Bogleheads® 2022 Conference – Joel Dickson and Paulo Costa from Vanguard
Chapters
0:07:7 Vanguard's Principles for Investing Success
11:24 The financial health of American households
27:16 Measurement using Vanguard Financial Advice Model
34:15 Pete and Kim's baseline
00:00:00.000 | (audience applauding)
00:00:03.160 | So I am thrilled to introduce my colleague
00:00:10.220 | who in turn will introduce our panel of Vanguard experts.
00:00:15.220 | Susan Jubinski is here from Morningstar.
00:00:18.560 | Like Jeff, she's a Morningstar veteran.
00:00:21.480 | She is even longer tenured than me at Morningstar,
00:00:25.080 | which is really saying something.
00:00:26.660 | She's been at Morningstar for 30 years.
00:00:29.180 | She has had many, many different roles,
00:00:32.560 | managed a big team of people at various points in time,
00:00:35.720 | raised her triplets who just started college this year.
00:00:40.140 | And... (audience applauding)
00:00:44.400 | Well, it's a big, big deal.
00:00:48.940 | But I sometimes call Susan Morningstar's secret weapon,
00:00:54.960 | but the good news is she's not really
00:00:57.000 | a secret weapon anymore.
00:00:58.380 | I think many of you know her in her role
00:01:00.860 | as Director of Content.
00:01:02.580 | She is all over Morningstar.com.
00:01:05.040 | She is writing really helpful articles, interviewing people.
00:01:10.040 | She is just a tremendous resource for me,
00:01:12.740 | and I know for all of you who use Morningstar.com
00:01:15.860 | and are looking for good investment information,
00:01:18.180 | Susan is a go-to person.
00:01:19.780 | So I'm so happy that she agreed to be here
00:01:23.260 | to be one of our moderators.
00:01:24.540 | She's one of the best moderators we have,
00:01:26.780 | and she is going to introduce our Vanguard panel.
00:01:30.260 | Thank you, Susan.
00:01:31.160 | - Well, thank you, Christine.
00:01:34.940 | One of my favorite things I do in my job
00:01:37.820 | is interviewing Christine.
00:01:39.140 | So it's great to be here,
00:01:42.980 | and it's so wonderful to meet so many of you.
00:01:45.660 | As Christine mentions, I've been around a little while,
00:01:48.640 | and I was at Morningstar when the Bogleheads board
00:01:52.340 | started on what I believe might have still been
00:01:54.860 | Morningstar.net.
00:01:56.900 | I'm not sure if we were .com even yet.
00:01:59.580 | So it's great to meet all of you.
00:02:02.380 | I'm very happy to be here,
00:02:05.100 | and especially this year.
00:02:07.260 | We're having quite a year, aren't we?
00:02:09.620 | That 60/40 portfolio is really working out
00:02:11.800 | for everybody this year.
00:02:13.100 | And I think it's at times like this,
00:02:17.540 | even though we're all long-term investors,
00:02:20.180 | you start to wonder, hmm,
00:02:22.980 | how am I defining investment success in a market like this?
00:02:26.700 | And how am I really doing,
00:02:28.460 | and how should I be thinking about my financial situation
00:02:31.900 | when we're entering a period of rising interest rates,
00:02:35.300 | which we haven't seen in a while?
00:02:36.940 | We're dealing with some pretty hot inflation,
00:02:40.300 | which we also haven't seen for a while.
00:02:42.660 | And boy, those interest rates and bond market, whoo.
00:02:47.460 | So I think it's a very interesting time,
00:02:50.460 | even for long-term investors.
00:02:52.380 | So it's great to sort of have Vanguard in the house
00:02:57.820 | to talk with us a little bit
00:02:59.140 | about how they're sort of thinking about
00:03:02.100 | as an organization, investment success,
00:03:05.300 | and maybe what we can sort of learn from that
00:03:08.160 | and take away from that.
00:03:09.420 | Not just in a market like this,
00:03:11.740 | but when things just get so much better
00:03:14.460 | in the market, we hope, soon.
00:03:16.800 | So they're here with us today
00:03:18.440 | to share some research that they've been doing
00:03:22.180 | on sort of personalization and advice
00:03:27.180 | and how to be thinking about financial advice.
00:03:30.940 | And then they're gonna do a presentation,
00:03:33.540 | and then we're gonna pivot over into the Q&A session
00:03:36.380 | for about 20 minutes.
00:03:38.060 | I have a couple of questions related to the market
00:03:40.760 | that I wanna sort of ask.
00:03:42.820 | But then we're gonna turn things over to you
00:03:44.300 | to ask your questions about the market,
00:03:46.300 | their research, Vanguard.
00:03:48.540 | After all, we have Vanguard in the house,
00:03:50.620 | so let's take advantage.
00:03:51.900 | So let me introduce, of course, Joel Dixon,
00:03:55.940 | who is currently Vanguard's Global Head
00:03:58.180 | of Advice Methodology,
00:03:59.780 | and Paula Costa, who is a Behavioral Economist at Vanguard.
00:04:03.980 | And they're both coming to us
00:04:06.500 | from Vanguard's Texas office.
00:04:09.260 | Who would have thought, Texas, Vanguard.
00:04:12.100 | Anyway, thank you both for being here.
00:04:14.420 | It's great to see you, Ann.
00:04:15.980 | - Well, thank you. - Check us out.
00:04:18.380 | - Great being here.
00:04:19.340 | Quickly, how many of you first-time Bogleheads Conference?
00:04:24.840 | - Whoa.
00:04:27.300 | - Uh-oh.
00:04:28.480 | (audience laughing)
00:04:30.180 | Haven't seen my shtick.
00:04:31.880 | (audience laughing)
00:04:33.380 | Okay.
00:04:34.780 | No, that's great.
00:04:35.620 | I'm glad you're here.
00:04:36.860 | This is actually also Paulo's first Bogleheads Conference.
00:04:41.100 | (audience applauding)
00:04:45.100 | Please be nice to him.
00:04:46.680 | You can take other things out on me,
00:04:50.940 | but please be nice to Paulo.
00:04:53.740 | What we did wanna do today is just give a little bit
00:04:56.260 | of kind of what's happening behind the scenes
00:04:59.380 | from an investment standpoint and how we think about,
00:05:03.540 | you know, when we talk about Vanguard's core purpose,
00:05:07.020 | you know, taking a stand for all investors,
00:05:08.900 | treating 'em fairly, giving the best chance
00:05:11.020 | for investment success, what does that mean?
00:05:13.460 | How is that evolving?
00:05:14.780 | What are we thinking about in the,
00:05:16.540 | whether it's the current environment,
00:05:18.100 | whether it is just the situation of what it means
00:05:22.900 | to have investment success?
00:05:25.340 | And, you know, a lot of things, you know,
00:05:28.620 | you folks do it really well with helping each other out
00:05:31.340 | on the boards or, you know, the discussion that was,
00:05:35.220 | that Nick just had on a number of different topics
00:05:38.060 | and so forth about, you know, what really matters
00:05:43.860 | is what matters to you.
00:05:45.620 | And yet the investment industry, when we talk about advice,
00:05:50.980 | when we talk about value from certain things,
00:05:53.860 | it ends up being these rules of thumb,
00:05:55.900 | these generic descriptions, oh, save 12 to 15% a year.
00:06:00.460 | You know, 4% withdrawal rule in retirement.
00:06:04.460 | You're gonna live for 30 years in retirement.
