Darrell Cronk, Chief Investment Officer for Wealth and Investment Management (WIM), discusses investing with Michael Liersch, WIM Head of Advice & Planning.
|Investment and Insurance Products are:
[Michael:] Hey, humans. I’m Michael Liersch. And this is the About Money podcast presented by Wells Fargo. I’m a behavioral scientist with a PhD in cognitive psychology who loves openly discussing money to help humans better understand their money behaviors. By understanding our money behaviors, we all have the opportunity to make better money decisions.
This season we’re going to talk about jobs money can do for us. Jobs, you might ask? Yes, money does many jobs for us. Such as helping us with our family. Lifestyle. The community. Aging. Travel. Investing, and more. We have a great line-up of guests for you. So let’s get into it.
In this episode, we’re going to speak with Darrell Cronk, Chief Investment Officer at Wells Fargo. You may be asking yourself, what does that mean? Well, Darrell and his team spend each and every day thinking about how humans can invest in a way that will help get them to where they want to go with their money.
I’m so excited to speak with Darrell, because he can help us answer the question that we’re asking in this episode. How does investing play a role in the jobs money can do for me? To answer this question, we’re going to address what investing is, common investing misperceptions, and Darrell’s perspective on how humans should think about investing in a way that will help them get to their desired financial outcomes.
Darrell, welcome to the Wells Fargo About Money podcast.[Darrell] I’m thrilled to be here. It’s a privilege to spend some time with you. And I’m looking forward to this. [Michael] So, I want to ask a question that many think of it as human beings feel awkward or nervous to ask because they think they should know more. And it’s really around investing.
Why is investing such an intimidating topic? And what can people do to make it less intimidating? What’s your thought there?[Darrell] That’s a great question, Michael. And I get that all the time. I mean, investing can appear confusing and intimidating to someone who doesn’t do it every day. The main reasons are it’s filled with, you know, pretty complex topics.
And let’s face it, there’s tons of industry jargon in our business. But it’s really important that if you plan to retire or meet your other life goals, investing can help you earn vitally important financial returns for your future.
I would just maybe point you to four basic elements that I think all investors should really focus on. It’s really about choosing the right investment strategy.
So, you’ve got to invest some time up front into what it is you’re trying to accomplish and understand how that strategy would align with those goals.
You have to choose secondly where to invest. So, should I invest in my 401(k)? Should I invest in an IRA? Should I invest in a regular brokerage account or traditional account or robo solution?
Third point really quick is just start investing. A simple way is if you work for a company that has a 401(k), make sure you’re doing that right up front.
And the fourth one I think that’s really important is revisit that investment strategy over time. So, occasionally, go in and make sure that it’s on pace and it’s staying balanced in the way you need to have it align to help meet that goal.
So, again, go back to the basics, have a plan about what you’re trying to accomplish, think about where the best place, the location is that you want to do it. Get started, right? And then revisit it regularly.[Michael] When you think about what investing is, some people think of things like cash, they think of stocks, they think of bonds, and, you know, whether they go up and down, and how they all work together. Some other people think of their homes. So, for many human beings, a home is considered an investment.
A lot of other humans, as you know, think of their businesses.
So, I want you to help us simplify all that complexity, Darrell.
What’s investing to you?[Darrell] You raise great points. And I would say it’s not either/or stocks and bonds or options, futures, or your home or business.
It’s really both.
Right? And it’s both for very different reasons.
Some assets are what we call consumption or support assets, like the home you live in, like the business that you may own that provides you a steady income. But they can still obviously appreciate.
Then there’s also financial assets, like stocks, bonds, options, futures, that are widely put in savings programs, or appreciation for income, that over time keep pace with or exceed the rate of inflation, which is really important to preserve your buying power. I think you have to have both.
There’s extraordinary amounts of wealth that have been generated in both real support consumption assets and also financial assets.
So, neither is a right or wrong asset. You have to be cognizant of each one brings its own level of risk and rewards.[Michael] So, Darrell, I love this idea of parsing it between these consumption assets.
If I’m an investor then, leaning into this conversation, what should I be thinking about kind of dipping my toe into the first time that I’m going to invest? [Darrell] Well, some of the advice is so foundational and so important that some of it is worth repeating.
Number one, start investing with a game plan and define what your goals are.
Two, start early, don’t procrastinate. You have to understand the most important concepts that early investors need to educate themselves on are around the time value of money, which means that the longer time you have, the longer you can have that money invest, and then using the power of compounding over time.
So, those are critical.
Three, you know this one well, diversify. Right? Make sure that you’re not putting all of your eggs in one basket, instead of having too much in one area that could fall out of favor.
Four, and this one is vitally important, regulate your emotions. It’s one of the hardest things to do in volatile periods of time and it can really hurt your long-term goal structure and your portfolio by doing it.[Michael] When I was a dorky academic, so many of our listeners know and I used to be a professor at NYU we did a study where we asked students in mathematics, economics, about how much money they’d have if they invested a certain amount, you know, over 20 years, over 40 years.
And we asked them, you know, at certain compounded rates of interest — 5, 10%. And what was interesting, Darrell, is most of them were very wrong about what it would look like in the future. But wrong in the sense of they actually just added up the money instead of looking at the interest rates.
