My #1 Money Lessons

Morningstar experts reflect on the money lessons they would have wanted their younger selves to know

Ruth Saldanha 31 August, 2020 | 12:09AM
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Old Time Classroom

Save Early, Save Often
By Susan Dziubinski, Director of Content,

In my job interview at Morningstar in 1991, I was asked what a mutual fund was. I didn’t know—I’d been an English major! Thankfully, I was hired anyway, but I had a lot to learn. Almost thirty years later, what’s the most important lesson I’ve learned about investing? That’s easy: Save early and often.

Even back in the early 1990s, Morningstar offered employees access to a retirement plan. Still wet behind my ears and decades from retirement, I diligently tucked away as many dollars as I could each paycheck – after all, my manager said that was the smart thing to do. She said that I should let compounding work for me.

Sure, I made some questionable allocation decisions back then. (A little too much enthusiasm for emerging markets, for instance.) Yet I was saving rather than spending – and I was doing so every two weeks, no matter what was going on in the markets. Saving became a habit; I didn’t even think about it. Nearly thirty years later, that habit has given my family some financial peace of mind. Our house is paid for. Our three kids will be able to go to college. And my husband and I can retire someday if we so choose.

Let compounding work for you, too.

Don’t Look for Alchemy!
By Christine Benz, Director of Personal Finance, Morningstar

Not so long ago, a friend of a friend recently shared that his advisor had diagnosed his portfolio as being too light on small caps and in need of an annuity. My recommendations were a lot more mundane: I thought he needed to step up his savings rate and build more of an emergency cash cushion. Of course, his advisor may have communicated some of those same ideas, too, but my friend tuned out the advice – after all, watching your money grow on its own is a lot more fun than reducing spending.

Investors are all too receptive to the notion that they can reach their goals without significant sacrifice; their investment portfolios can work their magic. Investment selection does matter, but luck invariably plays a crucial role in financial success, too, even though a lot of the lucky ones among us don't like to admit it. But don't underrate the mundane financial jobs--the no-fun, super-unsexy financial equivalents of eating lots of fruits and vegetables and logging 10,000 steps a day.

Christine’s Pro-Tips to Get Rich Slow:

  1. Maintain appropriate saving and spending rates
  2. Nurture human capital and stay employed
  3. Maintain good credit scores
  4. Stick with a sane asset allocation mix, and
  5. Purchase appropriate insurance products

Do a passingly decent job with them over many years and it's a near-certainty the rest of your financial life will fall into place. 

Invest for the Long-Term
By Dan Kemp, Chief Investment Officer – EMEA, Morningstar Investment Management

Learning to invest is unlike other types of learning as experience frequently teaches the wrong lessons due to the randomness of short-term price movements. For example, a person may ‘learn’ that buying shares in companies with good growth prospects delivers higher than average returns, only to subsequently discover that is not always the case. The weakness of the feedback loop when learning to invest makes it difficult to distinguish ‘wisdom’ from ‘noise’.

It is only as we observe asset prices over the longer term and see the gravity of value acting on share prices that we can derive some meaningful lessons about investing. It is for this reason that the most important lesson I’ve learnt is to adopt a long-term approach. Rather than worrying about what the next few days, weeks or months will bring, I try to think in terms of years. Over this time period, I can be more confident that the price of an asset will reflect its fair value and reward the hard work required to estimate that fair value.

However, this is not a lesson that can be learned once but instead is an abiding commitment that is constantly tested in an investing environment that seems designed to encourage a short-term approach.

Successful Investing is a Long Game
By Paul D. Kaplan, Director of Research, Morningstar Canada

I started my career in investment research in 1988 when I joined a small firm called Ibbotson Associates in Chicago. Ibbotson was best known for its annual publication, the Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook. The Yearbook presented the monthly performance of major U.S. asset classes with data going back to January 1926. The book contained a chart, which was also available as a poster, that showed how one dollar invested on December 31, 1925 in stocks, bonds, and cash would have grown if continually reinvested. The stock indices grew to many fold times the value of the bond and cash indices. But the chart also showed that along the way, there were market crashes and recoveries. Recently, I have created updated and extended growth charts for both the U.S. and Canadian stock markets. These charts show that the both the pain and rewards of equity investing have continued.

The lesson that I learned from that chart, is as important now (if not more important) than it was 32 years ago: successful investing is a long game. Over the long run, the equity markets have greatly rewarded those with patience and nerves of steel. (You may even want to buy in falling markets and sell in rising markets to maintain your level of risk as part of an asset allocation strategy that includes bonds and cash.) But you have to able to stomach the losses along way.

One caveat: there is no guarantee that markets will behave in the future as they’ve done in the past. But I think that it is still a good bet that they will.

Home Country Bias and Diversification
By Robert Miehm, Associate Portfolio Manager, MIM Canada

When I first started investing in high school, I preferred to stick close to home, purchasing domestic equities and perhaps bonds, typically using a variety of investment products including stocks, mutual funds and eventually ETFs as they established more of a presence. Many individual investors just starting out are likely to hold to this view, given the comfort of investing close to home, in companies that you know. But as your knowledge grows you’ll learn that diversifying globally, especially into regions where asset class valuations are more appealing, will get your portfolio more diversified and should increase your portfolio risk adjusted returns.

Canada represents only about 2.8% of the global equity investment opportunity set, as measured using the MSCI ACWI IMI Index,  so if you are only investing in Canadian equities you are missing out on a number of options that can benefit your portfolio.

In constructing your portfolio, you should try to choose a broad array of global asset classes and investments that have returns that are not highly correlated.  In doing so you should be able to reduce overall portfolio volatility while at the same time increase your risk adjusted returns.

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About Author

Ruth Saldanha

Ruth Saldanha  is Senior Editor at Follow her on Twitter @KarishmaRuth.


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