Financial expert Mellody Hobson is a woman to watch. She's the co-CEO and President of Ariel Investments, a Chicago-based investment firm, and currently serves as Vice Chair of the Board of Starbucks (NASDAQ: SBUX) and as a director of JPMorgan Chase (NYSE: JPM).
Although Hobson's former board positions, philanthropic work, and media appearances are enough to fill an entire book, her story resonates with people all over the world because she's been able to use her knowledge of investing to transform perceived setbacks into an incredible story of financial success.
Turning obstacles into opportunities
There is no doubt about it: Mellody Hobson is the embodiment of the American Dream. Growing up in Chicago, she was the youngest of six children raised in a single-family home. Although she had a loving and supportive home environment, she was no stranger to frequent evictions, vehicle repossessions, and utility shut-offs.
Hobson's upbringing created a relentless drive for her to understand money, leading her to become a nationally recognized voice on financial literacy and investor education who manages a portfolio of approximately $12 billion in assets at Ariel Investments.
A lesson with a lifetime of benefits
Hobson is a fierce proponent of having a long-term perspective. She's known to be one of the only people from her Princeton University class who has had the same work phone number since graduating in 1991. She has worked for Ariel Investments for nearly three decades -- making that the only job she has ever held in her life. Now, she's using the power of time to win in the investing world.
Hobson's disciplined, long-term approach to investing is seen in Ariel Investment's motto "slow and steady wins the race", which uses a turtle to symbolize the firm's investment philosophy. She often talks about one of the most valuable pieces of advice she received from her business partner and founder of Ariel Investments, John Rogers, when she started her career. "People undervalue time and they overvalue money," Hobson said. She recalls seeing people make trades based on the money they were going to make at the moment but the decision didn't work in their favor over the long-term.
During Hobson's Class of 2020 Commencement Speech, she reveals how investing in the stock market is a proven way to grow money and build wealth. "Since opening in 1896, there has been no 25-year period when the S&P 500 has lost money," says Hobson. "If someone from my 1991 class had committed to putting just $1 a day ($30 a month) into the stock market, that investment would be worth [approximately] $40,000 today. If you can get used to living on less, you can someday have more. Whatever you start with, the seed will grow."
Long term investing may not be glamorous, but it works -- especially during tax time. When you sell a stock and earn a profit in the stock market, you are required to pay capital gains tax at either short-term or long-term rates. If you held your investment for a year or less, you pay a short-term capital gains rate that that can be as high as 37%. If you invested for the long term (over a year), you'll unlock lower tax rates of 0%, 15%, or 20% depending on your income and filing status. By holding your investments over the long-term, you have the potential to make more money and pay less in taxes.
2021 long-term capital gains tax brackets
For single filers with taxable income of...
For married joint filers with taxable income of...
For heads of households with taxable income of...
...this is the long-term capital gains rate
$0 to $40,400
$0 to $80,800
$0 to $54,100
$40,401 to $445,850
$80,801 to $501,600
$54,101 to $473,750
Patience pays off
Hobson's advice she would give a young person today is to be patient. It's a reflection of one of the life lessons that was instilled in her by John Rogers: "Every game is won with patience."
The obsession with becoming wealthy overnight causes many investors to time the markets or quickly cash in on big wins. These moves can be dangerous to your wealth-building goals. By investing consistently over a long period of time, you take the pressure out of the process and give yourself a chance to profit from the growth in the stock market. So, start thinking more in terms of decades instead of days and you'll be wealthy before you know it!
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