EXPERTAdvice
On the eve of the new millennium, economic adviser Scott Grannis '71 wants you to have money, investments, and debt...
Your Money in the New Millennium
In the new millennium, Scott Grannis '71 wants you to have money. He wants you to have investments. And he wants you to have debt. But more on that later.
For this chief economist at Western Asset Management--which manages about $60 billion for such firms as AT&T, IBM, BankAmerica and ARCO--it all began not with a tie-strangled prep chasing a business degree, but with a student of philosophy and literature, graduating with an unlucky draft number during the Vietnam War. During a four-year stint in the Coast Guard, he got the idea of earning a master's in business administration. Then he met his future wife, Norma--an Argentinean--and using the GI Bill, the two moved to Argentina. There he studied business, but not only in school. A military coup left the country reeling. The central bank began printing money to keep the government afloat. Inflation skyrocketed, 250 percent in one three-week period.
"That's when I really got interested in economics. It was a struggle for survival every day."
The couple returned to the U.S. in 1979 because of the turmoil, and Grannis completed his degree in finance and economics at The Claremont Graduate School. But he remembered his lesson about inflation. "Inflation almost always results in the people getting poorer and the government getting richer. We used to think a little was good; now there is a consensus that it is everywhere bad."
When asked for advice on how most people should handle their money in the new millennium, Grannis isn't hesitant. He believes stock investments are the way to go. Though the market is always a gamble, Grannis believes the Federal Reserve has reined in interest rates to the point that future generations will have learned a lesson. If this proves true, he argues, stock investments are the key to increasing capital with the most acceptable risk.
Of course, only a tiny minority of investors can beat the market consistently. Therefore, he recommends conservative investments--for now that means index funds. "They offer very low expense ratios, they're tax efficient, with a real good chance to get a good return."
For people in their 50s or younger, Grannis says this is the right choice. "You get out of school, get a job, put money in some kind of mutual fund with low cost, and watch it grow; U.S. stocks have beaten everything for the last five years, but that is not going to happen forever. Look to foreign stocks, emerging market stocks, with the idea that they may be having problems now but when they get their act together they have a long way to go to catch up."
Sometime between 55 and retirement, Grannis adds, people should become more conservative. "By the time you retire you should be as conservative as possible: move from stocks to bonds. Bonds are much more stable; the stock market could drop 40 percent in the next two weeks and stay there for 10 years." Younger people, he says, can ride out bad markets, but that's not something you want to do once you've retired.
Now for the shocker: Grannis argues that debt is good. But don't pull out that credit card yet. "Credit card debt is bad," he explains. Most credit cards have rates so high that, by the time a reasonable person with a reasonable income is able to pay it back, it has eclipsed any investment--save the most lucky. "Still, debt is a good thing. Most people and most companies--and most governments--are better off having debt than not. You don't want too much but don't want too little either."
"I'm the only philosophical economist around," Grannis quips."I am not technically an economist at all--I have no Ph.D.--but I've spent 20 years practicing. I'm convinced it's more logic and common sense than mathematics and science, and so far it has done well for me."
--Gary Scott
