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Ken Day: Hi, I’m Ken Day, and you’re watching a replay of our recent webcast, “Unlocking investment success: Why you are the power behind your portfolio,” an in-depth discussion with our experts. We hope you enjoy it.

Ken Day: Tune out the noise, ignore the headlines, and stay your course. Achieving investor success is all about paying attention to the headline moments in your own life. I’m Ken Day, and welcome to tonight’s live webcast, “Unlocking investment success: Why you are the power behind your portfolio.” Market volatility, economic uncertainty, rising interest rates – so many of the factors driving the performance of our investments are beyond our control. So tonight’s conversation will be all about helping you, our viewers, to appreciate the importance of clearly defining your personal investing goals and focusing on those factors you can control.

Now before we dive in, if you need to access technical help, it’s available by selecting the blue widget on the left. And if you’re interested in reading more of Vanguard’s perspectives on successful investing, click on the green Resource List on the far right of the player. There you’ll find additional insights on tonight’s topic, along with replays of prior Web and podcasts.

Our experts here at Vanguard have conducted decades of in-depth research on the human side of investing, and tonight we’re going to benefit from those insights. Joining us to be our guides are two exceptionally knowledgeable guests, Don Bennyhoff, a Senior Investment Strategist with Vanguard Investment Strategy Group, and Kevin Miller, a Certified Financial Planner professional with Vanguard Personal Advisor Services.

Don, Kevin, welcome.

Speaker: Thank you.

Speaker: Thank you.

Ken Day: And a special welcome to everyone watching this webcast on Facebook. Kevin and Don are here to answer your questions, some of which you’ve submitted ahead of time. But it’s not too late. We invite you to continue submitting your questions all throughout tonight’s webcast.

Now, we’re here to answer our viewer’s questions, so shall we get started?

Don Bennyhoff: Yes, absolutely.

Ken Day: All right, so as we’re answering your questions, it’s helpful for Don and Kevin to know a little bit about you. So we’d like to ask you, our audience, a question. And since we’re talking about investment success, on your screen, you’ll now see our first poll question, which is, “Where are you on your investing journey: just getting started, midcareer, preparing for retirement, or are you retired?” So if you could just take a moment to respond, we’ll come back to your questions in just a few moments.

Now, Don, while everyone responds to the first poll question, let’s have you kick off our discussion by taking our first viewer-submitted question of the evening. So Paula in Tampa, Florida, asks, “How do you define successful investing?”

Don Bennyhoff: That’s a great one to get started on. Thank you, Paul.

I think the way that most people would define it is sort of knee-jerk in terms of defining it by returns. Better returns equals better success. And I think that’s certainly one way to do it, but I think that actually is more characteristic of investment returns. And I’d like to suggest an alternative. Since the topic is investor success, I think we need to think about it as how can you be a better investor instead of thinking about investment success, thinking about it from investor success. What are ways for the average investor to do better if knowing full and well that the returns that they’re looking for, the higher returns are out of their control? I think that leads back to the purpose of tonight’s webcast. It’s thinking about the financial plan and your goals and your objectives.

Those aren’t just words or numbers. They’re actually things that mean something. A lot of those goals, a lot of people have a lot of goals. They have a lot of things they’d like to accomplish. But it’s not always possible to accomplish them all. So to be successful as an investor, sometimes you need to prioritize those goals. I think the people that are able to work through the plan, develop a good strategy, lead themselves down the road to successful investing through the planning phase will probably end up being more successful in achieving their outcomes.

Ken Day: All right, thank you. And it looks like our poll results are in, so let’s take a look at those. So where are you on your investing journey? It looks like we had about 6%, give or take, that are just getting started, about 10% midcareer, 25% preparing for retirement, and 60% of you are already retired. So any thoughts on how that might shape our discussion this evening?

Don Bennyhoff: Definitely.

Kevin Miller: Yes. A lot of the clients that I talk to on a daily basis are in retirement, so those numbers seem pretty accurate.

Ken Day: Sure. And maybe that can also influence how we think about some of the goals and the things that we can control as we’re going through the conversation this evening.

So we have another poll question for you. Now we’ll be talking a lot about the human side of investing tonight. And working with a financial advisor is a common way to navigate some of the more human aspects of investing. So, “For our viewers who use or have considered using a financial advisor, how important would it be for you to have in-person meetings with an advisor: very important, somewhat important, or unimportant?” While you respond, we’ll take our next question.

So Don did a great job setting the foundation for us, of our discussion this evening, helping us think about investing success versus investor success and the fact that we need a plan. And, Kevin, this next question is for you. It’s from James in Santa Monica. He asks, “What are the keys to a solid financial plan?”

Kevin Miller: Sure. I would say, number one, when people think of a plan, it doesn’t necessarily have to be something that’s very complex. You know, it can be, but it can just be some goals or things that you’re looking to achieve. And then from there, you can get more specific on things like asset allocation – the specific goals that you have in terms of are you looking to withdraw, that type of thing, when you would make changes, when you would rebalance. And it’s really important that you have those set ahead of time because it can really shape the decisions that you make in the future if you then have something to refer back to versus not really having a plan at all and then trying to make changes, especially if they’re market-driven, which may not be in your best interest long term.

