Vanguard leaders look at the bright side of today’s market volatility


In this webcast excerpt, Vanguard Chairman and CEO Bill McNabb and Chief Investment Officer Tim Buckley look at the bright side of today’s market volatility—indicating that great shoots of growth can appear during difficult times.

Notes:
All investing is subject to risk, including possible loss of principal.
Investments in stocks issued by non-U.S. companies are subject to risks including country/regional risk, which is the chance that political upheaval, financial troubles, or natural disasters will adversely affect the value of securities issues by companies in foreign countries or regions; and currency risk, which is the chance that the value of a foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in currency exchange rates.
Stocks of companies based in emerging markets are subject to national and regional political and economic risks and to the risk of currency fluctuations. These risks are especially high in emerging markets.
© 2016 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor.


TRANSCRIPT

 
Rebecca Katz: So we have a question from Dominick in Royersford who just says, “What’s your response to all of the doom and gloom prognosticators?” So we just tried to lay out some balanced perspective, but there are all these headlines every single day. It’s a lot like checking the markets. You don’t want to check through your television set. You know, what’s our response to that?

Bill McNabb: You know, again, we think things go in cycles, and we’re in a cycle now where the combination of geopolitical issues that are out there that are certainly significant; we’re just several years removed from a really very serious financial crisis. You know, we’ve seen this unbelievable change in the world economy due to China. Twenty-five years ago the Chinese economy wasn’t even measurable, and today it’s the second-largest economy in the world. So when you look at all that’s going on, you can understand why people step back when they look at all these headlines. But our view is you have to take a much longer view, and we look at the long-term prospects of growth in the U.S., and we think they’re actually quite good over a very long period of time. One really interesting stat our chief economist loves to remind people of, that if you look at the S&P 500 and the 500 companies that are there, 80% of their value, 80% of the companies roughly were created during recessionary times or just coming out of a recession. And so what you see is often great shoots of growth being created during these difficult times. So my, I have a very optimistic view of the longer term, but Tim said it right up front. With all the issues that are out there right now in the headlines, and valuations being pretty full, we expect, you know, the next 12 to 18 months to actually be pretty volatile. And we do expect, therefore, and the headlines will reflect that.

Rebecca Katz: Right.

Bill McNabb: But we don’t think it’s any reason for people to take a longer-term pessimistic view.

Tim Buckley: And I throw in there doom and gloom, I’ll build on what Bill said, because a lot of it is, right now, about China.

Rebecca Katz: Right, or Middle East crisis, too.

Tim Buckley: Or Middle East crisis, we can go to that. But China, people treat it like it is not an emerging market.

Rebecca Katz: But it’s large. It’s so large.

Tim Buckley: It’s large, but it’s an emerging market, and it is in the same fund with Russia, with Turkey. But everyone treats it like it’s this market that would operate in the same exact way as the U.S. Having talked to many officials over there, many businesses over there, it is a vibrant economy. You will find places that feel like Palo Alto or you’ll find innovation, great innovation. You’ll find areas of, well, bureaucracy. You’ll find all those things in a large economy, but it is one that you look at and say, “They’re learning as they go,” and do you want to be sitting on the sidelines? Uninvested? Do you want to be unexposed to the emerging markets, to China where you’re worried about it. If you’re a 20-year investor, if you’re a 10-year investor, or do you want to say, “Okay, well, I don’t know. Are they the equivalent of the U.S. in the ’50s, in the ’80s?” Whatever it is, are you willing to sit on the sidelines and wait until you’ve got the stability that you have in the U.S., and it’s growing at 2.2% a year?

Important information
For more information about Vanguard funds, visit vanguard.com or call 877-662-7447 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus. Read and consider it carefully before investing.
All investing is subject to risk, including possible loss of principal. Investments in stocks issued by non-U.S. companies are subject to risks including country/regional risk, which is the chance that political upheaval, financial troubles, or natural disasters will adversely affect the value of securities issues by companies in foreign countries or regions; and currency risk, which is the chance that the value of a foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in currency exchange rates.
Stocks of companies based in emerging markets are subject to national and regional political and economic risks and to the risk of currency fluctuations. These risks are especially high in emerging markets.
© 2016 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor.