Why You Shouldn't "Buy the Dip" With Nick Maggiulli

Taylor Schulte: Hey everyone, really quick before we start the show. Friend and popular finance author, Nick Maggiuli, has a new investing book out called Just Keep Buying. To support Nick, and continue to put good information in the hands of our listeners, I personally purchased a box of them to give away.

To claim your free copy of Nick’s new book, all you have to do is write an honest, written review of this show in the Apple Podcast app. Take a screenshot of your review and email it to podcast@youstaywealthy.com.

If you don’t have an apple device, go buy one, write a review, and then return it. I’m kidding, kind of, but really, if you don’t have an Apple device, I’ll leave it up to you to get creative and support my goal of helping other retirement savers like you find this show, and hopefully the other podcast apps will get their act together one of these days and allow written reviews.

Thank you for your continued support, let’s dive into today’s show.

Today I’m talking about investing.

Specifically, I’m joined by data scientist and author, Nick Maggiulli, and we’re talking about three big things:

1. How to invest in high inflationary environments
2. Why you shouldn't “buy the dip”
3. An actionable formula you can use to invest during market drawdowns

If you’re ready to dive into data and get answers to some of the biggest investing questions, this episode is for you.

For all the links and resources mentioned today, head over to youstaywealthy.com/150.

1. Inflation:
- March CPI data came and reported an 8.5% year-over-year increase
- By one estimate, households are spending an additional $327/month

Before we talk about how inflation might impact investments, I’d love for you to share your thoughts on the recent inflation news. What do you make of the recent inflation reports and inflation in general? Is it concerning to you? Are the news headlines overblown?

“High inflation won’t really hurt stock returns in the long run.”

“U.S. stocks have diminished returns following periods of high inflation. For example, when inflation exceeds 7%, the median return of U.S. stocks over the next year was 7.3%, compared to 10.3% when inflation was below 7%.”

Shifting to bonds likely isn’t prudent for those looking for healthy returns, so what should investors do?

Gold/commodities? Crypto?

“The median inflation-adjusted return of U.S. stocks over the two years following periods of high inflation was nearly identical to the two-year return following periods of lower inflation (18.5% vs.18.7%, respectively). This suggests that those investors with a slightly longer time horizon need not worry about inflation’s impact on their portfolio.”

2. Why You Shouldn't Wait to Buy the Dip (DCA vs Lump Sum):

The market has been screaming upward for the better part of the last 12 years, and one comment you and I often hear from investors who have cash to invest is that they “are going to wait for a dip in the market to put it to work.” I’ve touched on this in the past on this podcast, but you have a great chapter in your book that takes a deep dive into the data and I’d love for you to talk us through some of the key reasons why investors shouldn’t wait to QUOTE buy the dip.

3. How to Buy During a Crisis:

Now, while we both agree waiting to buy the dip is not a prudent investment decision, the market will go through catastrophic time periods. We will go through another recession. We will see another 30-50% drop in the stock market. And when we do, when the world feels like it’s ending, it’s not always that simple to just hit the buy button like the textbooks tell us to. Talk to us about your approach to buying during market crashes.

Talk to us about your formula/approach for “reframing the upside” for determining your expected return based on how long you think the market recovery will take.

What about markets that don’t recover quickly from market crashes? For example, Japan is often brought into the conversation. Where the stock market was still below its December 1989 high for the last 30 years. Greece has had similar struggles since 2008/2009.

“Fear has a greater grasp on human action than does the impressive weight of historical” -Jeremy Siegel

Once again, to grab the links and resources mentioned in today's episode, just head over to youstaywealthy.com/150.

Thank you, as always, for listening and I’ll see you back here next week.

Episode Disclaimer: This podcast is for informational and entertainment purposes only and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.