00:06:07.540 | All of these things actually lead to recommendations
00:06:13.140 | that are at best on average, if this will happen,
00:06:18.140 | and actually at worst may not actually figure out
00:06:22.900 | the sort of trade-offs that actually exist
00:06:25.620 | in a full kind of thinking about a plan.
00:06:28.700 | And so one of the things that we've been doing
00:06:30.740 | a lot of lately is how do we talk about
00:06:33.580 | and think about personalization?
00:06:35.420 | That's why this so hopefully catchy title
00:06:38.740 | about putting the you in value.
00:06:41.460 | Because what matters and what's valuable
00:06:43.700 | is dependent on everyone's individual assumptions,
00:06:48.500 | situation, perspective, goals, and so forth.
00:06:52.340 | And then related to that is how it all integrates together.
00:06:56.340 | And so that's what we were gonna talk about.
00:06:57.900 | And I kind of just wanted to quickly talk about,
00:07:01.700 | you know, when the kind of high-level principles of success
00:07:05.580 | that we often talk about, goals, balance, cost, discipline.
00:07:09.420 | Okay, all motherhood apple pie type stuff.
00:07:12.740 | But I think what's important to recognize here
00:07:15.620 | is really only one of these four categories,
00:07:19.540 | the balance one, specifically talks about asset allocation.
00:07:24.100 | You know, that the other things that are so important
00:07:27.300 | are things like what are your goals?
00:07:28.940 | How are they different?
00:07:29.780 | How do they evolve over time?
00:07:31.660 | How much are you spending or saving?
00:07:34.500 | And is that consistent with what you want
00:07:37.100 | for your lifestyle and approach?
00:07:40.020 | Cost, well, not just investment costs,
00:07:43.540 | but taxes and so forth.
00:07:45.140 | Often, I mean, other than say the Boglehead Group,
00:07:48.660 | not often talked about enough.
00:07:51.060 | You know, Eric Balchunas last night did a great job
00:07:53.780 | in sort of saying, hey, look, here's the, you know,
00:07:56.820 | the power of the structure, the mutual ownership structure
00:08:00.660 | and the cost piece of it.
00:08:02.180 | I would just add the other power is the alignment
00:08:05.220 | with the end investors about the focus
00:08:08.340 | being there without the same conflicts of interest
00:08:12.260 | that often exist.
00:08:13.220 | And then discipline is just sticking to that plan.
00:08:15.780 | Well, how do you value all these things?
00:08:17.340 | A lot of what we talk about in providing value
00:08:20.980 | or security or so forth tends to be related
00:08:23.460 | to investment balances.
00:08:25.260 | Well, if you do this today,
00:08:27.020 | you will have $100,000 25 years from now.
00:08:31.580 | You know, your asset allocation
00:08:33.340 | or maybe even your saving rate,
00:08:35.780 | but it doesn't integrate it all together
00:08:37.500 | and think about the trade-offs
00:08:38.740 | and then your personal situation
00:08:40.500 | and what kind of recommendations would be right for you.
00:08:44.700 | So there are a couple of,
00:08:45.620 | there are two different sort of things
00:08:47.780 | that we just wanna talk about before we get to the Q&A.
00:08:49.980 | And you're gonna be seeing a lot more of this from Vanguard
00:08:52.580 | in terms of the future and discussions
00:08:55.380 | of what does it mean to be successful and so forth.
00:08:58.660 | One is focused a lot more on the accumulator area,
00:09:03.380 | but this whole concept of financial wellness,
00:09:06.980 | which is a big issue for especially younger investors,
00:09:11.980 | but not exclusively younger investors.
00:09:14.620 | But now thinking about like
00:09:16.220 | the total balance sheet considerations of clients,
00:09:20.140 | debt versus assets versus how do you save?
00:09:23.700 | How do you create the ability to save longer term?
00:09:28.060 | And then the second we'll talk about
00:09:29.340 | is a little bit of integration
00:09:32.140 | in a quantitative way actually
00:09:34.220 | of financial planning concepts and investment concepts
00:09:39.060 | to put them on the same playing field.
00:09:40.540 | And we'll do that with a case study.
00:09:42.820 | And I just wanna let you know,
00:09:44.060 | I'm gonna be asking for your participation in this.
00:09:46.060 | I'm gonna want you to be bogey heads,
00:09:48.820 | you know, helping out somebody that might be posting.
00:09:52.060 | And so we'll see on that
00:09:53.660 | and then talk about what kind of the trade-offs there
00:09:56.020 | that might be there.
00:09:56.860 | And this concept of personalization and integration
00:10:01.460 | is what you're gonna see more and more of
00:10:04.100 | from Vanguard going forward.
00:10:05.940 | I will say there are two kind of research papers
00:10:08.380 | behind these two topics.
00:10:11.220 | I am a co-author on none of them.
00:10:13.300 | So I am the stuffed suit.
00:10:15.900 | Paulo is a co-author on both of them.
00:10:19.140 | So, but I just wanted to sort of set that up
00:10:22.500 | and he'll talk about financial wellness.
00:10:24.740 | I'll come back and talk a little bit more
00:10:26.260 | about the value in personalization.
00:10:29.140 | All right.
00:10:29.980 | - Thank you, Joel.
00:10:33.860 | So, this is a preview of our new paper,
00:10:38.860 | the Vanguard's Guide to Financial Wellness.
00:10:41.380 | It's not out yet.
00:10:42.660 | So this is a preview for a special audience.
00:10:47.260 | But the idea of this paper is what,
00:10:50.900 | given your personal situation,
00:10:53.420 | what are the next best actions that you should take
00:10:57.220 | to achieve your financial goals?
00:10:59.820 | So the idea here, yesterday during dinner,
00:11:03.420 | Eric Baltunis showed that graph
00:11:06.700 | that the bottom 50% in wealth of the population
00:11:11.060 | only have 1% of stock market wealth.
00:11:14.940 | And that's a pretty striking number.
00:11:16.940 | So let's look at the financial health
00:11:21.860 | of the American household.
00:11:23.540 | So first of all, 40% of families do not save money.
00:11:28.540 | That's a pretty sobering number.
00:11:31.660 | 36% of households cannot cover an emergency of $400.
00:11:36.660 | And 45% of these families carry credit card debt.
00:11:43.580 | And the average credit card debt is actually over $6,000.
00:11:47.700 | And this is the debt that is over,
00:11:49.500 | in terms of interest, 20% a year.
00:11:51.820 | So you put all these facts together.
00:11:53.620 | It's like, in our mission,
00:11:55.300 | we want to give investors
00:11:56.540 | the best chance for investment success.
00:11:59.580 | How can one have the best chance
00:12:02.060 | for investment success with this?
00:12:04.620 | So how can we help them?
00:12:06.060 | So that's the genesis of this paper,
00:12:08.460 | is to try to give everyone
00:12:11.100 | the best chance for investment success.
00:12:13.220 | So just, financial wellness is a topic
00:12:16.380 | that people talk a lot about.
00:12:17.700 | I just wanna be precise in the way that we define it.
00:12:20.380 | So here we say, is the objective financial situation
00:12:23.780 | of a person, of a household,
00:12:25.940 | is the ability to meet current
00:12:27.660 | and near-term financial obligation,
00:12:29.580 | and be on track to meet future goals.
00:12:34.060 | And we divide it in three steps.
00:12:36.700 | And the idea here is,
00:12:38.500 | step one is take control of your finances.
00:12:41.900 | We hear people saying a lot, money controls me.
00:12:46.140 | And how do we fight that back?
