Just Keep Buying: Book Notes

I. Content Summary

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This book is divided into two parts: saving and investing. The saving section covers all aspects of saving money, including how much to save, how to save more, and how to spend money without guilt. The investing section covers many aspects of making money with money, including why you should invest, what you should invest in, and how often you should invest. The author answers the most common questions in the field of personal finance and investing, with each chapter exploring a topic in depth and providing practical tips. Using a large amount of data and empirical research as evidence, the author arrives at reliable ways to save money and build wealth.

II. Chapter Summary

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Chapter 1. Where Should You Start?

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The poor should focus on saving, and the rich should focus on investing.

• Recent graduates should focus on increasing their income and savings rate, rather than obsessing over investment decisions, because the growth rate of savings far exceeds the growth rate of investment.
• People who have accumulated a certain amount of wealth should spend more time thinking about the details of their investment plan.
• The author proposes a “Save-Invest continuum” concept to help you determine your current financial focus: calculate your expected savings and expected investment growth. Focus on whichever is greater.

Chapter 2. How Much Should You Save?

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You probably need to save less than you think.

• Many saving recommendations are based on false assumptions: that people’s incomes are stable and that everyone has the ability to achieve the same savings rate.
• In fact, incomes become more unstable over time, and the biggest determinant of an individual’s savings rate is their income level.
• The best saving advice is: save what you can save.
• A large body of evidence suggests that retirees generally don’t spend enough, with many even increasing their financial assets after retirement.
• Today’s younger generation is not creating wealth any slower than previous generations, so there is no need to worry too much about running out of money after retirement.

Chapter 3. How to Save More Money?

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The biggest lie in personal finance: you can get rich just by saving.

• The effectiveness of reducing spending is limited. For low-income people, spending is already at its lowest level, making it difficult to reduce further. The author uses data from the U.S. Bureau of Labor Statistics Consumer Expenditure Survey to support this point.
• Increasing income is more effective than reducing spending because as income increases, spending does not necessarily increase proportionately (diminishing marginal utility). The author calls this the “law of the stomach.”
• Five ways to increase your income:
  • Sell your time/expertise: easy to do, but not scalable.
  • Sell a skill/service: higher income, but takes time to develop skills.
  • Teach: easy to scale, but highly competitive.
  • Sell a product: scalable, but requires a lot of upfront investment and ongoing marketing efforts.
  • Climb the career ladder: traditional but effective, can gain skills, experience and stable income growth.
• The most reliable way to get rich is: Increase your income and invest in income-producing assets.

Chapter 4. How to Spend Money Without Guilt?

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• Most financial advice uses guilt to make you question your spending decisions, causing you to be overly nervous about spending money.
• Two tips to help you make financial decisions without worry and spend money without guilt:
  • The 2x rule: When you splurge, invest the same amount of money in income-producing assets or donate it to charity. For example, if you want to buy a pair of $400 shoes, buy $400 worth of stock at the same time.
  • Focus on maximizing satisfaction: Think about whether your purchase can bring autonomy, mastery, and purpose, thereby increasing your long-term satisfaction. For example, a daily latte might allow you to do your job better.
• The only right way to spend money is: the way that works for you. Think about what you want to get out of life, and make spending decisions accordingly. Research from the University of Cambridge shows that the more your spending patterns match your psychological state, the higher your life satisfaction, and this effect is greater than the happiness brought by your total income.

Chapter 5. How Much Lifestyle Inflation Is Harmless?

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• Lifestyle inflation refers to the increase in spending that follows an increase in one’s income.
• Some lifestyle inflation is enjoyable, but too much lifestyle inflation will lead to having to delay retirement.
• The author simulates the retirement plans of two investors with different savings rates after salary increases to arrive at these conclusions:
  • The lower your current savings rate, the higher your lifestyle inflation can be without affecting your original retirement plan.
  • The author recommends saving at least 50% of your future raises, a rule that is simple, practical, and suitable for most people.

Chapter 6. Should You Go Into Debt?

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Debt is not necessarily good or bad, it depends on how you use it.

