CEO John Dowd's Advice for the Next Generation

12.22.2017 - John M. Dowd

Preparing for the Journey Ahead

Throughout our history, one of Fiduciary Trust’s top priorities has been educating future generations. Our goal is to help young people lead productive lives and manage wealth wisely.

As part of this commitment, CEO John M. Dowd addressed a group of graduate students who are members of the Fortis Society, an organization that provides networking opportunities based on merit rather than privilege. In John’s guidance on financial and professional success, summarized here, one message comes through loud and clear: Success requires planning.

Successful Investing Begins with a Plan

Q: When is the best time to start investing?

JOHN: There’s an old saying that the best time to start investing was 10 years ago, and the second-best time is right now. And I think there is some truth to that, assuming you have money to invest.

Everyone has different financial needs, but the general rule of thumb is that 50% of your after-tax income should be reserved for essentials like food, clothing and shelter; another 30% goes toward travel, entertainment and other things you want but don’t necessarily need; and the remaining 20% should be saved or invested.

Assuming all your bills are paid and you have adequate savings (six months of living expenses as a buffer), it is usually best to start investing as early as possible. The earlier you start, the more likely you are to benefit from compound interest—a force so powerful that Albert Einstein called it the eighth wonder of the world. When you continuously reinvest the income earned by your investments, time can be a powerful ally.

Q: If I’m ready to start investing, where do I begin?

JOHN: First, it is important to have a plan. Put your personal goals in writing and sketch out a strategy for how you expect to accomplish them. And, be sure to take advantage of your company’s 401(k) retirement plan, especially if your employer makes matching contributions. Professional guidance may also be helpful, especially if you could use more discipline in your financial life or want more guidance on investing. For example, you may have heard that you can estimate how much of your portfolio should be allocated to stocks by subtracting your age from the number 100 (meaning that a 25-year-old should have 75% of his or her portfolio in stocks). While this rule of thumb is helpful, a professionally developed financial plan will tell you exactly how your investments should be allocated.
Q: What are the most common mistakes made by younger investors?

JOHN: Not having a financial plan—and then making emotional decisions when markets are rocky. Over the last 20 years, an investor who stayed fully invested in the S&P 500 would have received close to a 10% average annual return.

However, if they missed the 10 best days of the market, their return would have fallen to 6%. I often think about investors who headed for the sidelines during the global financial crisis in 2008 and locked in their losses, only to see the US stock market fully recover by the end of 2009. We often tell our clients to focus on “time in the market” rather than “timing the market.”

Q: If I am an active investor, what should I know about the economy?

JOHN: There is so much information out there that it is critical to build a framework to make sense of what you are seeing and hearing in the news.

It took me a long time to develop my own framework, but I generally take six key economic factors into consideration when investing: 
  • The strength or weakness of the dollar, which influences so many investments.
  • The direction of interest rates and the policies of central banks like the Fed.
  • Inflation, which affects the consumer’s purchasing power.
  • Corporate earnings growth, which reflects the general health of the economy.
  • Employment rates, which influence personal consumption (responsible for 70% of our economy).
  • Gross Domestic Product, which is our country’s economic scorecard.
Best Practices for Your Personal Finances

Q: Do you have any advice on how to manage my personal finances?

JOHN: Build financial discipline early. Read the book Titan: The Life of John D. Rockefeller, by Ron Chernow. It explains how Rockefeller became the first billionaire in history through a life of discipline, determination and meticulously recording every financial transaction he made.

If you are an investor, avoid the wisdom of the crowd. As Warren Buffett said, “Be fearful when others are greedy and greedy when others are fearful.”

Leadership and Intellectual Curiosity

Q: What are the most important skills I should develop for a successful career?

JOHN: Curiosity and creativity. In this fast-changing world, with so many day-to-day “work problems” that need to be addressed, it is important to maintain a sense of intellectual curiosity and continue learning throughout your career.

I find it extremely helpful to study business leaders in other professions and apply the lessons they have learned to wealth management. Yes, it is important to have drive, ambition, talent and self-confidence. But I think it is equally important to admit that you don’t have all the answers to life’s questions.

Q: What is the most challenging aspect of running a business?

JOHN: I am responsible for moving this company forward by leading broad initiatives and discussions that can sometimes continue for months, or longer. The challenge is to stay sharp, keep my energy levels high and remain fully present and engaged in the tasks that are in front of me 100% of the time while those broader discussions are moving along.

Managing people can also be challenging and rewarding at the same time. When I am coaching and mentoring in the office, I have to make sure I am not only encouraging and rewarding people but also challenging them to step outside of their comfort zones. This can be risky because you never know how an individual is going to react. Everyone has different strengths and weaknesses. Finding a way to leverage those strengths and then watching them shine is especially gratifying to me. 

This communication is intended solely to provide general information. The information and opinions stated are as of December 1, 2017, and may change without notice. The information and opinions do not represent a complete analysis of every material fact regarding any market, industry, sector or security. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process.Historical performance does not guarantee future results and results may differ over future time periods.

IRS Circular 230 Notice: Pursuant to relevant U.S. Treasury regulations, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from your tax advisor.


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