KATHY JONES: I'm Kathy Jones. 

LIZ ANN SONDERS: And I'm Liz Ann Sonders.

KATHY: And this is On Investing, an original podcast from Charles Schwab. Each week we analyze what's happening in the markets and discuss how it might affect your investments.

Well, hi, Liz Ann. Last week on the show, we said we'd be watching those jobs numbers. And, you know, April number for non-farm payroll was 175,000, which is a lot less than was expected, a lot less than the recent trend. I thought the stock market reaction was actually pretty interesting. What did you make of it?

LIZ ANN: Yeah, I think the word of that day was "Goldilocks" in terms of the collection of data points that we got in the jobs report. You had the weaker-than-expected payrolls, but still a decent number. So it wasn't an implosion, a slight uptick in the unemployment rate. You saw some easing wage pressures. You could pick at some of the numbers, very weak household employment. That's something to watch. But I think the fact that it was Goldilocks-esque was particularly settling for the equity market because of what had been the fairly hot employment cost index number out earlier in the week, which that had rattled markets a little bit. So it was about as good as you could get if you said to a stock market bull, you know, "Map out the perfect set of data points within the jobs report, not too hot, not too cold," that was probably it, but you know what was what was more incredible was a reaction on the part of the bond market and yields so what did you think about that in the immediate aftermath of the report.

KATHY: Bond market really liked that report. It was like a huge sigh of relief because we've had a long stretch of higher-than-expected job numbers and not making much progress on getting those wages to fall below the 4% growth rate. And so we got a lower job number. We got wages to edge down a little bit. There was even some other softness. Hours worked edged a little bit lower, which means in aggregate. Looks like the growth in income was probably soft during the month. That might be a sign of a little more weakness. Sometimes when employers start cutting hours, it's a precursor to cutting workers, as you know. So they hold off doing layoffs if there's not that much demand, and they just cut back on hours. So that was a metric that I thought was pretty interesting and we're going to keep an eye on. 

But you know, no matter what, the reasoning or the numbers, it does suggest that things might be slowing down a little bit, which is just what the Fed has been hoping, just what the bond market was hoping for. So it reversed all the negativity about the Fed will never ease again and maybe even have to raise rates and all that. And we quickly reverted to building in the likelihood of some more rate cuts coming back towards the end of the year. So it was a happy day for the bond market and continues to be pretty supportive.

So Liz Ann, tell us about our special guest today.

LIZ ANN: Well, it's a name that certainly is familiar to you and me, Kathy, and another 30 some odd thousand people with whom we work. It's the Charles Schwab. And interestingly, there's a new documentary film out simply called Chuck, which is what he's always been known as, what we call him. I will have a link to the YouTube version of the documentary in the show notes. And I've watched it. I thought it was fantastic. I'm obviously biased. I'm celebrating my 25th anniversary at Schwab this month. But for those that maybe aren't biased, it's worth knowing that it's directed by Ben Proudfoot, who has now won two Oscars for best documentary short films. So the quality of the production is very high. And the film documents the early days of the founding of our company, the context of what was going on in the country at that time in the early '70s, the economy.

It has several really great interviews with people who were there at the very beginning of really what was an investing revolution. Up until the early 1970s, commissions to trade stocks were prohibitively expensive for most people, and the whole market truly transformed on May 1st, 1975, a date referred to on Wall Street as May Day, and Chuck talks a lot about that. It was a date when brokerages were first allowed to set their own commission rates rather than charging a set price for stock trades.

So our guest today had started at the time a little company, of course not in New York, but in San Francisco. And it was that little company that cut commissions down to make them affordable to the average investor. And the world of investing has changed forever. And that company, of course bearing the name of Charles Schwab, now has about $8 trillion of client assets under management.

Now I've had many conversations with Chuck over the years, and I was so happy to sit down and speak with him this week about his perspective on the economy, what it was like to build that company over the years, and just an interesting five-decade perspective.

So Chuck, thank you so much for sitting down with us. I know this is going to be a very exciting episode. We have mentioned this in promo, and I think a lot of people are tickled to hear your thoughts. So thanks for sitting down with me today.

CHUCK SCHWAB: Well, thanks, Liz Ann. You do a terrific job of communicating with our Schwab customers and other people on the outside. And I always have a great amount of pleasure sitting down with you and talking about the market, talking about things that are important to our investors. So I look forward to it.