• Debt as a form of risk mitigation: Some people, even with savings, keep credit card debt as a strategy to reduce the risk of future funding shortages.
• Debt as a behavioral pillar of forced savings: Some people use debt as a behavioral pillar to force themselves to save.
• The two most useful types of debt:
  • To reduce risk: for example, keeping cash on hand for emergencies or fixing housing costs.
  • To earn a return higher than the cost of borrowing: for example, by taking out education loans, business loans, or mortgages to generate higher returns. The author uses data to demonstrate that getting a college degree is often worthwhile.
• Debt can also have non-financial costs, such as psychological stress and health problems, so non-mortgage financial debt should be avoided as much as possible.

Chapter 7. Should You Rent or Buy?

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The point of buying a home is not whether to buy it, but when to buy it.

• In addition to the mortgage, there are a number of one-time and ongoing costs associated with buying a home, such as down payment, closing costs, taxes, maintenance, and insurance. The author details these costs, concluding that buying a home is only cost-effective if the buyer intends to live in it for the long term.
• In the short term, buying a home is riskier than renting, but in the long term, renters face greater long-term risks such as rent fluctuations, housing instability, and moving costs.
• In the United States, the long-term return on homeownership as an investment is not ideal, far lower than the stock market. The author uses the example of his grandparents buying a home to illustrate this point.
• The right time to buy a home is when you:
  • plan to stay in that location for at least ten years;
  • have a stable personal and professional life;
  • can afford a 20% down payment and keep your debt-to-income ratio below 43%. The author recommends, if possible, to make a 20% down payment and buy a larger home in one step, because the transaction costs are lower in the long run.

Chapter 8. How to Save For a Down Payment (and Other Big Purchases)?

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Why the length of time you save matters?

• Short-term saving for less than two years: Holding cash is the best option, as it has the lowest risk.
• Long-term saving for more than two years: Investing in bonds is preferable to holding cash because bond returns can offset the effects of inflation. The author compares cash and bonds using two examples: “Save $1,000 per month with a goal of $24,000” and “Save $1,000 per month with a goal of $60,000”.
• Longer-term saving for more than three years: You can choose to invest in stocks, but the risk is higher and you need to choose an appropriate portfolio based on your own risk tolerance. The author uses data to show that stocks have much higher long-term returns than bonds, but also greater volatility.

Chapter 9. When Can You Retire?

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There’s more to consider than just money when it comes to retirement.

• The 4% rule: When your retirement savings reach 25 times your expected annual expenses, you can retire.
  • You can withdraw 4% of your investment assets (half bonds and half stocks) in the first year of retirement, and increase the amount withdrawn by 3% each year to keep up with inflation.
  • If you have a pension or other guaranteed income, you only need to save 25 times your “annual excess spending” (expected annual expenses less future guaranteed income).
• The crossover point rule: The point at which your monthly investment income is greater than your monthly expenses, you have reached the “crossover point” and achieved financial freedom.
  • “Crossover Assets” = Monthly Expenses / Monthly Investment Return.
• Retirement is much more than just a financial decision, it’s a lifestyle decision. You need to think about what you want to do and how you want to live after retirement. The author uses the examples of several celebrities to illustrate the confusion and emptiness that can exist after early retirement.

Chapter 10. Why You Should Invest?

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Three reasons to make your money grow.

• Save for your future self: Investing allows you to have a pool of resources to draw from as you age. Human lifespans are increasing, and the concept of “retirement” has emerged accordingly. To ensure quality of life after retirement, it is necessary to invest in advance.
• Fight inflation and maintain the purchasing power of your wealth: Investing can offset the impact of inflation and maintain or increase your purchasing power. The author uses data to show that investing can effectively combat the effects of inflation.
• Replace your human capital with financial capital: Investing can turn your diminishing human capital into financial capital that can continue to generate returns. The author illustrates this with the example of professional athletes.

Chapter 11. What Should You Invest In?

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There is no single right way to get rich.

