FROM AN EARLY AGE, whenever I heard the word “stock,” it was said with a derisive tone. My father hadn’t owned any shares, but the 1929 stock market crash and Great Depression still hit him hard. He wasn’t able to find steady work until after the 1941 attack on Pearl Harbor.
Given its effect on our family, my father had a pathological disdain for the market that was, inadvertently, passed on to me. Without being aware of it, that disdain affected my investing for years until I crept into the market by risking “house money”—my returns from risk-free Treasury bills.
Before I share my low-risk investing strategy, which has helped me retire and give to my favorite charities, let me go back to the beginning. In 1932, when I was born, Herbert Hoover was president and our family was just getting by. My parents, my older brother and I lived in a cold-water flat that had a toilet with a water tank near the ceiling and a pull-chain for flushing, but no wash basin or bathtub.
We bathed in a galvanized tub brought into the kitchen on Saturday night for all to take a bath. A copper tank—now a decorative piece in my daughter’s house—was placed on a coal-burning stove and filled with water to be boiled for the tub.
Through high school, I viewed college as a place where others were headed. For me, even low-cost public institutions were out of reach. Instead, I obtained an apprenticeship that would lead to a trade job—or so I thought. But in 1953, I was drafted into the U.S. Army, and that drastically changed my life’s trajectory.
After I was released from active duty in 1955, I enrolled in college under the G.I. Bill. I also met the girl who would become my wife. We dated for four years—a date consisting of two cups of coffee and a shared English muffin at a Howard Johnson’s restaurant. We were married shortly after my college commencement in 1959.
My wife urged me to go on to get a graduate degree. After earning my master’s in 1960, I worked as a research engineer. During the first year, the company’s president asked if I could teach a course on AC/DC circuit theory at the YMCA Institute. Thus began my career in academia.
I enjoyed teaching, so I inquired about teaching jobs at several local colleges and at the U.S. Naval Academy. The Academy responded and, after an interview in Annapolis, I accepted its offer. I began in the engineering department but transferred to the weapons department after two years.
Each summer, civilian faculty members like me were invited to go to sea aboard naval ships to develop a sense for the duties of naval officers. My first summer, I went aboard the aircraft carrier Lake Champlain.
One day at sea, I went to the rear of the carrier. I was standing on a catwalk just below the landing ship officer, who was guiding pilots as they made landing approaches to the ship. When he dropped his arms, the nose of the plane would dip and then rise as the plane “hit” the deck and connected with the arresting cable.
At the crossroads. Soon, I had a hard landing of my own, professionally speaking. The Naval Academy changed the rules for promotion and tenure during my fifth year there. I would be granted tenure automatically in two more years but couldn’t be considered for promotion until I earned a PhD.
Each summer, my wife and I vacationed in Rhode Island. During that year’s trip, we discussed the pros and cons of my new situation. My choices were three: 10 years of commuting to Washington D.C. as I worked part-time toward my PhD, skip the PhD and remain an assistant professor for the rest of my career at the Naval Academy, or bite the bullet and leave the Academy to pursue a doctoral degree fulltime.
As always in our 64-year marriage, my wife encouraged me to move forward. I chose to pursue my PhD fulltime. I was accepted by the University of Rhode Island as a special instructor in mechanical engineering and a student in the doctoral program. I earned my doctorate in 1970.
Instead of returning to the Naval Academy, I took a position teaching mathematics at Bryant, a small business college in Rhode Island. Again, serendipity entered the equation when the department’s chair asked if I could teach a course about the mathematics of finance.
Falling back on an engineering economics course I’d taken as an undergraduate, I developed and taught the course. In so doing, I discovered what I wanted to be “when I grew up”—and, despite my PhD, it wasn’t mechanical engineering. I was so enthralled with finance that I changed my research to investing and retirement planning for the rest of my career.
I advanced through the ranks until I achieved a full professorship. I was elected chair of the mathematics department, a position I held for 13 years. I had my 15 minutes of fame when a correspondent from NBC Nightly News called for an interview on when people should take Social Security.
I joined the board of directors of a hospital corporation. Shortly after I joined, it became apparent that the hospital was in jeopardy of violating IRS rules. Its defined-benefit pension plan was grossly underfunded and on the verge of failure.