LIZ ANN: Great, I'm glad you're doing it again. A few years ago, you came out with your, I guess a bit of a memoir, a book called Invested, and you were kind enough to ask me to join you on the road, on the book tour, so to speak, and I loved those conversations, so I'm looking forward to it again. And one of the things we talked about is the long history of our company. It was just a few short 50 years ago that you started our company, and I'd love to start by having you share your, what was such a unique vision at that time in the early 1970s to establish a company, day one as a disruptor in this industry we often generically think of as Wall Street, but you represented the antithesis of that. So take us back 50 years and just share your vision at that time.

CHUCK: Well, Liz Ann, it goes back actually to about the time I graduated from business school. I went to Stanford business school. And at the time I was working certainly through my school year, but nights and weekends, I worked for a small investment advisory firm, which I ultimately went to work for them upon graduation. And that throws us way back to '61, '62, but for the next bunch of years, really until '73 when I started the company, I dealt with a lot of brokers. I was always an analyst, portfolio manager, and I was never a stock salesman as such. But I always found that brokers have this really resonant conflict of interest in their business. The way they created commissions and commission income, and that was their incentive to sell ideas and so forth. And I thought that was really a massive conflict of interest against the customer they were trying to sell to. And so I thought there was a need for a company that took commissions out of the whole equation. And hence I started this company in, really, 1973, with a handful of people that had the same vision that I convinced them that we should have about being able to deal with our clients as a broker-dealer, give them great discounts on commissions, as well as avoid any kind of commission that we would receive as compensation. Yes, people got salaries, that was obvious, and if the company did well, we had bonuses based upon a total pool of profits that we might have had at the time, which I have to say were pretty skimpy, to say the least. So we worked hard on that for a long while and people kept coming in and coming in, "Boy, I like this relationship. I don't have to deal with some broker hanging over my back all the time trying to push me in one direction or another direction or in a conflicted thing where he got a big commission." So anyway, that was the genesis of Schwab, and it just seemed to catch on to people who love that same kind of relationship.

LIZ ANN: Yeah, it's been a fascinating story and for anybody that is not just interested in the story, this story, meaning how Chuck thought about the founding of Charles Schwab the company, but just the last 50 years and changes in the backdrop and innovation. There's a new documentary that we came out with just about a month or so ago. It's aptly called Chuck, and it's on YouTube, and we will for our listeners now post a link to it in the show notes. I watched it. I will say. Chuck, it was very goose-bumpy, shed a little bit of a tear, loved seeing your daughter, my friend Carrie, play a role in that, but it was a really fascinating look back at the past 50 years. 

CHUCK: It's a great story of innovation in America. It could only be done here in America, for sure. Really the core thing of America is about investing. And I know we'll talk a little bit about that later on, but it was about investing, which is at the core of America's great capitalism, its great democracy, and all the things we've innovated over the years. And it's really a part of a story that sort of hangs into that whole growth of America in the last 50 years.

LIZ ANN: Let me stay on innovation because another almost fun thing when you watch a documentary or think about 50 years of innovation, you often get a chuckle when you see what was deemed as innovative 50 years ago versus what we think of as innovative now. I remember telling a story about how I did research on deciding to join the first firm that I joined before Schwab and having to go to the library and use a microfiche machine and crank the handle to look at newspaper clippings, and there were a lot of those funny quips. So as a disruptor, you have always relied on innovation, certainly as it relates to our company's trajectory. But expand more on your thoughts about the role of innovation and growth in our economy and maybe in particular the impact on individuals broadly but individual investors specifically.

CHUCK: Well, when I thought about innovation at Schwab, it was always with one mission in mind, and that was how to make it better, easier, for clients to do their business as to investing. As to the general idea and concept of innovation in America, it is such an unbelievable thing that we've been able to create various things from internet to cars and nuclear power. You go on down the list, just one after another. And now we're talking about AI, another whole new level of innovation will come out of that, and improvements about service to people and back-office operations. It just keeps going and going and going. 

And what I think the secret of all this is, is that you're really allowing the human brain to do what it does best, is think and create. And it can be as mundane as building hamburger stores to that of very sophisticated things that went on for years at IBM and now on to Nvidia and etc., etc.

LIZ ANN: So Chuck, you've always emphasized the importance of being an investor. So in your words, what does that mean to you, the importance of being an investor?

CHUCK: To me, investing is about participation in the great growth of this country. And once I become a participant in investing, I become, I think, a much better citizen. I know what's going on. I read the papers. I'm interested in politics. I'm interested in new innovations. I'm interested in new ideas.

I'm interested in how companies are developing great new products that I could use or my friends could use. I've become certainly a participant in the great growth of America. And we have grown as a country, with our innovation and all the benefits that we have behind capitalism. So investing to me has always boiled down to "I'd like to participate." That's one of the things, as a young kid, I didn't have much money, to say the least. 

