John Spence

Wayne Wagner on How to Become a Millionaire

Wayne Wagner is the co-author of Millionaire, a book with a promise that index fund investing can turn your lunch money into a million bucks given enough patience, time, and discipline.

Wagner should know - in the early 1970s he helped Wells Fargo develop the algorithms for operating the first index funds. As a co-founder and chief investment officer of Wilshire Asset Management, he helped set up the first Wilshire 5000 index fund a decade later.

Wagner is also the author of The Complete Guide to Securities Transactions: Enhancing Investment Performance and Controlling Costs (John Wiley & Sons, 1989). He writes and speaks frequently about financial topics concerning passive investing and indexing, and currently serves as chairman of the Plexus Group, a Los Angeles-based transaction process adviser to investment managers, plan sponsors, and brokerage firms.

He recently took time out to chat with IndexFunds about his new book, Millionaire, which he co-wrote with real estate investing guru Al Winnikoff.

IndexFunds: You've written a lot of serious research papers. Was it difficult to tone it down a little and write a book so obviously geared to the beginning investor?

Wayne Wagner: It was great fun, and quite a challenge. Serious papers have a lingo and tempo all their own, and I had to grow as a writer to do a popular book. I look forward to doing another.

IF: Why did you write such a funny, readable book about such a serious subject?

WW: Someone once said, "We learn more from the witty than the wise." We're trying to deliver a message in a way that will hold people's attention. If you don't enjoy reading it, you're not likely to actually do it, are you?

IF: You emphasize the importance of investing early. Is your book lost on people of a certain age, or can people approaching retirement learn something from Millionaire?

WW: Ours is a career-long core investment strategy, and the earlier you start the better. We were also trying to appeal to parents and grandparents to get their offspring started on some good habits.

IF: You're friends with Al Winnikoff, but which individual strengths did you bring in co-writing the book? How was it a symbiotic relationship - what did each bring?

WW: Al's the storyteller while I am the "expert." I like to spice up my work with quotes and zingers, but I've never written narrative at all. Actually, he wrote his part and I wrote mine. Putting them together made a noise like "splat." Thanks to a great agent, we were put in touch with Laurie Viera, the "book doctor" who made a cohesive work out of it. The publisher and his wife added even more. We've had great support, so it was sort of a team effort.

IF: Have you received any criticism that you are oversimplifying things? What would you say to an investor in their early twenties who bought a total stock market index fund two months ago? This investor has vowed to only check the Wilshire 5000 twice a week, but it's still painful.

WW: Of course. We tried to make it as simple as possible. We wanted to present something to which every American could say, "I can do that." Because it's a whole-life investment policy, I would say what I say to radio call-ins right now: they're holding a sale on corporate America, and you should go out and buy as much as you can while it's cheap. Actually, that's not strictly a part of the program, but it gives people confidence.

I think the emotional component of investing gets at the toughest part of the problem. I keep using the phrase that picking managers on track records is like roaring down the freeway at 80 mph with your eyes firmly fixed on the rearview mirror.

IF: In the book you recommend 100% investment in equity index funds. Isn't being totally invested in stocks a little risky for most folks?

WW: Not over the long term. Remember, we're talking about a long term program. Sure, there will be ups and downs. But if you ride out the storms you'll always keep your money at work, and don't worry about whether you should be buying or selling, a decision you'll get wrong more often than you get it right.

IF: Indexing isn't popular because it's boring. Do you see any benefit in taking a small portion of your portfolio - say 5% - and using that as "play money" for stock-picking so you can get some entertainment, if that's what you long for?

WW: Agree on all points. I'd even include some "mad money" to be spent on consumption. But if you want entertainment go to a movie. If you want to accumulate wealth, I can't think of a better method.

IF: Are there any financial writers you check out on a regular basis?

WW: Jonathan Clements of The Wall Street Journal is one of my favorites, along with Jason Zweig [of Money Magazine].

IF: This is a question from the investing beginners out there that you so obviously care about: If an index fund were an animal, what would it be?

WW: Jesse Jackson called that one. He said we have to learn early on to have "squirrel sense." Squirrels are not known to have brains. There are no Ph.D. squirrels, no attorney squirrels . . . but there are also no homeless squirrels! Squirrels, by whatever instinct, put away some acorns for winter. It's the futures market - squirrels understand the futures market like no other species, including humans.