We all need to make smart decisions with our money. The Long-Term Investor podcast shows you how by distilling complex financial matters into easily digestible lessons. And now, here's your host, chief investment officer at Plan Corp and the author of Making Money Simple, Peter Lazarof.
Welcome back to The Long-Term Investor. In this episode, I'm joined by Jack Raines, author of Young Money, for a conversation about what happens when traditional financial advice focuses too heavily on accumulating money and not enough on using it well. We discuss why time may be a more valuable asset than money, how the FIRE movement gets it wrong, how to distinguish uncertainty from genuine risk, and why a good life may be best measured by the memories and moments of nostalgia created along the way. As always, you can find detailed show notes at thelongterminvestor.com. And as a reminder, I have a book of my own coming out. There is a link at the top of the episode description where you can sign up for exclusive updates, promotions, subscriber-only webinars, and all other sorts of great stuff. That email comes out every other Saturday. It is different than my normal email. So again, there's a link at the top of the episode description or you can visit theperfectportfolio.com.
And now here is my conversation with Jack Raines.
Jack Raines, welcome to The Long-Term Investor.
Peter, thanks for having me.
So, congrats on the new book, Young Money. I've been following your work for a long time, and I'm hoping we can talk about what I felt like was a big takeaway for me from the book, which is just that like long-term investing, it's not necessarily all about just having the largest portfolio. You really dive into how to allocate money, time, opportunities all across different life stages. But let's start with sort of your entry into investing. You tell a story about turning a $6,000 Roth IRA into nearly $400,000 and then losing half of that money from the peak. So maybe tell us a little bit about what that experience taught you about money that anything in terms of making money never could.
The first thing it taught me hilariously is when I had to meet with my accountant or my dad's accountant like the following year and he was looking at it. He was like, "There were like 120 trades in my Roth in like year 2020 that kind of led to that." And his big takeaway was you should never gamble with your retirement account. But I guess if you are going to gamble, if you do it in your retirement account, at least you don't have to worry about taxes. So, my terrible financial advice to everybody is if you're going to speculate, like I don't think it's horrible with your Roth because if you do make money, you don't have to figure out capital gains and then if you lose money, you could literally only lose like that contribution if you're like 23. On a serious note, don't do what I did. But yes, I graduated college in December 2019. Obviously, January 2020, February 2020, COVID happens. I'm working remote corporate finance, like not in the office, really bored, and I figure out what a SPAC is and basically for people who don't know, it's like a shell company that provides an alternative path to going public from a traditional IPO. And I was buying SPACs and SPAC warrants, which are like options, and it was a bubble. I was really good at playing the bubble. I did turn six grand into 400 grand in about nine or 10 months, and then I also a few months after that lost 150 grand in about five minutes. So I can tell you a lot of things I learned from that. The first is when your dad calls you when you have 400 grand and says you should put it in an index fund, you should probably listen to him. The second one is like no matter how good and euphoric making money feels, losing a lot of money will make you feel horrible and just like you just feel like an idiot. Like it's such a whack on your sense of like intelligence that I don't know, I've like not really, I still buy some stocks here and there, but I have not actively speculated since because the emotional roller coaster of just constantly trading stuff in your personal account is just like excruciating. Like it is just like mind-numbingly like all-consuming.
You know, I started my career as an individual stock analyst and had a bunch of individual stocks myself, and now my portfolio is just ridiculously simple. It's one fund across all accounts. And there's only been a couple times, I started in 2007, so during the financial crisis, a lot of times if you could just buy a company that was priced to go bankrupt and didn't end up going bankrupt, like you made a lot of money. And the only time as an investor I've felt like I've seen similar instances was COVID, like 2020. There were, you know, some individual stocks where I resisted the urge to buy. I stayed the course with the boring plan. And had I gone down that route, you know, it's fine to entertain yourself a little, but I think what you kind of call out in the book and I feel to be true is like it's not so much about like the bad trade that lost a lot of money. The bad trade I think you're arguing often is like you spend hundreds of hours and you lose sleep over like the decision to trade or not to trade or do something. So like I guess how do you know, like how does an investor know when investing has stopped really serving your life purpose and more just started consuming it?