00:12:48.500 | So the first idea, well, how do you take control back
00:12:51.500 | from your finances?
00:12:52.500 | So, and then the second one, once you have that saddle,
00:12:56.900 | how do you prepare for emergencies?
00:12:59.380 | And later on, when you have that saddle,
00:13:02.100 | making progress towards your goals.
00:13:04.500 | So, take control of your finances.
00:13:08.860 | And I'm gonna start with a very controversial topic.
00:13:12.220 | Create a budget that works for you.
00:13:15.860 | Some people love budgeting,
00:13:18.140 | and some people hate budgeting.
00:13:21.380 | And the point here is, actually,
00:13:23.100 | I think that most people actually hate
00:13:24.700 | tracking their expenses,
00:13:26.500 | because that can get pretty boring pretty quickly.
00:13:29.420 | But the, actually, in the paper,
00:13:30.940 | we create two, like a short questionnaire,
00:13:34.340 | like two questions, just for people to find out
00:13:37.180 | what's the budgeting style they prefer best.
00:13:40.340 | But the idea here, basically,
00:13:41.740 | if you know how much money's coming in
00:13:43.460 | and where your money's going,
00:13:45.140 | that's just a really simple, powerful step.
00:13:48.220 | And here, just be mindful, these steps are not in order.
00:13:50.980 | You know, any step, any positive step that you take,
00:13:54.580 | you know, will contribute to your financial goals.
00:13:57.460 | The second one is pay at least a minimum on all your debt.
00:14:01.500 | And the reason is, basically,
00:14:03.540 | you don't want to go into default,
00:14:05.460 | because that's gonna take a hit in your credit score,
00:14:08.300 | your debt will become more expensive,
00:14:10.020 | and in the future, you may not even be able to access that.
00:14:13.540 | So, make sure you pay all of that.
00:14:15.820 | So, make, maximize the employer match.
00:14:19.820 | So, the idea there is, I just found this statistic
00:14:25.060 | that, for me, was surprising.
00:14:26.740 | 31% of people that have access to a 401(k) with a match
00:14:31.260 | actually do not contribute up to the match.
00:14:34.660 | And that's, you know, tens of billions of dollars
00:14:37.580 | that are left on the table every year.
00:14:40.740 | So, that's something very straightforward
00:14:43.020 | that, you know, can improve chances of investment success.
00:14:46.940 | And then, I would be remiss if I didn't say
00:14:50.060 | pay down high-interest debt.
00:14:51.740 | And the point here, one thing that I had forgotten,
00:14:55.420 | having lived in Massachusetts for a long time,
00:14:58.780 | when we moved down to Texas,
00:15:00.540 | what we saw is, you know,
00:15:03.700 | the payday loan shops are everywhere.
00:15:06.620 | And those shops, you know, on a good day,
00:15:08.900 | you come out with a loan of an annualized rate of 300%.
00:15:13.140 | On a bad day, 1,000%.
00:15:15.540 | So, it's just absolutely absurd.
00:15:18.180 | It's really expensive.
00:15:19.660 | And also, credit card debt
00:15:21.780 | that doesn't have such a high interest rate,
00:15:23.620 | but compared to payday loans,
00:15:25.060 | we're still between 15% and 20%,
00:15:28.860 | but sometimes even higher,
00:15:30.420 | depending on your situation, your credit score.
00:15:34.940 | So, this is what we call taking control of your finances.
00:15:38.060 | So, this lays the groundwork.
00:15:42.260 | But then, once you start to accumulate assets now,
00:15:46.020 | we think of preparing for the unexpected.
00:15:48.420 | And then, obviously, we're talking about emergency savings.
00:15:51.820 | And at Vanguard, we actually think
00:15:53.020 | about emergency savings in two steps.
00:15:55.580 | So, first, set up emergency savings
00:15:57.900 | for unexpected expenses.
00:15:59.900 | So, we're talking about those, you know,
00:16:02.540 | you get a flat tire or, you know, your heat stop working.
00:16:06.620 | So, we're talking about those expenses
00:16:10.300 | that you should keep around $2,000
00:16:12.780 | or half of your monthly expense,
00:16:15.580 | and usually in a checking on a high-yield savings account.
00:16:19.860 | Then, building up a reserve of three to six months
00:16:23.260 | and that, you know, for potential job loss.
00:16:26.260 | And the idea there is that because job loss
00:16:29.180 | is something that doesn't happen as frequently,
00:16:32.220 | you can keep that in an accessible investment account.
00:16:36.140 | For example, you can put that in a taxable brokerage account.
00:16:39.180 | You can even put some of that in a Roth IRA
00:16:41.740 | because their contributions can be withdrawn tax-free.
00:16:45.020 | So, I still remember not very long ago
00:16:49.860 | when I first had my emergency savings all filled up.
00:16:55.260 | And I remember just looking at that amount on my screen
00:16:59.500 | and then, you know, being stressful
00:17:01.740 | because of, you know, financial things.
00:17:03.220 | But just looking at that number and just staring at it,
00:17:05.900 | the amount of peace of mind that that brought to me.
00:17:09.340 | And it's just, I think, one thing in personal finance
00:17:12.220 | that we don't talk as much about,
00:17:15.060 | and it's extremely important,
00:17:16.180 | is, you know, how powerful cash can be.
00:17:19.300 | You know, we talk about asset allocation.
00:17:20.660 | We talk about stocks and bonds.
00:17:22.940 | But, you know, cash, you know,
00:17:24.620 | it also brings a lot of peace of mind to folks.
00:17:27.300 | And we don't -- we shouldn't forget about that.
00:17:31.060 | For, you know, for the everyday investor,
00:17:32.780 | that's extremely important.
00:17:34.660 | And then, evaluate your insurance needs.
00:17:37.380 | And here, obviously, health insurance.
00:17:39.500 | But for younger folks, disability insurance.
00:17:42.420 | Because a lot of your capital is actually in your human capital.
00:17:45.580 | It's in the salary that you're going to earn
00:17:47.660 | for the rest of your life.
00:17:50.100 | So, that shouldn't be forgotten.
00:17:51.980 | And then, get your legal documents
00:17:53.460 | in order to ensure that your wishes are realized.
00:17:56.380 | Here, we are talking about wills.
00:17:57.940 | We are talking about power of attorney.
00:18:00.020 | We -- so, these are conversations
00:18:04.180 | that are really tough to have.
00:18:06.300 | But it's best to have them while you're here.
00:18:08.460 | Imagine how tough it could be for your loved ones
00:18:10.540 | if you're not here to have those conversations.
00:18:13.020 | And also, guardianships for people who have kids and pets.
00:18:17.300 | So, those are things that they may not necessarily have,
00:18:21.020 | you know, a dollar sign next to it.
00:18:23.340 | But they're extremely important as well.
00:18:26.420 | And then, once you have prepared for the unexpected,
00:18:29.740 | now making progress towards goals.
00:18:31.420 | So, now, you know, the bread and butter.
00:18:33.940 | Increase savings and make the most
00:18:35.820 | of your tax advantage accounts.
00:18:37.420 | So, in step one, you already maximize your employer match.
00:18:41.860 | Now, you know, retirement.
00:18:44.540 | If you have access to a Roth IRA, contribute to a Roth IRA.
00:18:48.820 | We saw last time Nick doesn't like
00:18:50.300 | when you maximize your 401(k), you know.
00:18:52.620 | But if you want to maximize your 401(k), you're fine.
00:18:55.180 | You can do it.