• The author lists a variety of income-producing assets, including:
  • Stocks: One of the most reliable ways to build wealth over the long term, easy to own and trade, with low maintenance costs, but highly volatile and valuations easily influenced by market sentiment.
  • Bonds: Low volatility, safe principal, and helpful in rebalancing portfolios, but returns are generally lower than stocks, especially in a low interest rate environment.
  • Investment real estate: Returns are higher than stocks or bonds, especially when using leverage, but require more effort to manage and are difficult to diversify.
  • Real Estate Investment Trusts (REITs): Provide access to real estate investment income without needing to manage it yourself, but are more volatile and highly correlated with stocks and other risky assets during stock market crashes.
  • Farmland: Low correlation with stocks and bonds, low volatility, inflation-resistant, but low liquidity, higher fees, and requires “accredited investor” status to participate.
  • Small businesses/franchises/angel investing: Potential for high returns and the more effort you put in, the greater the return, but requires a significant time commitment and has a high failure rate.
  • Royalties: Can generate stable income that is uncorrelated with traditional financial assets, but sellers incur high fees and public taste changes are unpredictable.
  • Your own products: 100% ownership, personal satisfaction and achievement, can create a valuable brand, but very labor-intensive and no guarantee of return.
• The author also contrasts the characteristics of income-producing and non-income-producing assets (e.g., gold, cryptocurrency, art, etc.) and their respective advantages and disadvantages.

Chapter 12. Why You Shouldn’t Buy Individual Stocks?

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Why underperforming the market is the least of your worries?

• Most people (even professionals) can’t beat the market. Data from the SPIVA report shows that active funds tend to underperform index funds over the long term.
• Only a very small percentage of individual stocks outperform in the long run. Bessembinder’s research indicates that since 1926, only 4% of stocks have generated returns that exceed U.S. Treasury bonds.
• Even stocks that outperform are not always winners. West’s statistical analysis suggests that many companies will disappear within a decade.
• Choosing individual stocks is emotionally draining and stressful. The author uses the example of his friend Darren investing in GameStop stock to detail the emotional rollercoaster of stock trading.
• It’s hard to tell if you’re really good at picking stocks. The link between stock picking decisions and outcomes is not significant, making it difficult to assess your stock picking skills. Even if you have performed well in the past, there is no guarantee that you will continue to do so in the future.
• The risk of holding a concentrated position in a single stock is that the return is lower than the market. The author uses data on U.S. stock performance since 1963 to show that the median return of individual stocks is lower than that of index funds.
• The author suggests buying index funds or ETFs to earn market average returns, which can lead to higher returns and less stress during the investment process.

Chapter 13. How Early Should You Start Investing?

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Why buying early is better than buying late?

• Most markets tend to go up most of the time, so investing early allows for a longer period of compounding growth.
• The author compares two investment strategies:
  • Buy now: Put all the money you can invest in immediately.
  • Average in: Invest the money you can invest in batches.
• Conclusion: The buy now strategy is generally better than the average-in strategy. The author uses U.S. stock market data from 1997 to 2020, as well as U.S. stock market data from 1920 to 2020, to respectively prove this conclusion. The same results hold when testing other types of assets.
• For risk-averse investors, you can choose to invest in a lower risk portfolio. For example, change an 80% stock / 20% bond portfolio to a 60% stock / 40% bond portfolio.
• Even if market valuations are high, the buy now strategy is still better than the average in strategy. The author compares the two strategies using CAPE percentile categories, and the results show that the buy now strategy is still superior even during periods of high valuations.
• For investors concerned about the risk of a lump sum investment, you can take a longer time to gradually adjust to your target asset allocation.

Chapter 14. Why You Shouldn’t Wait to Buy the Dip?

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Even God can’t beat dollar-cost averaging.

• The buy the dip strategy only works if the market is about to have a big drop and you can accurately predict when it will happen.
• Big market drops don’t happen that often, so the buy the dip strategy has a small chance of beating dollar-cost averaging. The author simulates the two strategies using U.S. stock market data from between 1920 and 1980. The results show that in all forty-year investment periods, the buy-the-dip strategy underperformed dollar-cost averaging more than 70% of the time.
• Even with perfect information, the buy the dip strategy often loses to dollar-cost averaging because the market may continue to rise while you miss out on compounding growth. The author simulates the two strategies using U.S. stock market data from 1975 onward, again proving this conclusion.
• Even if the predicted time of the market bottom is off by only two months, the long-term investment performance of the buy-the-dip strategy still loses to dollar-cost averaging.
• Conclusion: you should invest as early as possible and as often as possible.
• Investment returns are heavily influenced by time, and the power of strategy is far less than the power of market change.

Chapter 15. Why Does Investing Involve Luck?

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And why you shouldn’t care.

