Thanks to everyone for their kind words on the start of this blog. I appreciate the vote of confidence.
I’d like to tell the story of Alan Delsman. Early in my career at Chase we switched from a defined benefit plan (a pension) to a defined contribution plan (a 401(k)). We could invest our funds in a money market fund, a bond fund, a stock fund or in Chase stock. More than 75% of the participants kept their money in the money market fund where they wouldn’t lose any principal.
Each quarter, the rest of us would try to figure out where the best place to put our money for the next quarter was. It was a topic of much conversation. One quarter I asked Alan where he was going to put his money. What he told me changed my life as an investor.
Alan told me he had all of his money in the stock fund. He never moved it and he never looked at the quarterly returns. Once every few years he would check out his holdings and be surprised at how much money was there.
Alan explained that he had done a study looking at the 5 and 10 year returns for stocks for the last hundred years. He had compared that to the returns from bonds, gold, real estate and other assets that he could find the data for. In all but two five year periods, a diversified stock fund like the S&P500 outperformed every other asset class. For the rolling ten year periods stocks always outperformed.
Alan had concluded that over the course of his career he could ride out cycles and that at the end, he would have the most money for retirement by investing in a diversified stock fund.
Although I didn’t know what they were called at the time, Alan introduced me to four important concepts that morning. First, he introduced me to diversification. Second, he introduced me to asset allocation. Third, he introduced me to Beta or market returns. Fourth, he introduced me to the importance of time in investment returns. I’ll talk more about each of these concepts in future blogs. In my next one I’ll talk more about diversification.
We can sum up Alan’s main lesson with the phrase, “Get rich slow, but get rich.”
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