Ken Day: Right, and those market-driven decisions tend to be emotional decisions.

Kevin Miller: Absolutely.

Ken Day: And that’s one of those human factors that we’re trying to manage with our portfolios. Do you have anything you would add, Don?

Don Bennyhoff: I do think that Kevin brought up a good point in terms of thinking through the goals and objectives and the human side of what you’re trying to accomplish. Investing entails a lot of uncertainty and doubt. The real benefit of a plan is that by spending the time developing the strategy that fits you, given your unique goals and your tolerance for risk, it probably creates an opportunity for you to maybe moderate or mitigate some of that doubt that’s created by the uncertainty that the markets bring or that investing really entails. It’s sort of you can’t escape the uncertainty, but maybe by setting the plan and having the confidence that you really did put in the time and effort, it makes getting through some of those periods where you might doubt the process a little easier.

Ken Day: All right, thank you.

And we have results from our poll question. So how important would it be for you to have in-person meetings with an advisor? So 22%, almost 23% said, “Very important,” 45% said, “Somewhat important,” and a full third said, “It’s unimportant.” Any comments on that?

Kevin Miller: Yes. I would say it’s certainly something that I talk with clients about, given that most Vanguard investors don’t live by a Vanguard office, but we have different ways that we can communicate with them. Primarily video conference has become pretty big with us, so it really shortens the distance there. So even though you’re not sitting across the desk from someone, it feels like you are. And the other thing too is sometimes what we’ve found is even when people have the ability to go to a physical office with another company, they may use it initially and then over time the relationship tends to really look the way it does here where people communicate over the phone, electronically, video conference, those types of things. So even when they have the capability, they may not use it as much as you would think.

Ken Day: That’s interesting.

Don Bennyhoff: Yes, I think the interesting thing is that I bet that if we did the same poll to the same audience or a similar audience 15 years ago, about 60% would say it’s very important to meet face to face. So I think it’s actually quite revealing about how far people have come with their comfort level and how advice is delivered. It doesn’t necessarily have to come from somebody just down the street.

Ken Day: Yes. Technology is certainly driving a lot of those changes too.

Don Bennyhoff: Exactly.

Ken Day: Just the way we interact. So just a quick reminder for our audience that, again, please submit your questions; keep them coming. We will answer just as many of them as we can throughout our webcast this evening.

And we have another question here. This one, Don, I’ll throw this one to you. Joseph from Darien, Connecticut, asks, “What is the one biggest mistake investors make emotionally that hurts their investments and how do you avoid it?”

Don Bennyhoff: Actually, I mean, thank you, Joseph. I think we have touched on it. I think the emotional challenge that I see most often is this doubt. It results from the uncertainty because no one really knows exactly what’s going to happen in the future and exactly what the best way to build the portfolio is. And I think really where I’ve seen investors be able to best avoid the second guessing and maybe to temper that doubt when the headlines change is through financial planning. By putting the time in, by knowing you’ve done the work as opposed to building a portfolio maybe in a more haphazard way, I think it gives you the confidence that, you know, okay, we’re okay so that you don’t change your boats in midstream if you will. The headlines will change, but really the only change in your portfolio should be driven by the headlines of your life, not the changes of the headlines in the news.

Ken Day: Thank you. And I think it’s interesting or important to note that you can’t avoid the emotions. The emotions are going to be there, but the goal is to avoid the mistakes.

And I think, Kevin, you alerted to it earlier this idea of having a plan, even how you’re going to rebalance, right, because we’re tempted potentially to make those changes when we see that market volatility. And that’s precisely when we are feeling that emotion, but to avoid that mistake, you said, “Have a plan.” And I think that’s a really big takeaway that I would want our viewers to take to heart is have your plan for how you’re going to rebalance, stick to that allocation and, yes, you’re going to feel the emotion but bring that discipline.

Martha, from Keswick, Virginia, she asks a timely question, “If trying to time the market is a human impulse, what is the remedy?” Don?

Don Bennyhoff: Oh, softball question, huh?

Yes, again, I’ll kind of go back to that old adage that if you plan to fail or if you fail to plan, you’ll plan to fail. I really do think that a big way to overcome sort of that aspect, the timing of the market, often comes from the uncertainty that what you’re doing is the right thing. So many of the talking heads are always talking about how things are different, and people need to do things that are different, but they really don’t know their audience. An advisor working with a client knows that person, the person who’s developed the financial plan for themself knows themself, but the headlines and the talking heads really don’t.

And I think Kevin hit it spot on. It’s like plans don’t have to be complicated. They can be quite simple and yet be still very effective because they could act as your rudder when really that uncertainty kind of takes over. So I would actually think that a big way to try and avoid the temptation of changing the portfolio, whether it’s market timing or, you know, after a period of time, we’ve been in a great bull market for the last ten years with tremendous returns. A problem with that is people often perceive that as that means that there’s less risk in the market then there actually is because the returns have been so good and that affects their risk perception and that sometimes changes their asset allocation, and they end up adding a lot more stocks to the portfolio without considering the risk. And sometimes that doesn’t end well.