What it highlighted to us is people underestimate, to your point, the cost of waiting to invest.[Darrell] Yeah, and I would say, not just the time element of that, but what’s probably more important is the inflation element of that. [Michael] Ahhh. Right? [Darrell] Because over time, the cost of living goes higher. The cost of assets go higher. And so, think about where we are today, where inflation is running at 5 to 6%. So, if you’re making 1 to 2% in a savings account or CD, you’re in essence losing 4 to 5% on a real basis. Right? Because over time, inflation is going up at a higher level or faster pace than what the value of your assets are. So, you’re losing purchasing power over time. [Michael] It is a great reframe for people who are, you know, feeling nervous about taking that leap into investing. And so set your goals, and then take the risks based on those goals.
So, let’s think about the investors who are listening who have been investing for a long time. What advice would you give them, Darrell?[Darrell] That’s a great question. As you grow as an investor over time, you learn greater and deeper truisms about investment and investing.
The important point is you have to educate yourself and continue to learn, like in anything, if you want to continue to grow as an investor.
I think the important element here is to understand that the best returns are often made at the moments in time without clarity and certainty.
So, when you have these big movements down in markets, in other words, maybe another way to say it is being able to get comfortable with your discomfort.
I would just say is that while every crisis is unique in the market, the reaction by markets are almost always idyllically the same, meaning you get this big swoop down, followed by a quick repeat up in intense movements higher.
And most of those movements down are based off of fear, and the rallies that follow almost always seem to be logical and accompanied with complete skepticism.
So, understand that when markets, even though the source of what can create big market corrections is almost always different, the way markets react to those are almost idyllically the same over time.[Michael] So, what’s interesting about all of this, Darrell, is I love the top line item, which is, you know, almost get uncomfortable knowing what you don’t know.
So, let’s, in closing, I have two more questions for you.[Darrell] Ok. [Michael] One is actions that investors should take right now proactively.
Can you give them advice on some action they can take and potentially where they can get help right now?[Darrell] I do think it’s really important to have an advisor, right, someone you can trust, someone you can work with, someone that can help define those goals and the importance of putting that plan together.
Too often, Michael, I see people who understand and maybe acknowledge the importance of advice, but then they go seek it from a family member or their best friend.
I would just highly encourage people to go find a really experienced advisor that they feel comfortable working with stylistically, they mesh, and has good experience to be able to really help guide them through what can be a challenging obstacle course over the course of 20, 30 years, 40 years, whatever the time period is.
So, let’s say we have some listeners maybe they feel like, I really like advice through online channels, you know, at Wells Fargo or elsewhere.
And then ultimately the idea of let’s say more digitally led advice.[Darrell] Well, I think the important thing there is you need to go to a firm or an organization that can provide you all of the above.
Right? So, I don’t think one is right or wrong. I don’t think one is good or bad.
Right? I think, generally speaking, over the life of any investor, they have a need for all of the above, which means they have a need for an ability to have a digital online robo type of an account or solution when they’re in those primary early saving years.
And as those balances grow, it’s important to seek out, you know, more professional advice. I would very much look for someplace where I could kind of get almost a one-stop type experience so that I could keep that continuum over time of what I’ve started out building.[Michael] So, the final question for you, Darrell, I’ve recognized that you’re very passionate about investing. And for many people, they are intimidated by it. So, I think it’s always fun to ask someone who’s into investments, why, why are you so passionate?
What’s your passion point, Darrell?[Darrell] Well, first of all, I love investing. It’s what gets me excited, you know, to get out of bed in the morning. And, you know, I truly think that that is the recipe for any successful career and passion about what you do. The other point I guess I’d make here, Michael, is, you know, I see our profession, as a very noble profession. It has a unique blend of passion, energy, persistence, perseverance, and integrity that I think is magnetic for people.
What we do matters every day for our clients. If we do our jobs extraordinary, we can literally change people’s lives and outcomes and goals over time. And so that excites me.
That’s it for this episode of the About Money podcast. Please e-mail us with the topics that you would like us to address at email@example.com. And if you really liked the episode, share it with family, friends and anyone who listens to podcasts.
About Money is produced by Wells Fargo. You can learn more about ways to work with us at wellsfargo.com/aboutmoney. I’m Michael Liersch, asking you to talk about money today.
This information is provided for educational and illustrative purposes only
|Investment and Insurance Products are:
Wells Fargo Private Bank provides products and services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company.
Wealth and Investment Management offers financial products and services through bank and brokerage affiliates of Wells Fargo & Company.
Bank products and services are available through Wells Fargo Bank, N.A., Member FDIC. Brokerage products and services are offered through Wells Fargo Advisors, a trade name used by Wells Fargo Clearing Services, LLC, and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.
Wells Fargo Bank, N.A. offers various advisory and fiduciary products and services including discretionary portfolio management. Wells Fargo affiliates, including Financial Advisors of Wells Fargo Advisors, a separate non-bank affiliate, may be paid an ongoing or one-time referral fee in relation to clients referred to the bank. The bank is responsible for the day-to-day management of the account and for providing investment advice, investment management services and wealth management services to clients. The role of the Financial Advisor with respect to bank products and services is limited to referral and relationship management services.
Copyright 2021 Wells Fargo Bank, N.A. All rights reserved. NMLSR ID 399801 Equal Housing Lender.
Investment and Insurance products are not insured by the FDIC or any federal government agency, are not a deposit or other obligation of or guaranteed by the bank or any bank affiliate, and are subject to investment risks, including possible loss of the principal amount invested.