IN DECEMBER 1954, 23-year-old John Neff hitchhiked from Ohio to New York in search of work. A Navy veteran, Neff had recently graduated college near the top of his class, with a degree in finance. His hope: to land a job as a stockbroker. But despite these qualifications, Neff was turned down. Why? According to a biographer, the brokerage firm felt “his voice didn’t carry enough authority.”
It didn’t take long for Neff to recover from this setback. He soon found work at a firm back in Ohio, where he rose quickly through the ranks. From there, he moved to Philadelphia, home of Vanguard Group, where he took over management of its Windsor Fund. Over the course of 31 years, Neff’s track record at the fund was nothing short of outstanding. Investors poured into Windsor and, by the 1980s, it had become the largest fund of its kind—so large, in fact, that Vanguard feared it might become too large and closed its doors to new investors. In the words of Vanguard founder John Bogle, “It would be impossible to overestimate John’s importance to Vanguard’s survival in the early years.”
But according to that early hiring manager, Neff wasn’t cut out for the investment industry. His voice didn’t sound authoritative enough. Absurd as it sounds, this is the way Wall Street thinks. They want people who look good and sound good—who can get in front of investors and make declarative, authoritative sounding statements.
While this approach might make sense in some industries, I find it especially ill-suited to the world of finance. Investment markets are inherently uncertain. No one can accurately predict where the stock market—or interest rates or taxes or anything else—will head next. The artificial self-confidence of Wall Street pundits isn’t just misplaced; it’s counterproductive.
The reality is, the world is far less binary than Wall Street acknowledges. While it may not sound “authoritative,” the best and only answer to many financial questions is, “It depends” or “I’m not sure.” Wall Street doesn’t like these kinds of statements, because they don’t motivate people to act—and it’s why they didn’t hire John Neff as a broker. Neff preferred facts, candor and measured statements, an approach that wouldn’t generate nearly enough trading commissions to keep Wall Street going.
As you think about your own finances, I would encourage you to embrace the John Neff way of thinking. Ignore Wall Street’s talking heads, no matter how authoritative or self-assured they sound. Instead, recognize that often there’s no single “right” answer to many questions and that the best solution may be to take the middle course, to split the difference, to avoid seeing questions in simplistic black-or-white, yes-or-no terms.
Want some examples? Below are 13 questions that, for many people, have unequivocal answers. In my opinion, however, each is a topic for discussion and there’s room for disagreement. Indeed, if you want to split the difference, that might make the most sense of all:
1. Robert Shiller is a Nobel Prize winner who has accurately predicted past market crashes. His cyclically adjusted price-earnings ratio says the stock market is now extremely overpriced. Should you get out of stocks?
2. Whether or not the market is overpriced, it’s near all-time highs. Should you take some profits?
3. If you have a high income, should you save every dollar you can in a retirement account?
4. If you have a high income, is favoring a Roth 401(k) over tax-deductible 401(k) contributions a silly idea?
5. If you have extra cash, should you pay down your mortgage?
6. The federal estate tax exclusion is now $11.4 million per person. Should you stop worrying about estate taxes?
7. Should you make cash gifts to your adult children?
8. Warren Buffett says bonds can increase a portfolio’s risk. Should you sell?
9. Indexing theory says you should own a little bit of everything. Does that mean you should own international stocks?
10. How about international bonds?
11. If you have a whole life insurance policy—and you realize how much it’s been costing you—should you liquidate? How about a similarly overpriced annuity? Do either of these much-maligned investments make sense for anyone?
12. You’ve heard you’ll receive the largest possible Social Security check if you delay until age 70. Should you?
13. You’re researching one of the above questions and find an academic article that cites solid evidence. Should you believe it?
This is Adam M. Grossman’s 100th article for HumbleDollar. His previous pieces include Never Mind, Double Checking, Oddly Effective and Fact vs. Fantasy. Adam is the founder of Mayport Wealth Management, a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter @AdamMGrossman.
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Nice read, thanks Adam. Personally, I think the further you venture away from the relatively simple adages of “save more than you spend” and “don’t put all your eggs in one basket”, then it becomes increasingly more like a crap shoot than an investment strategy. I don’t think that’s a new sentiment. If advising (as I sometimes am asked to do) a newer entrant into the workforce about saving and investing, I tend to keep it very simple. Automate saving as much as possible (the old “pay yourself first” idea). Contribute fully to employer-sponsored IRAs (I favor Roth over traditional, but again, IMO this can be overthought). Don’t buy individual stocks, instead broad-market ETFs or index funds. Then more or less ignore. It seems to me there are better ways to spend both time and money than spending both on worrying about it, and keeping it this simple, while it won’t necessarily best an “ideal circumstances” model, it’ll beat most of them in the long run.
Great stuff, logical, well reasoned and love the questions.
Adam – good article and questions. I am fully aligned with your split-the-difference perspective as per my article: https://humbledollar.com/2019/01/half-wrong/
I am fully aligned with your split-the-difference perspective as per my article:
So, so true! Especially when it comes to retirement planning, where so many choices are highly consequential and often irrevocable.
“The enemy of a good plan is the dream of the perfect plan”
It’s so easy, in the face of these difficult decisions, to waffle and procrastinate then end up doing nothing. Thanks for sharing, I appreciate the nuances of being both “half wrong” and having “room to disagree.”
Congratulations on your century article! Neff would’ve made a good engineer. 🙂