Burying the Lead?

Alison Cooke Mintzer (photo by Chris Ramirez)

We recently wrapped up our PLANADVISER National Conference (PANC), and, as always, I came away with pages of notes and story ideas. This was—again, as always—thanks to all the amazing presentations, speakers and interactions I had with advisers, broker/dealers (B/Ds) and aggregators, investment managers and recordkeepers.

One of our speakers, Morgan Housel, a partner at The Collaborative Fund, gave a presentation called “The Messy World of Risk.” I found it fascinating and have already cited bits of the speech probably a dozen times in a matter of days.

Morgan began by telling the story of Grace Groner, who was born in 1909 near Chicago, and died at age 100. She left $7 million to her alma mater, Lake Forest College, from which she had graduated in 1931. By all accounts, this woman led a rather humble life, working at Abbott Laboratories for 43 years and, according to an article in the Los Angeles Times, getting her clothes from rummage sales; outfitting her house with inexpensive furniture, some mismatched dishes and an old television; and walking rather than buying a car.

The Grace Groner story has some hints of urban legend—when you search her name, you’ll find plenty of articles saying that the millions are from a $180 purchase of three shares of Abbott Laboratories stock she made in 1935. All articles agree this started the wealth accumulation. Where they diverge is on how much more she needed to contribute over time, on top of the reinvesting of dividends, the stock splits, etc., to wind up with the vast sum she had upon her death. 

But the details and nuances of the events aren’t necessarily important. Morgan contrasted Grace with a man named Richard, who, despite what you’d expect based on his curriculum vitae (CV)—a bachelor’s degree from the University of Chicago and Masters of Business Administration (MBA) from Harvard Business School, experience at investment banks, including a vice chairmanship at one of the largest of them, who retired at age 49—filed for personal bankruptcy because the financial crisis wiped him out, and any wealth he had was illiquid.

In making these comparisons, Morgan said that investing is the only industry in which “someone with no education, no background and no experience can vastly outperform someone with the best background, the best education, the best experience.” And while I agree with that—and his point that investing is about how you behave more than it is about what you know—I also think those two stories bury the lead a bit, if you will.

We absolutely know that saving money, adding to it over time and letting it sit through market cycles without withdrawing from it will yield results. To set it and forget it, or set it and add to it, depending on which version of the Grace Groner story you find, allowed her and will allow people today to amass wealth. This is part of why participant education has changed over the years, no longer spending so much time and money focusing on the differences between various mutual fund categories but instead moving toward financial wellness topics such as budgeting and debt management. It isn’t going to matter if people understand small-cap or large-cap if there isn’t any money to invest.

However, look at the first sentence about Grace Groner in the Los Angeles Times story: “Like many people who lived through the Depression, Grace Groner was exceptionally restrained with her money.” Compare that with articles about Richard, which discussed his multiple properties, debts and hopes to avoid bankruptcy by selling one of his homes for nearly $14 million.

It’s much easier to save if one isn’t worried about paying off large debts or trying to keep up with a particular lifestyle that’s outside of one’s means. I’m not saying to eliminate all spending, but there’s a big difference between past savings rates—which peaked in May 1975 at 17% before beginning a decline—and those in the last 10 years when we have occasionally seen it rise above 8% in certain months, according to the Federal Reserve.

While there is some awareness by Millennials that they don’t want to take on large mortgages as generations before them may have, many face ballooning student loan debt. There is still the image of needing a new car every few years, or taking a big vacation (a recent article cited extravagant bachelor and bachelorette parties as doing harm to long-term savings potential), all of which have put our national savings rate much lower now than it was decades ago. Remember, Grace Groner wasn’t even saving in a tax-advantaged plan, considering she began her investment in the 1930s.

Ordinary people amassing millions of dollars can happen, and can happen for many ordinary, average participants, but it may come at the expense of passing up a lavish lifestyle. Behaviorally, our industry has to continue to help people overcome the need to purchase things that are unnecessary, now, and prioritize their future selves.