But that's why we have the great innovations of our ETFs. You can buy small amounts. And why Schwab created the thing called slices. You can buy a slice of a company and participate. And it's all about participation in my mind about the great things our country has to offer the world.

LIZ ANN: So let's widen the lens a little bit. And in the context of the 50 years since Schwab has been around as a company, we know the investing landscape has changed, but what do you think are some of the most important changes just in the investing landscape? I want to then ask you to opine on sort of the current backdrop. Does it remind you of any other period in the past? But what resonates most when you think about then versus now, just in the broad investing landscape?

CHUCK: Well, I think the pie has gotten so much bigger, which is fantastic, as well as our population's got so much bigger. And we now approach the world with all our innovations and people love it. But to me, there are so many different things that have helped us along the way, innovations, to become a great company. When I reflect back on early days of our existence, we were doing 50, 60, 100 trades a day.

Today, if we do six million trades a day, it's a good day. What a difference. We couldn't have handled that without the great innovations of technology. And then fundamentally, it was really the internet that really exploded so many different things in America the last 20 years.

Because we were on the West Coast, I was very much engaged with many, many technology people. I belonged to a small organization called Young Presidents Organization. So I had many young presidents who were running small tech companies who I got to know very well. And they kept encouraging me to look at this thing for better efficiency in our back office, for instance, and then in our front office in terms of our internet capabilities.

That was invaluable, I think, because we were the first company really that got into internet trading. And even before that, we had certain relationships with different companies that allowed sort of kludgy kind of internet service. It wasn't really internet yet at that time. It was CompuServe and things of that nature. But we were always on the forefront of that technology curve. And that was, I think, one of our real benefits, having been started on the West Coast.

LIZ ANN: Speaking of being ahead of the curve, you talked about the genesis of Schwab and wanting to democratize investing and certainly not have compensation for brokers be tied to stock-jockey type trading. But more recently, of course, we became the ultimate disruptor a number of years ago going to 0% commission. So what was the driving force in your mind and maybe what was it about the timing of that for you?

CHUCK: Well, going to zero commissions, we certainly had been on a long-term pursuit, having started in the first days, 50 years ago, of dropping rates down as much as we possibly could and still make a teeny profit. And it was always my ambition to sort of get commissions sort of out of the investing proposition as such. Yes, I do believe investment advisory companies, they charge a fee to help people select stocks and so forth and hold their hand through the investing thing. And then we, at Schwab, have a predominant market share of people who are independent investors who love to make their own decisions. They do their own research, and they have the ability to trade as they choose to or invest as they choose to. 

So over the years, we kept lowering and lowering rates. There were competition among different firms who could be the lowest along the way. And finally, we got down to $4.95, and a couple of little firms were offering zero commissions. And we just thought it was timely. I always had this in my mind. Some people have asked me before, if I ever start again, what would I do differently? I would start at zero. But, of course, with the benefit of technology today. We couldn't have been zero back when we started in the last century, in 1973, because we couldn't handle the back office. But today, because of technology and that innovation, we can handle the zillions of trades per day, which we do now.

LIZ ANN: You know, you mentioned that we certainly have investors that are invested in themselves and like to do this on their own, whether it's long-term investing or shorter-term trading. But as we've grown as a company, we also now have just a massive platform offering help and guidance and advice. And talk about the importance for many investors of accessing professional and expert help and advice.

CHUCK: Ten percent of the people who could make their own decisions and did their own research really thought about investing. That market's sort of grown to some degree, but the bigger market is the people who need a lot of help. And so we had the creation, not that we created mutual funds, but that was available to people, and we made that clearly available through our mutual-fund marketplace. We were the first to do that. You can make choices in no-load funds, hundreds of different funds. And then they moved into ETFs, another easy way for the average investor to get into investing, get huge diversification at a very low cost and participate in America's growth. 

And then people who want even more refined investment advice, either to go to an independent advisor, or Schwab has the same service in a low-cost way of delivering managed accounts and helping people with their investing.

LIZ ANN: Chuck, those were great thoughts on help and advice and guidance. And sometimes in the absence of that, or sometimes even with it, investors can make mistakes. So I have a general question and a specific question. What do you think are the most common mistakes that investors make, whether it's letting their emotions take over from sort of the intellectual side of investing or any other mistakes that you witness? And then I would turn it to you and say, what would you consider the biggest mistake you made as an investor?

