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Living Your Best Financial Life

By capitalizing on the changing investing landscape, Charles Schwab turned the then-unheard-of idea of cutting costs for Main Street investors into a brokerage with $3.7 trillion in assets under management today.1

We recently sat down with Chuck to discuss his new book, Invested: Changing Forever the Way Americans Invest. In a wide-ranging conversation at his office in San Francisco, he elaborated on his secrets to success, the power of equities and the ongoing evolution of the company that bears his name.

Why did you write the book and what do you hope readers take away from it?

I thought it was necessary to record our history through my eyes. The book provides a 40-year portrait of how our mission was created, how it developed and what our purpose is as a company. I hope the book will explain the foundation for what our company is today—and also what it will be for many years to come.

Early on, our firm was much more transactional. There were everyday people who wanted to make their own investment decisions outside the conflicted brokerage business, and we facilitated easy, inexpensive transactions.

Today, we are much more about our clients’ total financial life. We’re trying to forge a long-term relationship and commitment because, frankly, your financial life starts when you’re very young, and as you grow older, your needs change. We want to be there for every step of that process.

In your book you write about what it takes to be a successful investor. What are some of the key principles of investing you need to understand in order to find success?

I think a big one is having an actionable and dynamic plan that reflects your unique circumstances, and that changes over time as your needs and objectives change.

Our system of freedom and free enterprise comes with the obligation that you’ve got to take care of yourself. Yes, Social Security is there, and you do support that throughout your working life by your contributions. But there’s something more important—and that’s your individual savings. You have to think actively about saving and investing if you want to have a high quality of life.

Planning definitely takes a little time and effort, but it’s worth it. People who put an investment plan in place find it much easier to save. And they find it easier to invest and spend in the thoughtful, informed ways that are crucial to success. Don’t think of plan as a four-letter word; think of it as a seven-letter word: freedom.

Would you say there’s a secret to successful investing?

It’s not much of a secret: consistency and diversification.

The most successful investors don’t try to predict the market’s ups and downs. Instead, they save and invest regularly, through good and bad times, because they know stocks tend to rise over extended periods.

And you want to make sure you have a diversified portfolio so that you don’t end up putting all your money into, say, a hamburger chain, only to find that somebody else comes along and makes a better hamburger.

If you need more proof of the value of diversification, just look at emerging-market stocks, which outperformed all other major asset classes in 2017—but came in dead last in 2018.2 Because it’s rare that the same asset class will generate the best returns year after year, I believe in spreading your investments across a range of asset classes. It’s like a financial shock absorber: It helps dampen the impact of any one investment on your overall portfolio.

Finally, you want to make sure you’re in it for the long term. That’s important because there are all kinds of things that work against you if you’re constantly buying in and out of companies—from poor market timing to taxes and transaction costs. Time in the market is more important than timing the market.

Where would you recommend investors put their hard-earned savings?

I’m a big believer in stock investing. Companies are made to grow. I’ve been on several boards of directors, and no company’s management has ever come before a board and said, “We don’t have a plan to grow.” That’s a fundamental thing, but it’s often overlooked.

Stock ownership gives people a chance to be a part of that growth. So, unless you need all your money in the very near future, the question isn’t whether to own stocks; the question is which stocks to own. But that can be a hard question to answer. Even seasoned professionals have a difficult time picking the right stocks repeatedly.

That’s what makes index mutual funds and exchange-traded funds so appealing. They offer a mix of investments and often have very low management fees. And unlike actively managed funds, whose individual managers’ stock-picking skills can make or break returns, index funds track established benchmarks such as the S&P 500® Index or the Schwab 1000 Index®.

What would you say is the best way to deal with turbulent times?

Crashes are always hard to stomach, but it’s important to remember that they don’t last forever. If you look back, even the most bearish markets have eventually turned into bulls. Just think of the 2008 crisis: U.S. stocks fell more than 40% in a matter of months, and some days it felt like the bottom would never arrive. But of course it did. Had investors in a fund that tracked the S&P 500 simply remained invested, their portfolios would have regained all that lost ground in about three years.

And look where we are now: The S&P 500 has grown something like 140% since the start of the financial crisis.3 Every market cycle is unique, but I believe the best course of action is to stay focused on the long term and remain invested even when markets get rough.

How do you see Schwab evolving as it approaches its 50th year in business?

We’ve always been dedicated to making investing accessible. I wrote my first book, How to Be Your Own Stockbroker, back in 1984, at a time when trustworthy investment guidance was difficult to come by and self-directed investing was considered a novelty. Since then, we’ve created the Schwab Center for Financial Research, whose experts write many of the articles you see in this magazine; launched Schwab Equity Ratings® to provide an objective way to assess securities; and introduced dozens of investment solutions and online tools in an effort to provide transparent guidance and choices that don’t require a Ph.D. in economics to understand.

As I said earlier, we’re focusing more on financial planning these days, which has been shown to help investors accumulate more savings over time. We also believe in using technology to lower barriers and bring investing to the masses. Our robo advisor Schwab Intelligent Portfolios® can set you up with a diversified portfolio that best matches your goals, risk tolerance and timeline. We also have a version—called Schwab Intelligent Portfolios Premium™—that includes planning support from professional advisors.

What’s your advice for young people just starting out?

Young people have a huge advantage when it comes to saving and investing: time. If they start saving early and contributing as much as possible to tax-advantaged retirement plans, for example, they’re more likely to achieve financial security in the future.

I understand it can be daunting for 20-somethings to confront important decisions about saving and investing that will affect their lives far into the future—including retirement. Schools rarely teach why it’s so important to have a purposeful financial life and how to go about successfully managing it. As a result, a lot of people don’t understand until way too late that they need to take responsibility for their financial well-being.

As parents and grandparents, we need to encourage the young people in our lives to take these first steps toward financial independence. Teaching our kids and grandkids about smart money management is one of the greatest gifts we can give them. My hope is that they’ll embrace this gift and pass it along a generation from now.

1As of 05/31/2019. | 2Schwab Center for Financial Research. Emerging-market stocks are represented by the MSCI Emerging Markets Index. | 3Schwab Center for Financial Research and Bloomberg. Data from 09/12/2008 to 09/12/2019.

What You Can Do Next

Charles R. Schwab’s latest book, Invested: Changing Forever the Way Americans Invest, is available now at retailers nationwide. Learn more.

Important Disclosures

Please read the Schwab Intelligent Portfolios Solutions™ disclosure brochures for important information, pricing, and disclosures related to the Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium programs. Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ are made available through Charles Schwab & Co. Inc. (“Schwab”), a dually registered investment advisor and broker dealer.

The Schwab 1000 Index is the property of Charles Schwab & Co., Inc. (Schwab). The Schwab 1000 Index is a float-adjusted market capitalization weighted index that includes the 1,000 largest stocks of publicly traded companies in the United States, with size being determined by market capitalization (total market value of all shares outstanding). Schwab will modify the index as necessary to account for corporate actions (e.g., new issues, repurchases, stock dividends/splits, tenders, mergers, stock swaps, spinoffs or bankruptcy filings made because of a company’s inability to continue operating as a going concern). As a result of corporate actions, the index may comprise more or less than 1,000 securities. Schwab may also change the Schwab 1000 Index inclusion criteria if it determines that doing so would cause the index to be more representative of the domestic equity market.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.


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