It's a framework I use a lot in the book. It's just also like how I think about life in general is like everything is a matter of opportunity cost and you can like if you want to go like in a pure investment mindset there's like what's the opportunity cost of like this investment versus that one, like what's your cost of capital whatever. But it applies to a lot more than money, right? Like what's the biggest opportunity cost I think is like opportunity cost of your time and how you spend that time because money is a pretty fungible thing at the end of the day. Incomes go up and down, net worth can go up and down, but like time is a constantly depreciating asset. And if you find yourself like spending hours and hours a day like thinking about stocks, analyzing stocks, and like it's not a full-time job, like you're not an equity research analyst, you're not a hedge fund analyst, this isn't what you do for a living, that both takes away from like other things you could be doing to like enjoy your life. It also takes away from like developing skills that would help you increase your income, which would actually probably cause your net worth to compound over time. Like I don't know, if you have a portfolio of like $50,000 and you can generate a 100% return, great, you make 50 grand. There's probably a lot of things you could have done that would have like led to you being able to increase your income by 50k that would be a compounding skill set that then continues to grow over time. So I really think it's a, like I'm not going to say you have to only do like one index fund or like I'm not going to be the guy to prescribe certain investment philosophies. I do think if it's taking up like the equivalent of a part-time job of your life timewise and you're not managing enough money that it can equate like a part-time job level like income increase, which probably means millions of dollars in your portfolio, it's probably a poor allocation of time is kind of how I think about it. And like I especially for young people I think it's really tough to realize how big that time suck is until you're several years into it.
You know, I think in financial planning, we're pretty skilled at showing what the future value of a dollar is, but far less skilled and maybe, you know, even those who are skilled, it would be difficult to convey what the future cost of a missed experience would be. You talk about like money is replaceable, time is not. Can you talk a little bit about like sometimes how the financially sensible choice is still going to carry a large non-financial cost and like what do people get wrong there?
Yeah, I mean I think one of the biggest issues and again like I'm speaking as a 29-year-old who has experienced my 20s, right? But like for a lot of young people, your income is probably lower than it'll ever be. Your like uncertainty about the future and just like general nervousness about like being thrown into the real world for the first time is really high. And it's pretty, I think it's pretty easy to fall in the scarcity mindset of I don't have that much, I need to protect what I have. And like most traditional financial advice is you should put back something around 15% of your income into savings, into investments to compound. And like I agree with all that advice to be clear, like I max out my 401k, I make sure I get the match, I do all that. But if you're making like your 22, 23-year-old salary and then you have an opportunity to go on a trip with your friends or even just like go out on a night on the weekend, this like window of opportunity of being a young person with like these fun things that young you wants to do is only a few years. And the like the cost of having fun, like the amount of dollars it takes to have fun at 23 is actually like a really small amount. So I'm, and this might be like counterintuitive advice, I'm much more in the camp of like it's okay to deviate from traditional financial planning advice when you're young as far as like money you allocate to retirement assuming that like one, the money is actually going to experiences you would find fulfilling and it's not just like binging on DoorDash or whatever, and two, you know, you don't have a ton of debt, and three, that you think you're on a like high slope career path where earnings will increase. You know, if it's, if you aren't pursuing a high income life, that's fine. Like there's more to life than just going after money. But if you're in a job where you make 60k now, but there's a path to 150k in like, you know, three, four years, then it's okay to spend a little bit higher percentage of your income. You're making 50k, if you're not, you need to be more thoughtful about that because like the odds of you being able to make up those missed contributions later is lower. So it's, you know, all of this is subjective, but it's like a sliding scale of at the end of the day, like money serves one purpose, and that is to be used on some form of fulfillment either now or in the future. And you kind of have to ask yourself like, is that extra $5,000 that I would save at 23 going to be more useful when it compounds for 40 years and I can spend it and it's worth 30 or $40,000, or would I rather spend it now as a 23-year-old? What would 60-year-old me be happier with? Like younger me having spent that money on this thing or keeping it for that thing? Again, there's no, it's not black and white, but like I don't think again when it's young, it's really hard to conceptualize how brief youth is. Therefore, it's tough to like convince yourself, especially if you're frugal-minded, which is usually a good thing, that it's okay to have fun every once in a while.