CHUCK: I've made plenty of mistakes as an investor. But the biggest thing I see people do in interrupting a long-term career of being an investor is obviously letting our emotions get in the middle of our good decision-making. And if we read the papers too closely, we get into a negative period sometimes and sometimes even a recession, and stock prices go down, and people are pretty gloomy about things, and "Are we ever going to get out of this recession?" and so forth. And yes, every recession I've ever been through, and I've been through many in my career, we always come out. We start investing in new things, government puts money into different areas to give incentives and so forth. And so we roll our way through innovation and so forth. We come out of the recession, and we grow for the next four or five years, and we might have then a period of recession. Things get too hot, as they say in the marketplace, growth gets too high, and we overspend and over-borrow.

And we go into it again. But I find that people, when they get into those really deep places, their inclination is to sell. Go into cash. Then you get hit with inflation costs, all the negative things about having really too much cash.

I mean, it's wonderful to have some when you need it to buy groceries, etc., but to have a lot of cash at the bottom of the market. And so what happens, they wait and wait and wait until about two-thirds of the next recovery period is underway before they ever get back in again. So they're always behind the eight ball.

LIZ ANN: You know, it's so similar and it so reinforces something that I say regularly, and it seems that it's often tied to questions I'll get from the financial press during tumultuous market environments, which is, "OK, Liz Ann, are you telling your investors to get in or get out?" That all in, all out, all into cash, all back in, and my answer is always "Neither get in nor get out is investing."

It's not an investing strategy. It's just gambling, not even on one moment in time but on two moments in time. And investing should be a disciplined process over time. And I certainly learned a lot about the importance of that from working for you and the company for 25 years. I always like when the man, the icon, reinforces something that I say in the course of my regular day-to-day communications with clients, but it is so, so important. Speaking of what I've learned from you, so I don't even know if you know this, Chuck, but I am celebrating my 25th anniversary with Schwab this month. 

CHUCK: Oh, congratulations. 

LIZ ANN: Thank you, and I'm thrilled to say is half the time our company has been in existence. Now, sadly I've been in the business longer, 38 years, so I've seen my share of the market's ups and downs and recessions and expansions as you said and crises along the way. But you do have a few more years under your belt than I do. So maybe specifically share your thoughts on how investors should navigate through the big ones, the big crises, the global financial crisis, the pandemic, and what are some of your lessons learned as an investor running a company, not just the typical correction, ups and downs, but the big whammies that come along and really, really can throw investors for a loop.

CHUCK: Well, I think if you're an investor like I am and you buy individual stocks—I also buy ETFs—but individual stocks, I think you have to really think about the company. Is it a kind of company that will be around after the recession, that will be in the next expansion and the next growth period, which is inevitable. It'll come. Is it something you want to hang on to through the time period ahead of you, and they have good service, good products, good management, good customer service, all those kinds of things? You hang on to that stock because they're rare. Not every company is able to do that. Some do change, some change management, some things we are not happy with, and they can go in a bad direction.

But for the most part, I keep on with all my good stocks. I'm looking at them all the time. I'm measuring all the kinds of things I just mentioned in terms of how they're doing. And if you don't have the time to do that, then it's really easy to pick an index fund, which I have also. 

LIZ ANN: When you look at the current backdrop, whether it's the inflation problem that has certainly improved significantly in the last two years, but it's a battle the Fed clearly is still fighting, where we are in terms of the monetary policy cycle, the backdrop of the economy. There's that old saying, "'It's different this time' are dangerous words." But I personally think it's always different this time. But when you look at the combination of things that have gone on in this cycle, do you think that it resembles any time in the past? Whether it's a '70s-style inflation, the job that the Fed has, do you either reminisce or look back in horror at any past periods that you think have some similarity to the current backdrop?

CHUCK: Well, Liz Ann, I think the current period is completely different than a lot of the paths that I've experienced. But there's a lot of similarities. But we had a great recession caused by COVID. How many times have you ever seen industrial production go down as far as it's gone down, except maybe in the '30s? It went down dramatically. Unemployment was rampant and so forth for a short period of time. So we had a massive amount of government assistance coming into the marketplace. And that sort of flooded the market, the Federal Reserve included, flooded the market with cash and liquidity, etc., etc. 

So we're still living off that experience. That's why I think the market right now is doing pretty well, frankly. But the inflation component of the thing is very similar to any time of the past.

It's sort of identical. When government assistance gets way ahead of production capability, and there's a demand for excess cash vying for the purchase of production output, we always have inflation. But the good news is, to me, has always been that great stocks live through inflation and adjust very nicely because they're able to increase their prices in relationship to the inflation going on. Yes, their employees get more compensation, which they should, and that's wonderful, but they also improve by not only price increases, but some additional productivity. So that's a long-term benefit, frankly, for me in terms of stocks. That is an inflation protection for me, and it always has been for years, just have to be a little bit patient. Doesn't happen immediately. But that's one of the great long-term benefits of investing in stocks as opposed to bonds.