00:18:57.740 | So, if you want to use your HSAs for retirement savings,
00:19:03.460 | you know, the triple tax advantage can go a long way.
00:19:06.340 | Obviously, HSAs for health, 529 for education.
00:19:10.820 | And then, you get to flex with taxable accounts.
00:19:13.660 | And I think that was Nick's point.
00:19:15.660 | Taxable accounts, you know, taxable brokerage accounts,
00:19:18.260 | they give you the flexibility.
00:19:19.580 | If you want to save for a house, if you want to save for vacation,
00:19:23.260 | if you want to do early retirement, not that I'm talking
00:19:26.180 | about thinking about early retirement, Joe.
00:19:29.220 | >> I'm thinking about my early retirement.
00:19:33.660 | >> But then, also, this is a time to consider paying
00:19:35.980 | down low interest debt.
00:19:37.460 | For example, if you were one of the lucky ones
00:19:40.100 | that got a mortgage, you know, under 4%,
00:19:43.580 | there used to be something realistic, you know,
00:19:46.420 | 12 months ago, but not anymore.
00:19:48.660 | Car loans, student loans, and also, one of my favorite parts
00:19:55.020 | of this paper is set a strategy for your charitable giving.
00:19:59.020 | You know, I think there is much good to do in this world.
00:20:02.260 | And if we have an opportunity to do it, why not?
00:20:06.980 | And then, the benefits of all of this.
00:20:12.620 | Obviously, we talked about, we talk a lot about dollar signs.
00:20:16.820 | But here, this statistic shocked me.
00:20:19.660 | Sixty-five percent of Americans say money is a significant
00:20:23.580 | source of stress.
00:20:25.460 | And if you look at folks under age of 40,
00:20:28.420 | that number is way up 80%.
00:20:31.580 | The economy is taking 88%.
00:20:33.740 | So, people are extremely stressed about money.
00:20:36.220 | So, where can financial wellness, like,
00:20:39.300 | help here and alleviate some of these issues?
00:20:42.740 | So, a lot of research showing that it alleviates, you know,
00:20:45.540 | mental health concerns.
00:20:47.300 | It improves sleep.
00:20:49.700 | Relationships at home.
00:20:51.620 | I mean, how many marriages end because of financial concerns?
00:20:57.100 | Self-esteem, productivity, attendance at work.
00:21:00.780 | So, these are things that, you know, we talk so much
00:21:05.220 | about finance, and we, you know, such a, in that way,
00:21:08.300 | a privileged situation in which, you know, we have friends
00:21:11.300 | and colleagues that know so much about this.
00:21:13.580 | But there are a lot of people out there
00:21:15.300 | who don't have this source of knowledge and information
00:21:19.020 | and willingness, you know, to help each other.
00:21:22.020 | So, you start seeing this more and more from Vanguard.
00:21:26.340 | For example, this is a new tab in our 401(k) page.
00:21:32.860 | If you see in the middle, welcome back, Paulo.
00:21:34.740 | This may or may not be a screenshot of my own 401(k) page,
00:21:39.140 | but you will see more and more of this.
00:21:43.140 | It's already live, and it's based
00:21:45.380 | on the findings of the paper.
00:21:47.380 | But, you know, just guidance,
00:21:50.180 | financial wellness may not be enough for some people,
00:21:53.820 | and that's where advice can come in.
00:21:56.500 | So, I'll hand it back to Joel to talk about the value
00:21:59.580 | of personalized advice.
00:22:01.980 | >> Thanks, Paulo.
00:22:02.820 | I actually just wanted to kind of build
00:22:05.620 | on a couple of things there.
00:22:07.740 | When we talk about the benefits of investing,
00:22:11.340 | or in the case of financial wellness,
00:22:15.100 | what do you think defines success?
00:22:18.620 | I'd be just interested in some thoughts.
00:22:19.900 | What is success?
00:22:21.700 | I'm sorry, having enough?
00:22:25.580 | Okay.
00:22:26.980 | Being happy.
00:22:31.660 | Okay. And that's where I want to go.
00:22:35.300 | The emotional piece, the outcomes of peace of mind
00:22:40.060 | or happy or feeling secure or so forth.
00:22:44.020 | And, you know, the messages that we've had,
00:22:48.260 | and I would even say vanguard over the years, hey,
00:22:51.260 | save for the long term, save for retirement,
00:22:53.580 | save for retirement, save for retirement.
00:22:55.860 | Yeah, absolutely, you should be doing
00:22:56.900 | that as a 25-year-old, 30, 35-year-old.
00:22:59.940 | But it also doesn't resonate if they're worried about, shoot,
00:23:04.300 | I've got this credit card debt that is just sitting on top
00:23:07.500 | of me that's not allowing me to do anything.
00:23:09.620 | I have different goals and different sort
00:23:12.540 | of emotional reactions with money
00:23:15.980 | over the course of my lifetime.
00:23:17.540 | And that's why thinking
00:23:18.820 | of a more holistic total view is coming out of this.
00:23:22.820 | So this part is that we're going to talk about is how do you think
00:23:27.300 | about putting all of this together and kind
00:23:29.140 | of making tradeoffs and taking an integrated personalized look?
00:23:33.260 | And by the way, this could be called the value
00:23:35.140 | of personalized advice, which it is in the white paper
00:23:38.180 | that we just released on this within the last month or so.
00:23:43.220 | But it could also just be called the value
00:23:46.220 | of personalized recommendations.
00:23:48.620 | It's not advice per se, but about how do we surface
00:23:53.500 | for each individual situation the best options
00:23:57.620 | that can generate success and therefore hopefully peace
00:24:02.180 | of mind or more confidence in the approach.
00:24:04.860 | So let me talk a little bit about that, which is when we think
00:24:08.940 | about personalization, it's elements
00:24:13.140 | that go beyond investment performance.
00:24:15.780 | So much of what we talk about is investment performance.
00:24:19.420 | And I'll be a little bit provocative.
00:24:22.500 | I'm sure get to this in the Q and A. You know what?
00:24:26.820 | It is really, really fun to talk about investment things.
00:24:30.020 | What's the market going to do?
00:24:31.660 | Should I be in the three-fund portfolio,
00:24:33.580 | the permanent portfolio, market cap portfolio?
00:24:36.620 | Those are a lot of fun discussions.
00:24:39.620 | At the end of the day, if you don't have how much is being
00:24:44.060 | saved or what your kind of standard
00:24:46.260 | of living expectation might be or so forth, honestly,
00:24:49.380 | all those things are kind of just at the margin.
00:24:51.260 | They don't really matter that much.
00:24:53.180 | Yeah, you can be successful with a three-fund portfolio.
00:24:55.340 | You can be successful with a market cap portfolio and so forth.
00:24:59.860 | But a lot of these things that we end up talking
00:25:03.180 | about that are much harder to quantify
00:25:05.860 | can make as much or more of a difference
00:25:08.220 | in terms of outcomes and success.
00:25:10.340 | So integrating those kind of concepts of financial planning,
00:25:13.500 | whether it be savings strategies, drawdowns,
00:25:16.580 | approaches, tax pieces into that,
00:25:22.500 | but at your situation and for your perspective.
00:25:25.620 | And then looking at the forward and going back
00:25:29.180 | to Vanguard's principles for investment success,
00:25:31.620 | I can summarize that in one phrase,
00:25:36.340 | which is you're going to increase your success
00:25:38.820 | by first controlling what is under your control
00:25:42.340 | and managing those things that aren't under your control.
00:25:46.340 | So what's under your control?
