Emma Wall: Hello, and welcome to Morningstar. I am Emma Wall and I am joined today by Chris Davis to talk about U.S. equities.
Hello, Chris.
Christopher Davis: Hello, Emma.
Wall: So you've done a lot of work about investor philosophy, investor sentiment and how people tend to buy
Davis: Well, what's interesting is, as it was recently
My grandfather had a great expression. He said the best time to invest is when you have the money. And the way you smooth out the gyrations and the fear of the correction that's inevitable, the timing is uncertain, but that there will be a 20% correction is certain. Simply spread out the decision over time. I think people who are anxious and worried about valuations of the market should simply get started, because valuations on cash and bonds
Wall: I suppose it also depends on your time horizon, because if you need the money in six months’ time, perhaps investing in U.S. stocks is not the best idea because of that uncertainty element. However, if you have a 10-year time horizon, the bumps along the way are less of a big deal?
Davis: Absolutely, and spreading out the decision is the key. And it's not just for individual investors. So many institutions would perform better if they simply made the allocation decisions more gradually. So if my own mother wants to get into stocks, what I tend to tell her is start immediately. Do 5% today, do 5% next quarter or next month, depending how long you want to spread it out. But 5% a quarter gets you fully invested over five years and it takes all of that anxiousness about the timing away, and it allows the growth underlying to be the driver of your return.
Wall: Do you feel that it should be automated in some way? Because 5% a quarter sounds easy from where I am sitting today, when the market has done so well, despite the fact that there has been such a hated rally. But as soon as that correction comes i,n
Davis: Of course, this is the area where automating whatever you can do -- to automate that decision, to take away the stress of the daily decision -- this is the reason why [personal pension investors] have done so well. They bought right through the financial crisis. The sort of deliberate, constant apathy, not looking at the statement, is an enormous advantage, provided you've made the right
But if you set a 401(k) plan to just put a certain amount into equities each month, each paycheck that is almost guaranteed to produce a good return over time. And I say that not based on my own knowledge, but Ben Graham wrote that back in the 1930s. He said a systematic approach to investing is almost certain to work out, no matter when somebody starts, provided that it's adhered to conscientiously and courageously. And the best way to do that is to automate it.
Wall: Chris, thank you very much.
Davis: Thank you so much.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