LIZ ANN: I'm glad you mentioned that because there's still a lot of conversation happening around "What's the best inflation hedge?" And there's different asset classes or things that people fill in the blank with. "Well, you know, gold is the ultimate inflation hedge." That really hasn't been the case so much recently. More recently, maybe it's crypto. I'm not sure I am a buyer of that, but you're absolutely right. Thinking really long term and looking over history, equities have actually been one of the better inflation hedges.

All right, I want to end. Hopefully, I'm going to assume this is where you have your optimist's hat on. And when you look ahead, what are you most optimistic about, whether it's the investing landscape or just more broadly, the economy or the world? What lets you sleep at night? It's sort of the opposite of what keeps you up at night question.

CHUCK: I mean, I base my thinking on optimism. You have to be in running a company. But it's based on a lot of facts. Look at the unbelievable train of innovation. I'm always overwhelmed by how we sort of go through periods, we have innovation, it just keeps going. The human brain doesn't stop working. The innovators never seem to go to sleep. And that's part of America, that we're always moving ahead and willing to invest in new ideas. 

We have to have a robust financial system. We need to have incentives for those who create these things and work tirelessly day and night to do that stuff. It's just fine. Reward them, recognize them, honor them, etc. And that's what benefits all of us. Everyone in the country benefits by all these innovations.

I don't care whether you're the lowest on the totem pole or the highest on the totem pole. We all benefit.

LIZ ANN: Hear, hear. Chuck, thank you again for sitting down with me. We really appreciate it, and I know our listeners will, too.

CHUCK: Thanks, Liz Ann. Love being with you. Always have. 

KATHY: Well, it's always great to hear from Chuck, so that was a terrific interview. Now, Liz Ann, looking ahead to next week, what do you think investors should be watching?

LIZ ANN: Well, it's not right out of the blocks, but clearly given that we've got both PPI and CPI, those are going to be in sharp attention. Also at the beginning of the week, we've got the NFIB, National Federation of Independent Business, and there's an overall index reading for that metric. And it really just covers all sorts of metrics around small business, but there's a lot of subcomponent questions. "What's your single biggest problem? What are your hiring intentions? Perspective on inflation?" So there's a lot of meat typically on the bones of that report. So I'd pay close attention to that. We have retail sales. Those have been a little volatile, but clearly as a proxy for the health of the consumer, that's important. Got some housing stuff. The NAHB, National Association of Home Builders, they have a home sentiment index that is a sentiment of builders. And we also get building permits and housing starts, weekly unemployment claims—that always has the potential to move. We've got some regional Fed stuff, industrial production and capacity utilization, and then leading economic indicators. So I assume, Kathy, that the inflation data is also top of mind for you. What I don't know off the top of my head is whether next week is also a big one for Fed speakers. Are there any on the docket as far as you know next week?

KATHY: There are always a lot of Fed speakers on the docket. I think the first week, they have the quiet period before the FOMC meeting, and then they all come out of the gates afterwards, but it's a steady stream. It's a steady stream. So that's going to be important. And as you say, the inflation numbers, obviously very important for the bond market. Also be looking at just what other central banks are doing. We're looking at maybe the Bank of England cutting rates in June, and certainly the European Central Bank. Is the Bank of Japan going to try to manage the decline in the yen, and what does that mean for the market? So I think we might shift a little bit internationally when we're not focused solidly on those inflation numbers.

Thanks for listening. That's it for us this week, but you can always follow us on social media. I'm @KathyJones, that's Kathy with a K on X, formerly known as Twitter, and LinkedIn.

LIZ ANN: And I'm @LizAnnSonders on X and LinkedIn. By the way, those are the only two social media platforms on which I am active. So there have been a bunch of scammers and imposters, particularly on Facebook, saying I have an investing club and I will pick three hot stocks for you. That is not me. I promise you it's not me. Don't try to join it. It's probably a money grab. So I'm only on X and LinkedIn.

As far as the podcast, of course, thanks as always for tuning in, but be sure to follow us for free in your favorite podcast app. And if you've enjoyed this episode or prior episodes, do us a favor, tell a friend about the show or leave us a rating or review on Apple Podcasts. Now, next week on the show, we have lined up a conversation with Professor Scott Galloway, host of the popular Prof G podcast, among other things. So stay with us for that.

KATHY: For important disclosures, see the show notes or visit schwab.com/OnInvesting.