Podcast Summary: The Stacking Benjamins Show – "Avoid These Financial Blunders in 2025 with Smart Money Moves (SB1629)"
Release Date: January 10, 2025
Hosts: Joe Saul-Sehy and OG
Guests:
- Nick Magiulli: Author and blogger behind the Of Dollars and Data blog
- Paula Pant: Host of the Afford Anything podcast
- Dr. Jordan Grummet (Doc G): Host of Earn Invest
Introduction and Guest Lineup
The episode kicks off with Joe Saul-Sehy expressing his excitement about stepping out of his usual setting to host the show in New York City. He warmly introduces the panel: Nick Magiulli, Paula Pant, and Dr. Jordan Grummet. The hosts set the stage to discuss common financial mistakes and how to avoid them in 2025.
1. The Perils of FOMO in Investing
Paula Pant emphasizes the significant impact of Fear of Missing Out (FOMO) on investors, particularly when they witness others achieving spectacular gains in areas like cryptocurrency or individual stock picking. She explains how FOMO can lead individuals to deviate from their well-thought-out financial plans.
Paula Pant [11:18]: "FOMO is big. And oftentimes you know better, right? You know that you should put the majority of your assets that are in public markets in index funds that are asset allocated in a very specific way... and then you hear about somebody who like made it big on crypto, or you hear about somebody who made it big within video or individual stock picking, and all of a sudden you have all of this FOMO..."
Nick Magiulli offers a strategy to mitigate FOMO by allocating only a small percentage (no more than 5%) of one's portfolio to high-risk investments. This "fun money" approach allows investors to enjoy potential high returns without jeopardizing their overall financial stability.
Nick Magiulli [13:44]: "I would say no more than 5% of your portfolio because you get the kick out of it... If it starts to do really well, pair back to 5%... you'll keep making money and you have no real downside."
Joe Saul-Sehy shares his personal experience with FOMO, recounting how missing out on Nvidia initially led him to impulsively invest in other stocks, highlighting the common emotional pitfalls investors face.
Joe Saul-Sehy [12:34]: "The FOMO, because I missed number one, Paula, I now think I got to grab another one so I can be the hero next time."
2. Establishing and Adhering to an Investment Policy Statement
Dr. Jordan Grummet introduces the concept of an Investment Policy Statement (IPS), a personalized document that outlines an investor's long-term asset allocation aligned with their financial goals. He stresses the importance of regularly reviewing and updating the IPS, especially during tumultuous market conditions.
Dr. Jordan Grummet [17:27]: "This is your time to go back to the basics and say this doesn't really fit my investor statement and so I'm going to stay away from it."
Paula Pant concurs, highlighting how the IPS serves as a roadmap that keeps investors focused on their goals rather than market noise.
Paula Pant [19:19]: "We talked about the investment policy statement and it was actually very much in a context that was similar to this in where your asset allocation needs to reflect your goals."
Joe Saul-Sehy reinforces the necessity of maintaining focus on financial milestones amidst external distractions such as political events or market volatility.
Joe Saul-Sehy [35:36]: "We get so worked up... and we forget there is a lot of stuff we can control."
3. Avoiding Over-Identification with Investments
Nick Magiulli warns against the psychological trap of associating one's identity too closely with their investments. He observes that many wealthy individuals inadvertently treat their investment performance as a measure of their self-worth, leading to decisions driven by ego rather than rational strategy.
Nick Magiulli [21:23]: "I think on the way to getting rich, a lot of people lose themselves in that and they forget about everything else."
He also points out that a significant portion of wealthy individuals' portfolios are often earmarked as bequests rather than funds for personal use, suggesting a disconnect between accumulation and meaningful financial goals.
Nick Magiulli [22:13]: "Over half, if not 60 or 70% of the assets of most, let's say million dollar plus households wind up being bequested... If you asked a 30 year old, a 40 year old... When you're dying, you're not going to spend."
