The practical wisdom of Christine Benz

Honestly, I am conflicted as to whether I am in awe of Christine Benz or envious of her.

Be it her skilful command over the language. Her absolutely charming demeanour. Her sincerity in helping others with such practical advice. The coherence and intelligibility in all her communication and interactions. Her ability to guard her private life despite being open about certain aspects. All of which is so incredibly refreshing in the midst of all the screeching and babbling that happens constantly in the digital media.

In this rather short engagement, you will see all of the above play out.

Clearly, I am unabashedly a huge fan. But so are thousands of investors across the globe.

This is part of a series where I attempt to understand the behavioural traits and mindset of money managers and investors. At the end of this (slightly edited) transcript, I have listed the previous 19 individuals interviewed for this series. I saved my favourite personality for the last.

CHRISTINE BENZ is the Director of Personal Finance and Retirement Planning at Morningstar. 

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You have tremendous expertise in retirement planning. You've interviewed so many people. Spoken to thousands of investors. They write in. How has that shaped your perception? What is something about retirement that you have changed your mind about over the years?

Oh, so many things. I think that we all need to be willing to change our minds about things. I try to actively receive new information and look for viewpoints that are counter to my own. I think that's a good practice for all investors.

One is in relation to what is called the Financial Independence Retire Early movement, the FIRE movement. It's kind of morphed into being more of a financial independence movement. I hear fewer people talking about retiring at, say, the age of 35, or something like that.

That was an idea that I was reflexively averse to because I have been someone who really enjoys my job. I don't think of my work as something to be gotten through so that I can get on to my real life, or get on to enjoying life. I've been lucky to have a job that is incredibly gratifying. And there have been points in my life where work has been a great solace to me, in a way that I wouldn't have expected at the early part of my career.

But the more I learned about the FIRE movement, I warmed up to the idea of people forging financial independence and thinking about it early. There are a lot of things that are very healthy about the movement. The focus on simplicity with respect to investment matters. Most FIRE adherents are focused on using broad, based index tracking funds to get market exposure. There's a frugality mindset that resonates with me; this idea of living within your needs and not showing off. All of that I very much appreciate.

Then there is retirement decumulation. How do you retire? How do you extract income from your portfolio when you actually step away from work?

I have become more of a believer in this idea of getting some sort of guaranteed income through an annuity-type product, where you are buying a stream of income that will last for the rest of your life. These products actually go back to ancient times, but the idea is very powerful for people looking for peace of mind in retirement.

A lot of people have annuities marked with a skull and crossbones. The truth is that there are some terrible annuities, and this cuts across geographies. But there are also some really nice, low-cost annuity options.

Securing that stream of non-portfolio income can provide a lot of peace of mind in retirement. Which isn't to say you should get all of your income from such a product. A component of guaranteed income makes a lot of sense, and having a portfolio that lives side-by-side that stream of guaranteed income.

Do you think your personal circumstances impacted you? You often talk about how you looked after your parents. Did that change your idea of risk in retirement?

My parents encountered dementia at the end of their lives. That made me very conscious of the unhappy part of old age.

If you have generally had a healthy life, you are going to live longer. Cognitive decline very much syncs up with old age; the older you are, the more likely you are to experience cognitive decline.

It has made me very conscious of that risk. And of making sure that I have a plan for care in case I need it later in life. Also really evangelizing about the importance of thinking through some of those unhappy parts of old age. And helping people get comfortable with the risk.

Unfortunately, in the US, those risks are largely shouldered by individuals. With the exception of Medicaid, a programme that provides care for people if they have exhausted their resources. In order to qualify, you need to have depleted your resources. It's a kind of a black hole in retirement planning. When I speak to groups of retired investors, this is an area that gives people a lot of angst. So I like to talk about it. Get people to think about it. Tell people how to create a bulwark to protect their financial assets against the possibility of needing this type of care.

Do any of your investments give you a bit of angst, or sleepless nights?

Not really.

I have been very placid through periods of equity market turmoil.

One thing that has helped give my husband and me peace of mind is the barbell strategy in our portfolio; enough liquid reserves set aside to balance a very equity, heavy, long-term portfolio.

We have a fairly healthy cushion of cash investments, probably larger than would be ideal from an investment return standpoint, because until very recently yields on cash were very, very low in the US.

We tend not to spend a lot of time thinking about our investments. We're busy working on other things and it's just not a big topic of conversation for us.

Are you both similar in where and how to invest? Do you think alike on those terms?

Since this is my job, my husband is very deferential to me in terms of how we position our portfolio.

I tend to be incredibly hands off with our portfolio. I feel like, as long as our asset allocation is reasonable, we really just don't need to make changes or be adding things to our portfolio.