• The year you were born influences your investment returns because markets fluctuate unpredictably. The author illustrates this with data on 10-, 20-, and 30-year investment returns in the U.S. stock market since 1910.
• The sequence of investment returns also affects your final return because you invest more money in the later stages of your investment, so later returns are more important. The author illustrates the impact of return sequence with two cases of 20-year investment horizons with the same annualized return but in reverse order.
• How to mitigate bad luck:
  • Hold low-risk assets (such as bonds) for the long term to diversify risk.
  • Withdraw less money during market downturns.
  • Consider getting a part-time job to supplement your income.

Chapter 16. Why You Shouldn’t Fear Market Volatility?

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The price of admission for successful investing.

• Avoiding too many market declines can limit your upside.
• Using the analogy of a “market genie” that tells you the maximum intra-year drawdown for the coming year, the author simulates different risk aversion strategies. The conclusion is that if you want to maximize long-term wealth, you should accept some degree of intra-year market decline (0% to 15%) and avoid large intra-year market declines (greater than 15%).
• Buying a diversified portfolio of income-producing assets over the long term is one of the best ways to combat market volatility as it rears its ugly head.

Chapter 17. How to Buy During a Crisis?

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Why you should keep your cool when the market panics?

• Market crashes are opportunities to buy because every dollar you invest at this point will earn a higher return after the market recovers. The author uses the 1929 U.S. stock market crash as an example to illustrate the excess returns of investing at the bottom of the market.
• The more the market falls, the higher the return you need to make up for the loss. The author illustrates this with a simple mathematical formula and chart.
• Even if the market takes a long time to recover, buying during a crisis is still a good decision because you can earn a decent annualized return while you wait. The author proves this conclusion using examples of the U.S. stock market falling 30% and 50% between 1920 and 2020.
• Most stock markets trend upwards most of the time, and even if a prolonged downturn occurs, the likelihood of losing money is significantly reduced if you make regular investments as most investors do, rather than a single lump sum investment. The author illustrates this with the example of the Japanese stock market.

Chapter 18. When Should You Sell?

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About rebalancing, concentrated positions, and the purpose of investing.

• Three situations where you should consider selling an investment asset:
  • Rebalancing your portfolio.
  • Getting rid of a concentrated (or consistently losing) investment position.
  • Meeting your financial needs.
• You should have a plan in place before you consider selling investment assets to avoid emotional decisions.
• Selling gradually (or selling later) is generally better than selling immediately, because in the long run, the market tends to go up.
• Regularly rebalancing your portfolio can reduce risk, but it generally reduces returns. The author simulates two strategies, annual rebalancing and never rebalancing, using a portfolio of 60% stocks/40% bonds, and compares the returns and maximum drawdowns after 30 years.
• Accumulative rebalancing is a better way to rebalance by buying asset classes that are underweight over time to avoid incurring tax liabilities. The author uses the same portfolio to simulate a strategy of adding investments each month, demonstrating that this strategy can effectively reduce the maximum drawdown.
• For investors holding large concentrated positions, it is advisable to sell some of the assets to reduce risk and meet their own living needs. Selling strategies can range from selling a portion on a regular basis to selling based on price levels, as long as it is decided in advance.

Chapter 19. Where Should Your Investments Be Held?

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On taxes, traditional 401(k) vs. Roth 401(k), and why you might not want to maximize your 401(k).

• Tax policy in the United States is constantly changing, and financial management should also be adjusted according to tax policy. The author reviews the history of income tax in the United States to illustrate this point.
• When choosing between a traditional 401(k) and a Roth 401(k), the most important factor is whether your effective income tax rate is higher now (during your working years) or later (in retirement).
• The author favors traditional 401(k)s because they offer more flexibility and allow you to convert funds to a Roth IRA when tax rates are lower, such as when you are in business school or on maternity leave.
• Roth 401(k)s may be a better option for high savers because they can enjoy greater total tax deferral benefits. The author illustrates this with the example of Sally and Sam.
• Using a retirement savings account to invest can avoid capital gains taxes, which can lead to significant long-term gains. The author uses simulated data to compare the returns of three approaches: tax-free accounts, accounts taxed once on capital gains, and accounts taxed annually on capital gains. The author also explains the impact of compounding on investment returns.
• Maximizing your 401(k) may not be the best option because 401(k) plan fees may offset the tax benefits. The author suggests that you should at least increase your personal contributions to the point where you can receive the maximum employer match. For any contributions beyond that, you need to take into account the 401(k)’s expense ratio and your own need for liquidity.
• When allocating assets, it is advisable to place high-growth assets (e.g. stocks) in tax-advantaged accounts and low-growth assets (e.g. bonds) in taxable accounts.