00:25:48.220 | Your savings, your spending.
00:25:51.620 | You know your tax situation.
00:25:53.500 | You know your risks.
00:25:54.460 | You know your goals.
00:25:57.460 | What's not under your control?
00:25:58.740 | Even though CNBC would like you to think it is,
00:26:03.500 | what's the market going to be doing?
00:26:06.340 | I would extend that to how long is your planning horizon?
00:26:12.140 | We make these assumptions.
00:26:13.300 | This was something I said with Christine on the long view
00:26:16.620 | a couple of years back.
00:26:18.340 | And I said-- and actually, Nick mentioned it a little bit
00:26:21.260 | earlier about over-accumulation.
00:26:25.220 | You know, that's a result of the assumptions
00:26:28.980 | that people often make about how you define success
00:26:31.860 | in retirement, which is most assumptions
00:26:35.700 | about retirement sufficiency assume you retire at 65
00:26:40.340 | and you live with certainty to age 95.
00:26:45.340 | So success is defined based on an absolute certainty
00:26:49.020 | that you are going to live to age 95.
00:26:52.020 | You may.
00:26:54.460 | You probably will not.
00:26:56.260 | And now all of a sudden, you think, OK, now
00:26:58.300 | what does success mean in that standpoint?
00:27:02.020 | So that's kind of the things, taking
00:27:03.700 | the uncertainty of longevity into the consideration
00:27:07.740 | when developing recommendations into the situation.
00:27:13.940 | So one of the things that we did with this
00:27:17.420 | is we have actually created a new--
00:27:20.260 | call it a model, but it basically
00:27:22.220 | quantifies all these things and tries to integrate them.
00:27:24.700 | It's called the Vanguard Financial Advice
00:27:26.620 | Model, which is really about four components.
00:27:29.340 | It's a very detailed cash flow simulation after tax.
00:27:33.260 | We basically coded the US tax code
00:27:38.580 | and then running cash flow simulations over expected life
00:27:43.500 | with the uncertainty of we have no idea what
00:27:45.620 | the market is going to do.
00:27:47.340 | And so we test a whole bunch of different scenarios
00:27:49.900 | with the uncertainty of life expectancy.
00:27:52.220 | You may die at 40.
00:27:53.620 | You'll probably live to be 85 or older.
00:27:56.940 | You may live to be 105, which actually
00:28:00.180 | creates a different type of risk from all of those models
00:28:02.820 | where it assumes you live to 95.
00:28:05.380 | And then preferences.
00:28:07.220 | And this is about focusing on the entire range of outcomes
00:28:10.300 | and mitigating those things that could be bad outcomes.
00:28:12.980 | Because let's face it, not meeting
00:28:15.660 | your hopes or your goals or your expectations
00:28:18.300 | from a spending standpoint is a lot worse than exceeding those
00:28:23.780 | in terms of how you feel.
00:28:25.700 | You had more than enough in that latter case.
00:28:28.420 | You have not enough in the previous case.
00:28:31.780 | Not enough is a heck of a lot worse
00:28:34.740 | than having more than enough.
00:28:36.820 | And so how do you account for that?
00:28:39.180 | And this is this whole preference thing.
00:28:40.860 | For those that are more in the economic statistical
00:28:45.060 | standpoint, we can actually calibrate financial planning,
00:28:50.740 | things like savings and spending,
00:28:52.340 | right alongside of investment returns
00:28:57.780 | by doing it in this way through things
00:28:59.580 | we call a utility function and modeling of all that that puts
00:29:04.180 | them on the same playing field.
00:29:05.420 | So that's what we're doing here.
00:29:06.760 | This is where I need your help.
00:29:08.260 | I want you to meet Pete and Kim.
00:29:12.860 | Pete is 59 years old.
00:29:14.740 | Kim is 64 years old.
00:29:17.620 | If you do the math--
00:29:18.460 | I won't have you do the math on your own--
00:29:20.420 | they have about $1.2 million in assets.
00:29:24.500 | They are currently spending $80,000 a year.
00:29:29.060 | Pete has $110,000 annual salary.
00:29:33.380 | He would like to retire next year, early retirement,
00:29:38.420 | join his wife.
00:29:40.120 | They have other things they want to do besides working.
00:29:43.820 | And you can see their current allocation
00:29:46.820 | in terms of an asset allocation.
00:29:49.060 | 60% stocks, all US stocks, 25% bond, 15% cash.
00:29:56.060 | They have some Social Security coming
00:29:57.820 | at some point in the future.
00:29:59.500 | But my question to you is, if you see this sort of profile,
00:30:06.660 | what would be the--
00:30:07.740 | and I'll just do one quick math for you.
00:30:11.500 | Their spending as a percent of their overall wealth is 6.7%.
00:30:20.820 | OK?
00:30:22.780 | So what's the-- yes, Rick?
00:30:27.180 | She will get Social Security--
00:30:34.300 | well, that's a question, is how you're
00:30:36.500 | choosing Social Security.
00:30:37.860 | She has not yet.
00:30:40.940 | That will be one of the integrated recommendations
00:30:45.340 | that comes out of this.
00:30:46.680 | But let's just say--
00:30:48.460 | because what Pete wants to do, Pete's 59,
00:30:50.660 | and he wants to retire next year.
00:30:53.260 | Christine is sitting here going, there is no way.
00:30:58.220 | Right?
00:30:59.020 | How many of you agree with that?
00:31:01.900 | No way.
00:31:04.460 | Keep working.
00:31:05.220 | Somebody's-- yeah, keep working.
00:31:06.580 | Is that what it is?
00:31:07.700 | Keep working.
00:31:08.220 | The current-- sorry.
00:31:14.980 | The current annual benefit is that Social Security
00:31:17.900 | that Kim has that she has not claimed yet.
00:31:23.260 | No, he cannot claim Social Security at 60.
00:31:25.540 | Not saying that he is going to.
00:31:29.500 | Because she has not claimed either as of right now.
00:31:34.500 | There is no Social Security currently being claimed
00:31:37.300 | and therefore an income.
00:31:39.060 | Kim could certainly claim Social Security if she wanted to,
00:31:42.500 | but she has not.
00:31:43.540 | All right, here's the deal.
00:31:55.060 | Let me put it in this terms instead.
00:31:58.020 | If Pete retires next year, they're
00:31:59.820 | going to need to withdraw $80,000 from their investment
00:32:02.900 | portfolio to meet their spending.
00:32:05.260 | OK, with that--
00:32:07.620 | Die soon.
00:32:09.020 | What?
00:32:09.520 | Die soon.
00:32:10.100 | There's another strategy.
00:32:11.060 | All right, the point--
00:32:16.420 | absolutely.
00:32:19.220 | We basically are doing things that are--
00:32:22.060 | like, hey, look, you can't do this.
00:32:24.660 | You need to eat your vegetables and work longer
00:32:28.580 | or think about this differently.
00:32:31.580 | Maybe even go back to work or part-time job
00:32:34.700 | or whatever it might be.
00:32:36.940 | But that's not their goals.
00:32:37.980 | Can we meet their goals?
00:32:43.940 | And are there things that we can do to say, hey, look,
00:32:47.700 | we may surface some trade-offs for you,
00:32:49.920 | but are there some different things
00:32:51.420 | that we can do to meet your goal, Pete's goal of wanting
00:32:54.740 | to retire next year?
00:32:56.860 | So with that as a little bit of--
00:32:59.260 | yeah?
00:32:59.760 | [INAUDIBLE]
00:33:07.180 | Yeah.