Perhaps he has a little more of an itch to scratch in terms of investing in individual stocks. And sometimes is a bit more interested in these ripped-from-the-headlines-type investment moves. So he is inclined to read that, maybe, bonds are cheap or something like that.

But we tend not to do a lot with such investment moves.

Can you share an investment bias that you are very aware of? And how have you combatted it?

One that gets so under discussed in the realm of investing biases. I am super inert. I don't do things even when I know I should.

Company stock, for example. It has been a great luxury that I've been able to receive company stock over the years and it has grown. I've tried to scale it back, but there are tax implications to scaling it back. So trying to overcome my natural bias toward inertia and finding the time to spend on my portfolio is an uphill battle.

So probably the biggest bias that I have is the tendency to do nothing. Generally speaking, it's been a pretty good tendency as being hands off has been probably additive to my portfolio results. But as I age and start to think more seriously about retirement,  I will need to skinny back some of the equity risk in our portfolio, and will need to be a little bit more active in terms of selling appreciated securities.

Christine, you're one of the most influential women in finance. Everybody knows you. What are the facets of success according to you? How much of a role does money play in your understanding of success?

Broadly speaking, success really comes from having a sense of purpose, having something that you do that aligns with your values, and gives you a sense of having a role in this world. I think that is central to being human and everyone needs to identify that sense of purpose.

I was interviewing someone on this topic of purpose who spoke of “purpose paralysis”. People think purpose needs to be setting up a family foundation, or spending 30 hours a week doing volunteer work, or whatever. He called it “capital P Purpose”. But there are ways to find “small P Purpose” in our lives, whether it's just being a great partner to your spouse, or being a great parent, or feeling like you're an active member of your community, whatever it is. I think that that's a huge part of success.

Also, relationships obviously contribute to success. Having meaningful relationships is one of the key ways to find success and happiness in life.

I see money being a kind of a support to those broader goals or purposes that someone might have. It's a means to an end. It's certainly important. Our financial wherewithal is inextricably linked to our psychological and physical wellbeing. But I see it as kind of a means to an end rather than an end in itself.

You mention your nieces or a friend’s son who came to you for advice. What is something you would like to tell a really young person who wants to start off?

Get started. Even if it seems like a drop in the bucket. Even if it's only a little bit each month that you're able to save.

Automate, to make a habit out of it.

Keep it simple. The more I know about investing, the more I'm inclined to urge people to stay with an ultra-simple portfolio. Don't try to over complicate things with very narrowly honed investments. Broad market tracking investments are a great way to approach a portfolio.

Last, but not least, probably the most important thing is to cultivate frugality in terms of your daily life.

Identify those spending items that really give you joy. Cut away the rest. Don't be focused on keeping up with what the people around you are doing. You don't know what lies underneath the hood, in their financial lives. Focus on the things that bring you joy and happiness. That's really a hard lesson for young people to learn. There is a lot of that competition among peers to have the best job, or the best car, or the best apartment, or whatever it is. Hop off that treadmill and focus on the things that really bring you a lot of joy.

Can you share some money advice that your parents shared with you, that has carried you all through these years?

One of the most specific pieces of advice was from my dad. I was starting my first job and had a company retirement plan that I had to allocate to. I was looking at the choices with no understanding about what any of it meant. My dad suggested that I invest in the S&P index fund. He said that I don’t need to be in cash or bonds at my age, but in a broadly diversified stock portfolio.

I just took it on faith that that was what I should do, as my dad was always a stock investor. Turned out to be great advice for a person in her early twenties.

My parents modelled tranquility in their financial life and interactions with each other about money matters. They never, ever argued about money. Money wasn't a contentious topic. They were very financially well, and I don't mean that they were rich, but they were just comfortable, where everything was saved for, and college was paid for, thanks to them.

They just modelled for me the tranquility that ideally one should have in their financial life. Which is very much the role that I've wanted money to play in my own life. Maybe my parents didn't know that they were teaching me that, but I was watching and learning from the way that they handled their financial affairs.

I think my husband and I have been able to carry that forward into our own relationship. We've been married longer than we were not married at this point. But, we're very much on the same page with regards to money matters. I've been willing to learn from him as he's a little bit more of a naturally frugal person than I am.

Individuals interviewed by Larissa Fernand for this series:

1. Prashant Jain
2. Sankaran Naren
3. Nilesh Shah
4. Vetri Subramaniam
5. Anand Radhakrishnan
6. Devina Mehra
7. Saurabh Mukherjea
8. Raunak Onkar
9. Samir Arora
10. Kenneth Andrade
11. Rajeev Thakkar
12. Aswath Damodaran
13. Ian Cassel
14. Vishal Khandelwal
15. Sanjay Bakshi
16. Ramesh Damani
17. Jim Rogers
18. Ben Carlson
19. Mohnish Pabrai
20. Christine Benz