What follows is a summary of the Investing panel discussion held at the NGPF Summit in mid-March 2019 in San Francisco. The all-star panel included Bill Bernstein, financial theorist, neurologist, and financial adviser/author, and Jonathan Clements, WSJ columnist, author, educator and blogger at the HumbleDollar.com. Apologies for the inconsistent sound quality. 

Details

• 0:00~4:25 Introduction
• 4:25~12:42 The stock market game’s traps
• 12:42~24:20 Importance of friends and family when it comes to personal finance
• 24:20~27:00  What is an index fund?
• 27:00~29:34 How to effectively teach investing
• 29:34~34:09 Challenge of making behavioral change
• 34:09~39:36 The legacy of Jack Bogle
• 39:36~43:52 What is HumbleDollar?
• 43:52~46:43 What would the two say to their 17-year-old self?
• 46:43~48:52 Setting an example for students
• 48:52~53:58 What is a target date fund?  
• 53:58~56:57 The F.I.R.E. movement
• 56:57~58:14 Future books from Bill

Resources:

• Stax
• If You Can: How Millennials Can Get Rich Slowly
• From Here to Financial Happiness: Enrich Your Life in Just 77 Days
• Bogleheads
• HumbleDollar

Quotes:  

• “Even worse than losing the stock market game is winning it. Then you’ve convinced yourself that you’re a stock market genius. That’s the real problem.” -Bill Bernstein

• “When you buy an actively managed fund, it is sort of like you’re doing a 100-meter sprint except you are put on the 110-meter line. You are already behind because of the high expenses. So in order to even keep up with the market, your manager has to beat the market.”  -Jonathan Clements

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Thanks to Beth Tallman for highlighting the key elements of this panel conversation:

Attendees at the 2019 NGPF Change Makers’ summit Investing, with Bill Bernstein, financial theorist, neurologist, and financial adviser/author, and Jonathan Clements, founder and author of the HumbleDollar.com. You might also know his name from his 20 years at the Wall Street Journal, (he left in 2008, prescient timing or luck?) or perhaps you have read one of his books.

In his final column summing up what he had learned during his tenure, Jonathan acknowledges how much motivation matters by closing with this question: what are you saving for?

Both of these gentlemen could have retired by now, yet they haven’t. They are indeed educators committed to helping others understand the financial world, invest wisely and lead healthy financial lives. Tim Ranzetta credits them both with teaching him how to invest.

Bill Bernstein was up first and explained the pitfalls of using the Stock Market Game with students. Bill is particularly concerned with the wide spread use of the game because it rewards risk-taking, leveraging investments and excessive trading, which is not a wise life strategy. Bill cautions folks to consider that the organization that promotes this game has some ulterior motives in encouraging folks to trade stocks based on their own analysis. Bernstein then continued with an explanation of how few highly skilled people beat the market with any consistency, and when they do, things always goes south after a good run. Eighty years of research demonstrates this. Even Warren Buffet has “lagged the S&P 500 by 30 basis points over the past 15 years.” Other pearls of wisdom from Mr. Bernstein include:

• “[Investing is] like a tennis match where your opponent is invisible to you but happens to be Serena Williams.”
• “The less you trade, the better off you are.”

Jonathan Clements next shared with us how he thinks about four aspects to managing money. The first is investing. We obsess about it. “We spend 90% of our time devoted to money management—to a task in which we can do very little to improve our importance. In fact, the less we do the better off we are.” How should we spend the time? We should spend it on money management—far more crucial decisions that add substantially more value to our financial well-being. As educators, we should be spending much more time on all these other things. How do we do that?

The second aspect is really the personal finance component. Clements suggests that the single organizing principle in our teaching should be HUMAN CAPITAL—that rate per paycheck (or lack thereof)—should be at the core. This is the second aspect. This recurring stream, hopefully over many decades, is why it is rational to take on debt early on for things like a house or car, and will be paid off by the time you retire and this stream dries up. A paycheck is like a huge bond paying you recurring interest. This is why the funds you save regularly from your paycheck should be invested in equity, preferably in the form of low-cost index funds, to set you up for retirement.

The next discussion to follow logically is how you need to insure your human capital as well as your assets. This covers disability, life, and health insurance in addition to home and auto insurance. When you retire, you move your investments into bonds to replace the “interest” payments you were receiving on your human capital (paycheck).

The third aspect Clements brings up is behavior change—something that is hard to do but that is what it takes to be smart about money. He suggests that only about 25% of people have their financial act together. In other words, only 25% can successfully delay gratification. For everyone else, we need some help. We know itis something we should do, but doing it isn’t so easy. Clements suggests three ways we can help ourselves change behavior.

• The first way is to automate savings, into retirement plans and other savings/investment accounts.
• The second way is to make public commitments about saving/financial behavior to put yourself “on the hook” for it. Jonathan’s analogy? “If you want to lose weight, tell everyone you know that you want to lose twenty pounds!”
• Finally, we need to visualize the future and make the future more attractive in order to postpone gratification today.

The final aspect Clements discussed is to think about money and the meaning it has for us--hard to see how saving money makes a difference in our future lives. He explains that money can do three things for us. (These quotes are paraphrased.)

• “Like health, only when we are sick that we value our health….only when we are broke do we appreciate what it is like NOT to worry about money.” Worrying about money is the number one cause of anxiety in people.
• “Money can allow us to have special times with friends and family,” and
• “Money can give us freedom to spend our days doing what we love.” These things may not be the same things that you get paid for.

Not only are these words we can live by, they can motivate and empower our students to live their best financial lives, with a little help from a few good teachers.

Listen to the entire session to catch more of their wisdom and wit and hear them field some great questions for the audience of financial educators on topics ranging from better investment teaching tools, to Jack Bogle, to what they would like to have told their 17-year old selves, to the FIRE movement!

Some of the books authored by panelists:

Bill Bernstein

• Four Pillars of Investing – Tim highly recommends.
• The Investor’s Manifesto
• If You Can—Helping Millennials Get Rich Slowly (free, short and aimed at
  giving millennials a straightforward guide to saving and investing)
  Bill also writes historical non-fiction, in case you are interested!

Jonathan Clements

• From Here to Financial Happiness- his newest book
• How to Think About Money

About the Authors

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

Ren Makino

Ren started interning at NGPF in 2014, and worked part-time through high school and college. With his knowledge growing alongside NGPF, he joined the team to work full-time after graduating from college in 2020. He is also the producer of the NGPF podcast. During his free time, he likes to try out coffees from different roasters across the world.