Chapter 20. Why Will You Never Feel Rich?

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You might already be rich, so why not?

• People can always find someone richer than themselves, so it’s hard to feel content. The author illustrates people’s sense of relative wealth by telling the story of Powerball lottery winner Jack Whittaker, and the story of his friend John.
• If you compare yourself to people around the world, you may find that you are much richer than you think. For example, if your net worth is over $4,210, you are wealthier than half the world; if your net worth is over $93,170, you are in the top 10% of the world’s wealth.
• Don’t let feelings of relative wealth affect your happiness and appreciate the wealth you have.

Chapter 21. The Most Important Asset

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Why you can never get more of this asset.

• Time is your most important asset, and how you use your time will have a huge impact on your future life. The author tells the story of Dashrath Manjhi, an Indian villager who carved a road through a mountain, to illustrate the power of time.
• In your younger years, you should prioritize career development because that’s when your income grows the fastest. The author uses his own experience to illustrate the importance of making the right career choices early on.
• Don’t sacrifice your time in pursuit of money, because you can never buy more time with money.
• People’s happiness tends to follow a U-shaped curve as they age, overestimating their future happiness in their youth, being more pessimistic in middle age, and feeling pleasantly surprised in old age.

Conclusion. The Just Keep Buying Rules

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How to win the time traveler’s game?

• The author summarizes 21 financial guidelines to help you succeed on your financial journey, these guidelines are called the “Just Keep Buying Rules”:
  1. The poor should focus on saving, and the rich should focus on investing.
  2. Save what you can save.
  3. Focus on income, not expenses.
  4. Use the “2x rule” to eliminate spending guilt.
  5. Save at least 50% of your future raises and bonuses.
  6. Debt is not necessarily a good thing or a bad thing, it depends on how you use it.
  7. Only buy a house when the timing is right.
  8. Use cash when saving for large purchases.
  9. There’s more to retirement than just money.
  10. Invest to accumulate financial capital to replace your diminishing human capital.
  11. Think like an owner and buy income-producing assets.
  12. Don’t buy individual stocks.
  13. Buy fast, sell slow.
  14. Invest as early and as often as possible.
  15. Investing is not just about the cards you have, it’s also about how you play them.
  16. Don’t be afraid when volatility inevitably comes.
  17. Market crashes are usually opportunities to buy.
  18. Use your money for the life you need before risking it for the life you want.
  19. Think twice before maximizing your 401(k).
  20. You’ll never feel rich, and that’s okay.
  21. Time is your most important asset.

III. Quotes

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The surest way to get rich is to increase your income and invest in income-producing assets.

Analysis: Instead of blindly pursuing saving, it is better to focus your energy on increasing your income and investing in assets that can generate income; this is a more reliable path to financial freedom.

The only right way to spend money is the way that works for you.

Analysis: Everyone’s values, life goals, and preferences are different, so their financial management style should also be personalized. Don’t blindly follow the crowd; find a spending pattern that suits you in order to achieve true happiness.

Time is your most important asset.

Analysis: Time is a non-renewable resource. We should cherish time and spend it on the most valuable things. Investing early is not only about accumulating wealth, but also about buying back more time and freedom.

IV. Guiding Significance

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• Establishing the right financial mindset: This book helps us understand the essence of personal finance and how to develop a sound savings and investment plan, avoiding common financial pitfalls.
• Enhancing personal competitiveness: The book emphasizes the importance of increasing income and encourages us to continuously learn and improve our personal skills to gain greater career development space.
• Balancing life and wealth: The author reminds us that wealth is not the only goal in life. We should focus on the quality of life and the realization of personal values while pursuing wealth.
• Viewing investment rationally: This book emphasizes the importance of long-term investing and warns investors not to blindly chase short-term gains or be intimidated by market volatility. Only rationality and patience can ultimately lead to success.