Arthur Steinmetz joined OppenheimerFunds a year before “Black Monday,” October 19, 1987, when the Dow Jones Industrial Average plunged 22.6 percent. It was the worst one-day loss in history. The trial by fire of that market crash taught Steinmetz an important lesson. He listened as senior investors unanimously saw the downturn as a buying opportunity. The company flourished that year, and that experience taught Steinmetz the value of staying calm during times of crisis. His determination to stick with that approach, coupled with his talent as an investor and leader of teams, helped Steinmetz take on ever higher positions at the firm. Today he is chairman and CEO of OppenheimerFunds, one of the biggest mutual fund companies in the world. Here he offers investors five tips to grow their money. —Eric Butterman
Invest in yourself. Think of yourself as a stock. Increase your earnings potential by increasing your knowledge and your purview. Advanced formal education has proved to increase lifetime earnings, but learning doesn’t end there. Just as there are no more switchboard operators, lamplighters, gandy dancers, or buggy-whip manufacturers, your job or business can also become automated or obsolete. Embrace lifelong learning as you consistently reinvent yourself and the skills and/or services you provide.
Drink the coffee in the break room. Every purchase has an “opportunity cost”—once you spend your money, it is gone. Consider that cup of coffee you buy each day. Maybe $2.95 a day doesn’t sound like much. But in five years, you will have ingested more than $5,000 worth of coffee, and in 40 years, more than $40,000. What if you invested the $40,000 instead of drinking it? Assuming a hypothetical six percent annual return on investment, $2.95 invested in the market each day would amount to $177,128 in 40 years.
Stick to your investment plan. Investors can’t help messing with their portfolios in response to price swings—it’s one of the biggest reasons they underperform in the market. Volatility is the price of admission. Investors should not change their strategy based on the latest news headlines. Each generation faces challenges that often appear both unique and overwhelming, but when viewed through the sobering lens of history, we find they are neither. Today we face any number of challenges which, while significant, are no more daunting than a global depression, two world wars, or 9/11—and yet the market continues its inexorable climb. Why? Because in spite of our shortcomings, the human race is remarkably resilient, and we are masterful inventors and innovators, always striving to make a better place for ourselves, our families, and our societies.
Take risks. Historically, stocks have outperformed most asset classes, outperforming bonds over most time periods. In fact, over 15-year periods of rolling monthly averages from 1926 to 2016, stocks have outperformed U.S. government bonds 83 percent of the time. That means that a $1,000 investment in 1926 in large-capitalization U.S. companies would have been worth $5.5 million by the end of 2016. The same $1,000 investment in U.S. government bonds would have been worth $127,000. Shares of smaller-capitalization companies that may be less well known or less established have significantly outperformed most other asset classes, albeit with more risk. For investors with an objective of growing their wealth, there have been few (if any) better alternatives to stocks.
Pay off your house now? Or invest in the stock market? The average annual return in U.S. equities is 8.6 percent. If your mortgage rate is anything below that, then you might consider investing the money in the stock market, rather than parking the money in your house. National home prices have barely risen in the past 40-plus years. With the exception of the boom-and-bust period in the mid-1990s to late-2000s culminating in the 2008 financial crisis, home prices have done very little. U.S. equities, by comparison, have performed well and typically outperform home prices over most periods. If you have money saved, don’t necessarily rush to pay off your home, particularly given today’s low rates. It will likely be more beneficial to invest the money in the equity market.
Avoid “hot tips” and be cautious of the herd. History is replete with examples of investors trying to get in on the latest fad … tulips in the 1600s, U.S. bank notes in the 1700s, railways in the 1800s, tech stocks in the 1900s, and housing in the early 2000s. It often ends badly. Stick to a long-term, consistent investment plan. Leave the speculating to your neighbors. Bitcoin, anyone?