A consulting firm was brought in to reorganize the plan and bring it into compliance. The principal of that firm and I, as chair of the finance committee, worked closely to gain IRS approval for the reorganization. Later, he invited me to be a consultant for his firm. The faculty contract at Bryant allowed one day a week of outside employment.
Finding my way. This one-day-a-week work evolved into a 24-year relationship that exposed me to the real world of finance, including pension funding and pension fund distributions. That got me thinking about creating a major in actuarial mathematics at the university. I developed a curriculum and won approval.
Meanwhile, the consulting firm’s principal, wishing to expand his company to include investment advice and portfolio monitoring, asked me to develop a software package. It would quantify a person’s risk-return profile based on responses to a series of questions. Then it would search a database of some 1,200 active money managers to identify those who would be a good fit for the client.
I completed the program just before the 1987 stock market crash. While the principal was delaying the program’s use until the market settled down, I was conducting tests to validate my work. I ran a test with outrageous requirements—one criterion was a return of at least 25% for 1987. A search of the database produced just one money manager who met that objective.
This manager offered his clients two portfolios, one that guaranteed a return no worse than a 0% gain for the year and the other limited losses to -10%. It was the latter portfolio that achieved a 31% return in 1987.
But it was the money manager’s strategy for avoiding an annual loss that intrigued me. It turned out he bought three-month Treasury bills, which are sold at a discount to their face value at maturity. He then invested these discounts in three-month stock options. On the expiration date of the options, he received the face value of the Treasury bill and either exercised his options for a profit or let them expire if they were out of the money.
With my lifelong hesitancy about stocks, I seized on this low-risk concept. But instead of options, which required knowledge I lacked and involved risks I wasn’t willing to take, I decided to invest the discount in stocks.
In 1988, the one-year Treasury bill provided an average yield of 7.65%. The discount rate for that yield would have averaged 7.12%—I’ll use 7% for simplicity. Result: For each $1,000 of T-bills, the cost would be $930, leaving $70 to be invested. I chose to invest that 7% in dividend-paying stocks.
Fast forward one year. The portfolio would include the $1,000 principal from the T-bill, plus dividends earned on the $70 invested in stocks, plus sometimes a gain from share price performance. The worst-case scenario would be that the stocks lost all their value, leaving the portfolio with no gain and still at $1,000.
The downside of this approach was the opportunity cost of not investing more in stocks. The upside was that I couldn’t lose my investment capital. I made my investments through a Simplified Employee Pension Plan, or SEP, funded by the allowable contribution from my consulting practice.
I kept pursuing my safety-first strategy, accumulating T-bills with new savings and using their discounts to buy stocks, until 2004, when the consulting firm’s principal sold his company and my work for him ended. I terminated the SEP and rolled over the assets into an IRA. I began to take required minimum distributions, transferring stocks to a taxable brokerage account and withdrawing cash to pay the income taxes.
I view my approach as a model of Aesop’s fable, The Tortoise and the Hare. I ventured into the stock market as the slow-moving tortoise. Viewing my investments in hindsight, I could have earned much higher returns with a larger stock allocation. My return, however, was commensurate with the risk I was willing to take. I’m still a proponent of investing in T-bills. But today, both my IRA and my taxable account are 100% allocated to stocks.
I enjoyed teaching the theory of interest, as well as lecturing on software development and applications. The years passed quickly and, at age 80, I took senior status, which meant a reduced teaching load. I phased into retirement over the next four years.
Thanks to the income from Social Security and the university’s retirement plan, I’m free to use my IRA to make charitable distributions, including to my wife’s favorite charity, The Jimmy Fund Clinic at Dana-Farber Cancer Institute, and to my favorite charity, Disabled American Veterans.
I’m now in my 90s. My wife and I are financially secure. I was lucky I found a way to invest in stocks at a risk level I could tolerate, because their returns have allowed me to overcome inflation. Indeed, like many of my generation, I’m grateful I found a path that helped me achieve a measure of the American dream.
Robert Muksian is a professor emeritus of mathematics at Rhode Island’s Bryant University. He served on the faculty for 46 years. He has also served on the boards of trustees of his church, a small general hospital and the Rhode Island affiliate of the American Heart Association, as well as the board of canvassers of the city where he resides and the editorial board of the Journal of Financial Planning. He has published two books, several papers in both peer-reviewed and non-peer-reviewed journals, and op-eds dealing with Social Security and public finance in Rhode Island’s largest newspaper. He and his wife reside in Cranston, Rhode Island.