00:33:08.020 | It might.
00:33:08.540 | Might have--
00:33:09.040 | [INAUDIBLE]
00:33:11.380 | What's that?
00:33:11.880 | [INAUDIBLE]
00:33:13.580 | If only they had somebody giving them advice, right?
00:33:15.740 | Exactly.
00:33:16.260 | Or surfacing recommendations for what they could do.
00:33:18.980 | So this is not meant to be a sales pitch for advice,
00:33:23.100 | but about thinking about this in a more holistic perspective
00:33:27.080 | of what the trade-offs are around both spending, savings,
00:33:32.780 | and so forth.
00:33:33.580 | So let me just show you what this
00:33:35.220 | looks like in their current strategy,
00:33:36.760 | because any value is not just relative
00:33:39.660 | to the current situation that they have,
00:33:43.500 | their current characteristics, but about what
00:33:46.700 | their current investment strategy is, too.
00:33:49.820 | Too often, we do value calculations as if, well,
00:33:53.420 | if you do this, if you do asset location,
00:33:56.780 | you can get 50 basis points.
00:33:59.460 | Well, not if you're currently doing asset location.
00:34:02.620 | Not if you're currently equally weighted in your asset
00:34:06.260 | allocation across your accounts.
00:34:07.620 | You're not going to get 50 basis points.
00:34:09.300 | So how do you think about this relative to the current
00:34:12.980 | strategy that they are coming to you with?
00:34:15.540 | And what this shows is, on the left-hand side,
00:34:17.700 | the likelihood of them being able to spend $80,000 a year,
00:34:21.100 | which is what they currently say--
00:34:22.740 | basically, there's a 20% chance that each year,
00:34:26.380 | on a real inflation-adjusted basis,
00:34:28.260 | they'd be able to spend $80,000 a year
00:34:30.180 | if Pete retires next year.
00:34:31.980 | And so pretty much anything to the left
00:34:34.020 | reflects risk of shortfall relative to their goal.
00:34:39.580 | The right-hand side, it says likelihood of final bequest
00:34:43.580 | amount, how much is left when they die.
00:34:46.260 | But think of this as actually financial flexibility
00:34:49.100 | in retirement.
00:34:50.260 | Things that are closer to zero, there's
00:34:52.740 | not a lot there if something happens.
00:34:56.660 | And the reason that they get lucky, maybe,
00:34:58.980 | in certain instances, at the far end of the tail,
00:35:03.100 | is because they died early.
00:35:07.020 | Because this-- or they had really, really
00:35:09.860 | outstanding returns in some of the return scenario.
00:35:13.380 | This is what you get with a longevity standpoint.
00:35:16.740 | Yeah, there's a chance they'll be OK.
00:35:19.060 | But pretty much, they're not going to be
00:35:20.740 | able to spend what they want.
00:35:21.980 | And they're going to have no flexibility
00:35:23.820 | in their financial situation in retirement.
00:35:25.660 | So with that, let me just sort of--
00:35:28.220 | I'm going to actually skip over that real quick.
00:35:30.260 | This is, with recommendations, in thinking about it
00:35:33.820 | from an integrated standpoint, now that 20% chance
00:35:38.540 | of having that lifestyle, if you will,
00:35:40.540 | is defined by the amount of spending.
00:35:42.600 | We would say, hey, you know, you could actually
00:35:44.540 | have a bit of a more of a 70% chance of having this lifestyle
00:35:49.500 | by cutting your spending by a bit.
00:35:54.860 | And also, with different approaches,
00:35:57.900 | this will shave or switch your distribution
00:36:01.860 | to the right on expected amount at the time that you die.
00:36:06.220 | Now, how did we get there?
00:36:08.740 | And again, this will be different
00:36:11.920 | for every different client, for every different approach,
00:36:14.680 | and so forth.
00:36:17.120 | So I'm going to focus for a moment on the right-hand side.
00:36:19.760 | The right-hand side is in kind of investment return space.
00:36:23.640 | So based on what you're doing today,
00:36:27.880 | if you look at the far right-hand side,
00:36:30.200 | in this particular situation, we've
00:36:32.080 | calculated 218 basis points.
00:36:34.480 | You would have to do with your investments
00:36:37.200 | 218 basis points, 2.18% per year,
00:36:42.160 | every year better on your investment returns
00:36:45.160 | to get the same outcome as if you
00:36:48.740 | were to follow these suggested recommendations
00:36:52.240 | for your portfolio.
00:36:53.360 | And those recommendations being defer social security,
00:36:59.320 | fix cash drag and home bias in your portfolio,
00:37:03.680 | reduce annual spending, and use tax-smart investing.
00:37:08.640 | So there's a whole bunch of things that kind of work
00:37:11.600 | together.
00:37:12.100 | All right, so here's the question.
00:37:18.800 | I can predict where Rick is going
00:37:20.120 | to go with these questions.
00:37:22.280 | Is this one-time advice, or is this ongoing?
00:37:25.400 | Could you do this as one-time advice?
00:37:27.880 | Absolutely.
00:37:29.720 | Absolutely.
00:37:31.600 | Will you, I should say, outside of this room,
00:37:36.560 | will you actually do it as one-time advice?
00:37:41.520 | And that's the thing of to be able to realize
00:37:45.320 | that there has to be that discipline part of sticking
00:37:48.880 | to the long-term investment success principle,
00:37:53.760 | and you actually have to execute on that to capture that value.
00:37:58.640 | And so two things here I just wanted to highlight.
00:38:01.640 | And again, I knew Rick would be in the audience,
00:38:03.800 | so I do want to say, you're accounting for the extra fees
00:38:08.200 | or savings in fees.
00:38:10.520 | You cannot look at value without sort of saying, hey,
00:38:13.840 | there's a difference in fees.
00:38:15.240 | In this case, it was a positive 20 basis point difference
00:38:17.520 | in fees, because they were coming from some high-cost
00:38:19.160 | mutual funds.
00:38:20.040 | These are actually some case studies
00:38:24.580 | we've actually taken from some real-type situations.
00:38:27.640 | But then there's also the importance of interaction
00:38:29.520 | effects.
00:38:30.020 | And I can't emphasize this enough.
00:38:33.680 | This is where we do all of these recommendations one-off.
00:38:37.920 | We talk about asset location.
00:38:39.440 | Then we talk about tax-loss harvesting.
00:38:41.280 | Then we talk about international investing.
00:38:44.920 | And we do all of the analysis one at a time.
00:38:47.200 | And then we say, well, in aggregate, it kind of adds up.
00:38:50.920 | Sometimes it doesn't add up.
00:38:52.800 | Take the case of asset location.
00:38:57.400 | We can debate what Nick said about asset location later.
00:39:00.440 | That's not germane for the point.
00:39:03.000 | Asset location and rebalancing.
00:39:07.800 | If you asset locate the sort of conventional wisdom way,
00:39:11.600 | stocks in a taxable account, bonds in a tax-advantaged
00:39:15.200 | account, and you were rebalancing,
00:39:17.720 | but stocks tend to go up over time more so than bonds,
00:39:21.240 | you're going to be realizing capital gains, all else equal,
00:39:26.400 | in the taxable account.
00:39:28.600 | So the sum of-- if you say, hell,
00:39:31.160 | we're rebalancing adds 20 basis points.
00:39:33.480 | And asset location adds 30 basis points.
00:39:37.520 | Therefore, you get about 50 basis points.
00:39:40.280 | No.
00:39:41.200 | Because you might get 10.
