The CEO of Fidelity gives new investors the same money advice she got as a kid
- Abigail Johnson, CEO of Fidelity Investments, comes from a family of financial leaders.
- As a child, Johnson said she was taught to be careful with debt and always plan for the long term.
- She learned to cultivate an "investor mindset," which helps her make decisions that maximize potential long-term value rather than short-term gain.
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Good financial advice doesn't expire.
Abigail Johnson, the CEO of Fidelity Investments, told the Wall Street Journal that she shares the same money lessons she was taught early in life with young people today.
"I've passed along the same advice that I was given when I was a kid: Be cautious with leverage," Johnson said. "What I mean by leverage is buying assets with borrowed money. It's dangerous and can be financially toxic when people use too much credit card or home equity debt to pay for current consumption."
Johnson continued: "When the stock market and real-estate prices are going up, leverage can seem like a sure way to boost returns. But when the bull market eventually stalls, as it always does, then too much debt can quickly overwhelm an individual's personal finances, just like it does with a company's balance sheet."
Many financial planners categorize debt as good or bad to simplify the concept of leverage. In essence, good debt can help you get ahead - like taking on student loans to land a high-paying job - while bad debt typically costs more than you stand to gain from it - like credit-card debt.
It's no wonder Johnson's financial acumen developed early in life. Johnson's grandfather founded Fidelity Investments - now the second-largest mutual fund manager in the United States with $2.4 trillion in assets - over 70 years ago. After 26 years working at the brokerage firm, Johnson became CEO, and eventually in 2016, chairman and president.
Not only was Johnson aware of the potential dangers of consumer debt early on, she learned to cultivate an "investor mindset."
"I was taught to have the patience to invest for the long-term and build a portfolio that can withstand market downturns, which also means being responsible with how you're spending money," she said. Asset allocation and your ability to choose investments that align with your risk, age, and circumstances is crucial in this regard, she added.
Investment decisions should be "analytical, logical, and grounded in empirical data" in order to maximize potential long-term gain, Johnson said. In other words, short-term wins may seem more desirable, but they usually aren't going to yield the most value.
"I'd encourage this generation to take a long-term view of the stock market and stay appropriately diversified across stocks, bonds, and cash," she said. "Pretty boring, I know, but as my Fidelity colleague Peter Lynch says, the most important organ for investing is the stomach, not the brain."
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