Dr. Jordan Grummet echoes this sentiment, sharing personal anecdotes about family members who prioritized financial security to the detriment of personal fulfillment.
Dr. Jordan Grummet [23:47]: "Most people don't even want to accumulate... but they still don't want to touch the principal."
4. Managing Spending Aligned with Personal Values
The discussion shifts to spending habits, with Dr. Jordan Grummet highlighting the common mistake of spending money on things that don't align with one's values. He advocates for intentional spending, ensuring that expenditures contribute to personal happiness and fulfillment.
Dr. Jordan Grummet [40:24]: "We spend a lot of time spending money on things we don't value... money is a tool and it gets me that thing I value."
Paula Pant introduces the 1% Challenge, which encourages individuals to incrementally increase their savings by 1% each month. This approach aims to make saving more manageable and sustainable.
Paula Pant [45:05]: "Whatever amount that you currently save, whatever that percentage is, next month save 1% more... Over the span of the year, you've increased your savings rate by an additional 12%."
Joe Saul-Sehy shares his and his partner Cheryl’s strategy of weekly financial reviews, where they assess their spending against their values, fostering accountability and conscious decision-making.
Joe Saul-Sehy [46:32]: "We started that weekly meeting that I love that's only 20 minutes long... We're building values together week by week in this 20 minute period."
5. Preventing Analysis Paralysis in Investing
Dr. Jordan Grummet discusses the phenomenon of analysis paralysis, where fear and uncertainty prevent individuals from making necessary investment decisions. He emphasizes the importance of maintaining consistency in investing, regardless of external economic or political turmoil.
Dr. Jordan Grummet [28:21]: "A lot of people are sidelining their money and I think it has long term consequences."
Nick Magiulli reinforces this by highlighting the drawbacks of timing the market based on political events, citing historical data that suggests staying invested yields better returns than attempting to predict market movements.
Nick Magiulli [29:44]: "If you only invested during Democratic regimes or Republican regimes, you would have made far less money than if you just stayed invested for all of them."
6. Implementing Incremental Financial Changes
Nick Magiulli advocates for making small, consistent changes rather than attempting drastic overhauls. He shares his personal success with committing to one blog post a week, which over time, led to significant growth and opportunities.
Nick Magiulli [51:16]: "What's the one change you can do? And just do that every single week... That compounding just starts to take off in ways you can't even imagine."
Paula Pant adds to this by outlining how minor adjustments, such as saving an extra small percentage each month, can accumulate substantial financial improvements over time.
Paula Pant [52:26]: "Whatever amount that you currently save... next month save 1% more... you've increased your savings rate by an additional 12%."
Joe Saul-Sehy complements this approach by suggesting that even small increases in contributions to retirement accounts can have a meaningful impact over the long term.
Joe Saul-Sehy [52:26]: "Don't try to eat the whole elephant. Try to save a little bit more in your 401k this month, the next month a little more..."
Conclusion and Final Thoughts
As the episode concludes, the hosts and guests reflect on the discussed strategies to avoid financial blunders in 2025. They emphasize the importance of disciplined investing, aligning spending with personal values, and making incremental changes to achieve long-term financial success.
Key Takeaways:
- Mitigate FOMO: Allocate a small portion of your portfolio to high-risk investments to satisfy curiosity without compromising overall financial health.
- Establish an IPS: Create and regularly review an Investment Policy Statement to stay aligned with financial goals amidst market volatility.
- Separate Identity from Investments: Avoid tying your self-worth to investment performance to maintain rational decision-making.
- Intentional Spending: Align expenditures with personal values to ensure financial resources contribute to genuine happiness and fulfillment.
- Overcome Analysis Paralysis: Stay consistent with investment strategies despite external uncertainties to harness the power of compounding.
- Embrace Incremental Changes: Implement small, manageable financial adjustments to build sustainable wealth over time.
By adhering to these principles, listeners can navigate the financial landscape of 2025 with confidence and resilience, avoiding common pitfalls that derail financial progress.