00:39:43.400 | Yeah, asset location will add some value.
00:39:45.920 | But it's also not that full value.
00:39:48.040 | Because once you account for the extra tax of the rebalancing
00:39:50.760 | in the taxable account, it's not as strong.
00:39:54.720 | On the other hand, something like tax loss harvesting
00:39:57.320 | and asset location can actually build on each other.
00:40:01.760 | Because now if you have more of the volatile asset
00:40:04.640 | in the taxable account, where if there
00:40:06.600 | is value in tax loss harvesting for you,
00:40:09.040 | you can actually now do more tax loss harvesting.
00:40:11.880 | And again, if you can realize that value,
00:40:14.920 | it can actually be even higher than the sum of the two.
00:40:18.560 | So that's what this interaction or multi-strategy effects
00:40:21.440 | tries to capture, is this integrated approach
00:40:24.280 | to doing it.
00:40:26.900 | So I'm going to leave it there.
00:40:28.200 | We're already kind of running a little short on time.
00:40:30.840 | I want to make sure we get to some Q&A.
00:40:32.600 | But what are the key takeaways here?
00:40:34.560 | This is all meant to try to get to having Vanguard help clients
00:40:39.360 | make high-value life decisions.
00:40:43.200 | What is your goal and your expectation?
00:40:45.160 | Pete wanted to retire at 59.
00:40:47.360 | It's really easy to say, keep working longer.
00:40:50.760 | But that's not his goal.
00:40:52.400 | That's not what's going to get him peace of mind.
00:40:55.020 | Are there things that we can do to think
00:40:56.720 | about that problem maybe a little bit differently?
00:40:59.040 | Secondly, investment performance is definitely important.
00:41:01.440 | Don't get me wrong.
00:41:02.280 | I would never say otherwise.
00:41:04.040 | But financial planning elements and a total plan
00:41:09.600 | can provide even better investor outcomes
00:41:11.540 | and often can make a bigger difference in the return space
00:41:16.120 | or so forth than investment performance itself.
00:41:19.480 | And then third is this all depends on the situation
00:41:22.920 | that you're in.
00:41:23.560 | That previous example with Pete and Kim, there was no value.
00:41:28.080 | Matter of fact, there was negative value
00:41:29.760 | for Roth conversion proposals or strategies.
00:41:35.920 | So somebody might go out and say, oh, well,
00:41:37.800 | you want a Roth convert because you diversify your tax rate.
00:41:41.000 | And you might help protect against RMDs once post-72
00:41:45.480 | hitting you from a tax torpedo standpoint.
00:41:47.760 | Nope.
00:41:48.280 | In the situation that we were looking at, negative value.
00:41:51.360 | Bad recommendation.
00:41:53.760 | So it all depends on the situation
00:41:56.720 | that you're in and the current strategy that is being employed.
00:42:00.320 | With that, Susan, turn it over to you.
00:42:03.120 | And thank you.
00:42:05.440 | And actually, I'd like to turn it over to you.
00:42:07.320 | I have a list of questions, but we have eight minutes left.
00:42:09.920 | So line them up.
00:42:11.480 | Come on up.
00:42:12.240 | Ask your questions.
00:42:13.040 | If for some reason you don't have any, I have plenty.
00:42:15.280 | But I have a feeling you do have some questions.
00:42:18.640 | Well, this is just more of a comment.
00:42:20.880 | That was a very good presentation.
00:42:22.320 | Thank you.
00:42:22.800 | But I've been thinking about the customer service
00:42:25.360 | problem at Vanguard.
00:42:28.760 | I think I have a solution.
00:42:30.920 | Either you give us a dedicated phone line for bogel heads,
00:42:35.280 | or when you speak to that nice voice recognition lady,
00:42:39.720 | say, I am a bogel head, and it shoots you right off
00:42:42.440 | just when you're--
00:42:43.400 | [APPLAUSE]
00:42:46.760 | So let me put it this way.
00:42:54.640 | I'll take that back.
00:42:57.960 | I would say, though, we're not immune to seeing and hearing
00:43:04.560 | about the customer service issues.
00:43:07.160 | I would say the bogel heads actually
00:43:09.240 | do have a very powerful voice.
00:43:11.520 | The website, the bogelheads.org site,
00:43:17.640 | is perused daily by senior Vanguard people.
00:43:22.640 | So trust me, we have heard everything
00:43:28.760 | about the app, about the customer service
00:43:34.160 | challenges, and so forth.
00:43:35.200 | Now, that said, I am more than happy--
00:43:37.520 | it kind of detracts from the investment piece message.
00:43:41.080 | And that is a real problem.
00:43:44.120 | Because if that is what detracts from the potential
00:43:47.520 | for achieving investment success, we've lost.
00:43:51.200 | And by we, I mean all of us, because we're
00:43:58.880 | here to try to improve the investment
00:44:01.120 | success of the investors.
00:44:02.600 | That said, I know it can be an issue.
00:44:04.960 | It's a hot topic.
00:44:06.360 | I am happy to stand out in there in the hallway
00:44:10.360 | afterwards, come up, give me whatever feedback you'd like.
00:44:13.240 | I'll stay as long as you want, and I will take it back.
00:44:16.240 | I personally cannot do a heck of a lot about it.
00:44:19.520 | But if you do want to be heard and so forth,
00:44:22.760 | I'm happy to do that and kind of organize it.
00:44:25.320 | I would ask for how you have experienced it yourself,
00:44:30.480 | though, because what's really important
00:44:32.400 | is, are we seeing it in certain areas?
00:44:34.280 | Is it certain types of transactions and so forth?
00:44:37.360 | That could actually be really helpful from that standpoint.
00:44:41.240 | I don't have a customer service question.
00:44:45.400 | Vanguard has always led the way in using economies of scale
00:44:48.520 | to reduce costs.
00:44:49.920 | As they push further into the personal advisory space,
00:44:52.920 | is there a likelihood that they'll
00:44:54.400 | be able to reduce the cost to the individual investor
00:44:57.800 | for that service?
00:44:59.400 | Right, so I'll go, yeah, you're going
00:45:02.480 | to let me handle the strategy.
00:45:05.320 | Hey, Vanguard, make life better for me.
00:45:07.000 | He's the head of advice methodology.
00:45:09.280 | I'm a behavior economist.
00:45:10.720 | I think he's good.
00:45:11.480 | Thanks, Paulo.
00:45:17.760 | Paulo's already on my list, by the way,
00:45:19.720 | because we were in a team celebration thing
00:45:23.240 | for what was his birthday.
00:45:25.840 | And he goes, yeah, today I'm half old.
00:45:29.320 | And I was like, wait, how old are you?
00:45:32.080 | And he said 31.
00:45:33.840 | I was like, well, I said half, half old.
00:45:40.080 | I have it on tape.
00:45:41.760 | Any case, the PAS, first of all, from an advice standpoint
00:45:48.040 | in lowering costs, I mean, there are already
00:45:50.840 | kind of multiple avenues at Vanguard.
00:45:53.000 | We have a personal advisory services, 30 basis points.
00:45:55.800 | We have 30 basis points plus the underlying fund fees.
00:45:59.680 | I should say that.
00:46:01.360 | There's a 15 basis point net advisory fee
00:46:06.000 | with our digital advisor platform.
00:46:09.440 | But there's always kind of look, re-evaluation,
00:46:13.360 | assessment of cost and service offerings at Vanguard.
00:46:17.360 | It happens all the time.
