anything is that you and your partner need to get aligned around your approach to earning, saving, and the trade offs around time with family and sacrifice. It's nice to have one person at home. It's also nice to have financial or more financial security of two incomes. I would argue also, there's a lot of evidence showing, especially with daughters, they make more money when they see their mom working. And let's be honest, usually when we talk about two incomes, it's mostly the mom going to work, although that is changing a bit. But my advice is that you get alignment with your partner. There is no balance, there's just trade offs around what are the sacrifices in terms of
20:06 Scott Galloway? lifestyle as we do kind of automated savings plans or automated investments to take advantage of maybe. The company we work with around matching or state-sponsored tax-advantaged savings plans, but get alignment. You might decide, look, we're not going to have a lot of savings. We're going to live pretty modestly, even when our kids are out of the house, because we want to spend more time with our kids, or at our church, or coaching Little League, or that having a certain level of wealth by the time their kids are ready for college or out of college is important, and we're going to need to make certain sacrifices in terms of lifestyle, or maybe spending more time focused on our careers. But I would suggest
20:48 Scott Galloway? they do the math and get alignment around goals, and the sacrifices and trade-offs required to hit those goals. And again, this isn't, people have a tendency to be very generous and hallmark with other people's money. When my kids were young, I got alignment with my partner, and I basically said, I'm going to work all the fucking time, and it's going to come at a cost. It's going to put a strain on our relationship. I'm not going to see our kids as much as I would like, and probably would be good for them and good for me. I hate to say this, but I put, I don't want to say I put family second, but I put financial security and the optionality and wonderful things that would afford me and my family later in life. I prioritize that. And it came at a cost, but I had alignment with my
21:32 Scott Galloway? partner, and now I have a tremendous amount of balance because I worked very hard. I got lucky, it paid off. And now I can basically do whatever I want, whenever I want. So I go back to, again, the key word is alignment with your partner and recognition that everything requires trade-offs. And you just need to decide with your partner, what are the trade-offs? Where on that spectrum is the right point for you in terms of, again, those trade-offs? Any follow-up comments on that, Nick?
22:01 Speaker 05 Yeah, I'd also think about the inheritance and how, because obviously, the size of the inheritance matters. Is it you're just getting a house? Is there more assets there? Because that can then affect your saving behavior. Maybe you don't need to save as much early on because you know that there's going to be this large transfer in the future. The other thing I'd say about the housing market, if you're in a low-cost-of-living area, obviously it'd be much easier to get a down payment. Obviously, the home prices will be cheaper there as well. But for a lot of people, because of where rates are, no one wants to borrow. So the right solution may just be to save up more cash, put down a larger down payment, or just pay in cash in a few years. So think about all those trade-offs. Obviously, there's a lot of information we don't have here to give a better prescription. But, you know, I'm thinking about this. You know, my wife, we just had our daughter two months ago, so
22:46 Speaker 05 we're starting that journey. We're thinking about buying a home. I live near New York City. I'm in Jersey City, and it's quite expensive here. So because of where rates are, I'm basically over-saving in treasury bills to eventually buy a home, either in a big down payment or mostly cash in a few years, because I don't want to borrow at 7%, right? Or I don't want to borrow at 6.5%. So because of that, I'm just thinking about this differently. I don't know if that was kind of embedded in the question they're asking, but I think that's kind of, a lot of people are looking at this, saying, hey, this looks kind of crazy. I don't know if I want to borrow it at this rate. Should I just keep saving and maybe I buy later, or put down a bigger down payment to get my payment lower? And I think that's some of the stuff they have to think about here.
23:22 Scott Galloway? Yeah. And just hearing you say that, it kind of inspired another thought, and that is, I don't think it's a bad idea to ignore the inheritance part, to make decisions that totally ignore if and when you might inherit a house or some money. Because, one, old people are developing this terrible habit of living for fucking ever. So, you know, if your parents are 70 or 80, one of them might go another 30 or 40 years, given the advances in healthcare. And also, by the way, just a heads up, the parent you get along with least well will be, absolutely be the one that lives the longest, as Louis C.K.
24:04 Scott Galloway? says. But I don't think it's a bad, I see weird, stress-induced, unproductive behavior when people start planning for inheritance. And that is, I don't want to say you start rooting for people's deaths. It creates a dynamic where your parents have an uncomfortable amount of control, where you're planning for an event that is out of your control, where there are conflicting motivations, where you're not taking responsibility. I don't think it'd be a bad idea when you sit down, like, if your parents have said, you're going to get this house in 10 years, we're going to move into assisted living, then
24:46 Scott Galloway? fine, plan for that. But when I speak to people about, and they start talking about the money they're going to get, when, you know, so-and-so passes away or whatever, I just don't think, I think it's healthier to assume that will never happen, and plan your life in the absence or in a vacuum of anything around inheritance.
25:07 Speaker 05 Yeah. I say that from like, a very financial perspective, but like, the very human side of this, it's like, you don't want to look at your parents of like, oh, I'm just waiting for them to die so I can get this money, right? You don't want to do that either. So you don't want to obviously go into debt in the hopes of getting inheritance or anything like that. But yeah, there are these things to think about, and sometimes ignoring this or treating it as found money might be the actual solution that really helps you kind of just move through life and not worry about those types of things. And also, if you are philanthropic, I know you brought this up before, Scott, that's a great way of being like, hey, we know we were going to probably get this eventually, and we can use that to start funding our giving goals, or really expand how much we give, et cetera.
25:47 Scott Galloway? Nick Maggiulli is the Chief Operating Officer of Ritholtz Wealth Management and author of the blog of Dollars and Data. That's all for this episode. If you'd like to submit a question, please email a voice recording to [email protected] . Again, that's [email protected] . Or if you prefer to ask on Reddit, just post your question on the Scott Galloway subreddit, and we might feature it in an upcoming episode. Nick, thanks for joining us.
26:09 Speaker 05 Thanks again, Scott. Appreciate it.
26:11 Scott Galloway? This episode was produced by Jennifer Sanchez and Laura Janer. Kami Rika is our social producer. Brad Williams is our editor. And Drew Burrows is our technical director. Thank you for listening to the Prop G Pod from Prop G Media.
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