Financial Nihilism

The Jared Dillian Letter | April 25, 2024

Someone wrote a 2-star review of my book on Goodreads, a long-winded review, which ended with the idea that there’s no point in saving for the future because we’re going to have war, revolution, and it’s all going to come to a violent end. I wish I were making this up, but I’m not. Thanks for the extra star, I guess?

I’m not going to take the time to refute that point by point, but let’s just say that saving for the future does matter because the track record of pessimists has been exceptionally poor. 

I’ve also heard that Zoomers aren’t saving for retirement either (because “there is no point”)—we’re all going to cook under global warming, and the planet won’t be around in 40 years. I’ve heard that, too. And again, I am not going to refute the global warming thing point by point, but I will say that is probably overly pessimistic and that you should be maxing out your 401(k).

Then you have the YOLO people who live for today and don’t worry about tomorrow. Tomorrow will come; it always will.

I call this financial nihilism; and yes, attaining wealth is harder these days, but in some ways, it is easier. I would not worry too much about it. I did this exercise when I was 22 years old: I built a spreadsheet with 40 years of IRA contributions and showed how they compounded over time. Upon retirement, assuming a rate of return of about 8%, I would have $2 million or thereabouts. 

Well, after a few years, I could no longer contribute to that Roth IRA, having exceeded the income limits, but I still have that account, and it has $86,000 in it, on about $20,000 in contributions. It is invested in the total market index fund. And by the time I retire, it will have more. Maybe I will have $150,000–$200,000 when I retire, which isn’t life-changing, but that will keep me going for a few years. I am earning a higher rate of return on my other stuff.

You have to think about the future, or the future will think about you.

The Downside of the Awesome Portfolio

The Awesome Portfolio is great, and I recommend it to everyone, but there is a downside: It returns less. About a percent less, maybe a little more.

That may not seem like much, but there is a big difference between an 8% return and a 9% return over an investing lifetime. It adds up to hundreds of thousands of dollars when you compound it.

Now, my point all along is that the 9% return is illusory, and nobody realizes it, because they get whipsawed by the market and panic and sell. But yes, it is true that if you invested in the stock market only and held on through all the ups and downs, you would have hundreds of thousands of dollars more than if you had the Awesome Portfolio.

But people can’t do it. And even if they could do it, they’d be miserable. So, maybe you are trading away a few hundred thousand dollars for happiness. That is the way I look at it.

Costco Consumption

I went to Costco for the first time two weeks ago. It was an experience. That place just prints money. I went on a Saturday afternoon when it was most crowded. There were a lot of people in there who were not thinking about tomorrow! I have never seen so much consumption in my life.

We bought a few things, including a new set of pans for the new house and some pool noodles for the pool. People were buying TVs the size of a parking space. It was incredible. And yes, you are getting a good deal, but you are still spending money. We got a regular membership for $60. They gave us the hardest of hard sells for an executive membership for $120.

You know what I always say—you should be saving 20% of your income each year. In good times and bad. I save much more than that, and for the past few years, it has been allocated to the new house. Some people say that you are spending money on a house. No—it’s an investment, you are simply allocating it to the real estate bucket.

Let me be the first one to tell you that the world is not going to end, and every dollar you spend today is one you won’t have in retirement after compounding. You may not spend it all in retirement, but you can give it away, which is another good thing to do with it. 

Let me put it this way: I’d rather have too much money in retirement than too little.

Jared Dillian, MFA