00:46:19.200 | What that might look like, I don't know going forward,
00:46:22.360 | per se, or in some ways, it's always a discussion.
00:46:27.120 | I would also say, though, one of the things that we are doing
00:46:30.160 | a lot with, and we've talked about it a bit,
00:46:34.600 | is this concept of what we would call CX alpha or customer
00:46:39.440 | experience alpha.
00:46:41.640 | Not necessarily anything to do with advice.
00:46:45.120 | But can we help investors?
00:46:48.400 | And again, this is for people largely outside of this room.
00:46:52.040 | But can we help people be better investors?
00:46:54.760 | Here's a really good example.
00:46:58.280 | Every year, we see IRAs being funded.
00:47:01.000 | People get the message, oh, I should fund my IRA.
00:47:05.760 | They fund it, and then they leave it in cash.
00:47:10.400 | OK?
00:47:11.680 | If there were something along the journey of,
00:47:15.360 | as they're investing, a nudge, a reminder, a client experience
00:47:22.640 | piece that could help them, not force them,
00:47:26.920 | but nudge them to invest, over time,
00:47:29.960 | they are going to be better investors.
00:47:32.040 | And so there's a whole host of those types of things
00:47:34.960 | that we're looking at from an experience standpoint that
00:47:38.720 | may have nothing to do with advice,
00:47:40.800 | but can still help improve outcomes in material ways
00:47:43.560 | and very low cost ways.
00:47:47.720 | This question is for Paolo.
00:47:50.760 | Given the inflationary environment that we are in,
00:47:54.720 | what is your insight on the 4% safe withdrawal rule?
00:47:58.160 | Because I know that you've been doing some research on that.
00:48:00.640 | Right.
00:48:01.120 | Thanks.
00:48:01.840 | Oh, you're welcome.
00:48:02.600 | So number one is, I understand the hesitation
00:48:07.600 | because of inflation, given that--
00:48:10.360 | especially for folks who are early in retirement,
00:48:12.960 | because the 4% rule actually adjusts your payments
00:48:15.840 | for inflation over time.
00:48:17.280 | But that's an adjustment pretty early on in retirement,
00:48:20.120 | and that's going to be baked in for all the rest of retirement.
00:48:25.240 | But the good thing about the 4% rule
00:48:26.920 | is that, I mean, I understand that we haven't seen inflation
00:48:30.480 | for a really long time.
00:48:32.240 | Having said that, the 4% rule was
00:48:35.040 | tested during the high inflation times of the '70s and the '80s,
00:48:40.760 | and it still had a high chance of success.
00:48:44.240 | So far, inflation has peaked over the past year,
00:48:52.120 | but it's starting to trend down a little bit.
00:48:54.760 | So hopefully, it will be just a blip.
00:48:58.040 | But so far, the 4% rule is still a good starting point
00:49:02.640 | for people in retirement.
00:49:05.160 | Thank you.
00:49:07.040 | We have time for one more.
00:49:08.520 | Oh, oh, no.
00:49:09.520 | I'm the last one.
00:49:11.560 | I hope it's a good one.
00:49:14.000 | So I'm really passionate about time in the market,
00:49:19.080 | and I got lucky when I was 22 to get good advice from co-workers
00:49:25.520 | to invest heavily.
00:49:26.680 | And I was wondering, what is Vanguard
00:49:28.520 | doing to try to get the younger people who are just
00:49:32.600 | starting their first job to invest because it's
00:49:36.080 | so critical-- that's literally the most critical time--
00:49:40.480 | that they get their money in the market?
00:49:42.240 | I just wanted to know if Vanguard has any outreach
00:49:44.880 | to maybe high schools or colleges.
00:49:48.040 | So not so much the outreach to high school and colleges
00:49:52.120 | per se, but certainly the young investor
00:49:55.120 | in getting on the right path because habits
00:49:58.200 | that get put in place early tend to persist if we can do that.
00:50:05.080 | So a couple of things, and one is--
00:50:07.600 | I'll turn it over to Paulo to do this.
00:50:09.280 | But this whole financial wellness piece
00:50:11.360 | is really aimed at doing that because--
00:50:15.440 | and it's not just about investing.
00:50:17.360 | It's about that sort of total balance sheet
00:50:19.080 | because, I mean, let's face it.
00:50:20.360 | Paying off debt is saving.
00:50:22.960 | So how do you get people into the position
00:50:27.840 | where they can save and invest to meet their long-term goals?
00:50:32.520 | I actually live this right now.
00:50:36.000 | My son just graduated college, 24 years old,
00:50:39.880 | just turned 24 years old, first job.
00:50:43.880 | Thankfully, he asked me what he thought he should do.
00:50:50.320 | And he has a 401(k) plan at his employer
00:50:54.160 | that matches dollar for dollar up to 5%.
00:50:57.480 | And I was like, hey, look, do that.
00:51:04.080 | Save money in a Roth IRA, which makes sense
00:51:06.600 | in his personal situation, and forget about everything else
00:51:13.160 | because you're on a good path there.
00:51:15.280 | It's a large percent of his annual income
00:51:19.200 | that he's saving from those two things.
00:51:22.160 | And I'm like, live your life.
00:51:25.240 | Be happy.
00:51:27.520 | You have the ability, and you can have the peace of mind
00:51:30.600 | that, hey, the markets will go up, they'll go down.
00:51:33.320 | But if you're saving, in his case, it's between 17% and 20%
00:51:36.640 | with those two recommendations of his pre-tax income,
00:51:39.240 | if you include the employer match, you know what?
00:51:44.120 | For retirement, for 40 years from now,
00:51:48.200 | you're in good shape.
00:51:49.320 | We'll figure it out and adjust as need to along the way.
00:51:53.760 | Yeah, so the two recommendations that Joel just mentioned,
00:51:56.320 | obviously getting the employer match, and I mentioned some--
00:51:59.480 | I mean, 31% of people are not even getting that.
00:52:02.200 | So starting with the match is extremely important.
00:52:04.680 | Then fund your Roth IRA.
00:52:07.520 | But to Joel's point, also this recent generation
00:52:12.680 | coming out of college now is facing
00:52:14.520 | a very different circumstance.
00:52:16.400 | Student loans are a big thing for them,
00:52:19.680 | and people with six digits of that at 22 years old.
00:52:24.920 | And then there is a question of the trade-offs.
00:52:28.000 | Do I pay down my debt, or do I save for retirement?
00:52:30.160 | And that's why it's so important for us
00:52:33.320 | to put out the financial wellness guidance,
00:52:35.360 | to talk about the trade-offs.
00:52:37.240 | Because we don't want--
00:52:41.440 | we see this on the internet very often.
00:52:43.240 | I wish I had done this 20 years ago.
00:52:45.640 | We want to prevent that.
00:52:47.040 | So getting that early and saying the importance of savings.
00:52:51.200 | But also, to Joel's point, don't necessarily
00:52:54.800 | overdo it, because you still have a life to live.
00:52:58.360 | And especially with these folks, they also
00:53:00.840 | have a lot of debt to pay.
00:53:02.240 | So we have to be mindful of the trade-offs.
00:53:04.480 | But just getting the match, getting the Roth IRA funded,
00:53:07.480 | that already goes a really long way.
00:53:09.120 | Thanks for the question.
00:53:10.080 | Thank you.
00:53:10.580 | [APPLAUSE]
00:53:12.520 | I'd like to thank both of our speakers
00:53:14.120 | today, who will be around for additional questions
00:53:16.880 | if you have them.
00:53:18.840 | [BLANK_AUDIO]