You know, there's really good research on how what we think our future self will want is typically wrong, which makes this difficult. And not every dollar earned can be saved and not every dollar saved can be invested. And so yeah, there's not like a black and white option. You're often trying to like minimize regret and when you save for the future, you're effectively spending on your future self. But you make one of my favorite lines in the book and I'm going to like paraphrase here is that memories compound faster than money. I absolutely love that. I think it really aligns with a lot of what I think philosophically about financial planning. You know, like what to you does that phrase mean and maybe who should not follow that advice?
So it's an idea that I borrowed from Bill Perkins. I don't know if you've read Die With Zero, but it's like a great book and he uses a term called memory dividends and the whole basis behind this and I like totally agree with his take on this is that like the, you know, like it's pretty easy to understand how money compounds. You like, you can just open Excel, put in $10,000, like 9% growth rate, 40 years, and then I can't do the math in my head on that, but then it's worth like a lot more than $10,000. It's in the like hundreds of thousands of dollars, right? Okay. But if you don't ever spend money on memories, then you'll end up being at that same 65, 70 years old and you have five, $10 million in the bank and you just didn't like, you don't have moments of nostalgia to look back on. And I view like what he calls memory dividends I think is just like future instances of nostalgia for remembering things that you found very enjoyable in the past. And like by doing interesting fun stuff with people you care about when you're young, you are giving future you the opportunity to enjoy like reliving those experiences later. And I do think that like the kind of meta thing to be optimizing for in life is like how many really, really like powerful, meaningful moments of nostalgia can you put at the different periods in your life and when you have one of those moments it's worth spending money on. Right? So the other thing is like it's those things just cost way less money when you're young, when you don't have kids or you don't own a home. Like the older you get, the more expensive it is to like create meaningful things because your lifestyle just costs more. You have more dependents. Like your taste and like the hotel you want to stay in at like 42 is going to be different than 22, right? So if you need to throw a few hundred bucks at something like have fun at 22, you should probably do it. Now, the caveat on that is like you don't want to put yourself in a really tough spot later. For example, if you're in credit card debt, like ignore all, like everything I'm saying is from the point of like you're being overly frugal, but you have the ability to spend. If you're at a spot where like you have high interest rate debt, like no, you shouldn't just be like, you shouldn't max out a credit card to go live, laugh, love, and you're up at 25. Like, don't do that. So like for the people who shouldn't do this, it's like if you're not in a spot financially where I like, I think it's okay to save less when you're really young, but you shouldn't bury yourself in more and more debt is kind of where I draw the line. That's, I mean, that is actually the one exception I would make on that.
You know, it's interesting as you were talking and I started searching as you were talking. So, last year Nick Maggiulli had a book called The Wealth Ladder and created like a spending rule around like, hey, like any given time, 0.1% of your net worth, like you can just spend it, don't worry about it. And what I started to search for is like, okay, some of these are like there's a bigger spending rule on when you should splurge. And it's kind of, you know, the idea is similar to yours because you can get in like memories compound, but you can like financial habits, good financial habits compound too. And you don't want to create an argument for undersaving. And you know, it's just really tough. I go back to financial planning. You work with a financial adviser and they're going to run like a Monte Carlo for you and figure out what is your probability of running out of money before a certain age. And that whole process is like a balance on a scale of like we're trying to minimize running out of money versus minimize dying with regret. And like where you fall in the middle can be tricky. And I will say that so I don't work directly with clients. I haven't for a long time. You know, my role is really just to manage the money at the firm, but I still meet with clients and I see people who are such diligent savers over their lifetime where they just by the time they're allowed to spend the money, they can't. And so I think there's some benefit here just to getting in the habit of spending some of your money, of like living your life a little bit. One group, and I'm so happy that I think you and I align here, one group that I sort of am skeptical of is the FIRE movement. We are very saving. Yeah. Like talk to, why don't, why don't I not even set you up, like talk to me about the FIRE movement.
So you mentioned Nick Maggiulli. I quote him at one point in my book because he has a very good, I forgot what year this stat came from, but basically he has a stat in one of his old blog posts basically saying that like everybody's worried about retirement, but actually at least in America, most retirees have so much money in savings that they don't even touch the principal before they die, which is like on one hand good because I like money problems suck. Like there is no worse situation like feeling like you're short on money. I fully get that. But if you're 70 years old and you're spending like $100,000 a year and you have like $8 million in the bank account that's like compounding faster than that, you're just never going to spend that down. It's like there was a more efficient point of spending earlier. Reit Seifi talks all the time in his podcast about like you have all these like really neurotic people who made a lot of money in tech or finance or whatever and they're frugal and they just don't know how to spend. I think the FIRE movement is at the core of this whole thing where like the entire point of what the FIRE movement was supposed to be was rooted in good things and that like you should put yourself in a position that you have the freedom to live the life that you want. But there's a more toxic version that's kind of been co-opted over time that's become this like vilification of the labor force where like you should like minimize all worldly materials to the point that you can opt out of the labor force. And it's like, okay, so if you really buy into that, like take it to the full extreme, right? You take whatever job you have, let's say you're making, let's say, like $90,000 a year, and you basically live in the like cheapest apartment that meets your needs, and you eat rice and beans and never hang out with your friends. And the entirety of doing that is just to get you in the point that you can continue to do that without having to have more money coming in. I mean, my take on this is like you probably just really don't like your job but should do something else for a living is like the, I don't know, like because I can go on a whole tangent on like anti-FIRE movement propaganda.
I mean, please do. I'm pretty anti-FIRE. So, you do you. Yeah.
I mean, the other issue with this and it's something that doesn't get thought about much is like with the way FIRE usually plays out for people who are like true disciples, they end up hitting it in probably their like mid to late 30s to early 40s, right? And the issue with that is like then everybody else in your like age band in life is like peak career working at least 40 hours a week minimum. And it's like, okay, who are you going to hang out with? What's your social life? It's either people younger than you that are just figuring stuff out or people like older than you who are retired. So you are now putting yourself in a spot where you're less relatable to like the friends of your kids, to like your friends from college or early career or high school or whatever. You're making less money, which means that like if the market downturns, that actually totally screws up the graph that you made. Like you're putting your entire livelihood in the hands of market forces while also alienating yourself from everybody else that was previously like around your lifestyle. I don't know. It's just like, like I did a whole spend a year, we can talk about this more in a minute, but like backpacking Europe and Latin America for a year in my early 20s. It was kick-ass. It was awesome. I would come across the occasional like late-30s drifter in Argentina and it's just like, dude, this is, this is not like, I don't want to end up like, I don't care how free you feel, like this is not good. Which again is an extreme example, but it's just like I think people underrate how good it is to be in like a life phase that's like relatable to other people around your age. If everybody around your age is working and you just feel like you have to get out of the labor force, there's probably not anything wrong with the labor force. There's just something wrong with your relationship to it. Just like change jobs, like take a, take a sabbatical for a year and then go do something else. But I just, I don't know, the like people are meant to do stuff, like we're not supposed to just subsist.