Kevin Miller: And I would add to that it’s sometimes very counterintuitive to what you normally experience in life, which is almost in every situation, it’s don’t just stand there, do something. But with investing it’s, don’t do something, just stand there. And it’s really hard especially when you hear a lot of noise about the market’s doing this and this is how you should play it. But really in most cases, the answer is don’t do anything. You’re going to be far better off in the long term for it. It’s just very hard to do that sometimes.

Ken Day: I think that’s a great point, and, Don, you alluded to something earlier. It’s that sometimes you need the confidence that what you’re doing is right. To what extent do you feel like you play that role in your day to day?

Kevin Miller: Absolutely. I can give you a great example. I had a conversation with a client in the fourth quarter of last year when we had a lot of volatility, and he wanted to hear sort of our position. I told him, you know, “The plan still works. Your asset allocation is fine. You don’t need to rebalance.” And at the end, he said something I thought was really telling. He said, “Well you don’t sound worried, so I’m not going to worry.” And it was really just as simple as that. It was, you know, we have this plan in place, and we’re following it, and there’s no worry on the Vanguard side, and so that’s good enough for me.

And sometimes that’s really all it takes. It’s not going into a lot of detail about the market’s doing this particular thing. They just want to be reassured that they’re still on course, that they’re going to be fine over the long term.

Ken Day: That’s great. So you kind of lend that confidence to them. And while we’re on that topic, we actually have a live question for you, Kevin, fromShitan asking, “How often should one rebalance?”

Kevin Miller: Sure. So there’s a few different approaches to rebalancing. You can do it based on a particular time period where you would just rebalance on your birthday or some predetermined date. You can do it when you fall so far out of alignment percentage wise. The way that we do it in the service is really a combination of those two things, which is we would look at the portfolio on a quarterly basis, so we have these defined periods, and then we’re also looking to see during that time period are you within, we call them guardrails, but we have limits on really all the aspects of the portfolio. And if you fall within those limitations, you’re good; you don’t need to rebalance. If you’re out, then we would recommend that you do make the changes. And I think that approach is really valuable because it takes, again, a lot of the emotion out of the equation because you’re not looking forward. “Oh, the market, we think it’s going to do this.” It’s a pretty cut and dry decision around here’s where you’re at, here’s where you should be, and then making the decision based on that.

Ken Day: Hopefully a decision you’ve made when it’s not an emotional time.

Kevin Miller: Exactly.

Don Bennyhoff: And that’s really a principle benefit of the financial plan is that whether you’re working with an advisor and using their strategy or you’re doing it yourself, by putting it in the financial plan that says, “I’m going to rebalance at this time or under these conditions,” you’re now kind of absolving yourself from having to make that great Murphy’s law decision during a period of time like we just saw during the end of last year when the market was down 15 or 20%. It was really common to hear when it was down 10 or 15%, “Is this a good time to rebalance?” Okay, that’s the Murphy’s Law question because if you say, “No, it’ll recover immediately and you left money on the table,” if you say, “Yes, it’ll continue to drop,” there’s no winners there. But if you put it in the plan, it now provides a bit of discipline that you can refer back to instead. I really said, “This is when I’d rebalance.” So you’re really changing the question from is it a good time to rebalance to is it the time that I decided to rebalance?

Ken Day: Great points. We have another live question here. Norman asks, “How do you tune out the noise but don’t miss information that is critical?” Any thoughts on that, Don?

Don Bennyhoff: It is interesting because there’s a lot of debate on what’s information and what’s not. So I kind of have a saying that I’ve bored my friends with that there’s two types of information, there’s interesting and useful. Most of the stuff that the press tends to glean from the world events is the interesting stuff, and it’s really not as useful as they might want people to think. It’s really hard to tell in the moment because, again, we just don’t have that crystal ball. Probably the information that most people need to rely on is really their knowledge itself, but that would be my take on it. What about-

Kevin Miller: I couldn’t agree more. It’s the things that are going to drive changes in the portfolio are typically things that are different in your situation – I’ve decided to retire two years early or one year later. It’s not because the Fed did this thing with interest rates or the market is doing this. That typically should not be driving the decisions that you’re making inside the portfolio.

Ken Day: Yes. If we’re talking about investing, whether it’s investing for retirement or managing our investment portfolio for retirement spending, we should really have that longer perspective, yes, and not being reactionary.

Related to this, we have a question from Fred in Indian Land, South Carolina. Kevin, this one I’ll send to you, “Should one pay attention to what is happening in the marketplace on a daily basis considering the level of volatility that is happening right now?”

Kevin Miller: Yes, it’s a great question, and it really goes back to what we were just saying in that I think it’s important to find that balance between hearing so much information and then feeling compelled to act on it. So it’s good to find that balance and know what’s going on, but at the same time not trying to react to everything because if you do, again, you’re going to be much more tempted to make those changes that really aren’t in your interest long term.

Don Bennyhoff: Okay, that sounded better.

Ken Day: Well let’s go to another live question then. Christian asks, this will be an interesting one, “Is it better to dollar cost average or invest all at once?” Kevin, how would you address that question?

Kevin Miller: Sure. So I would say in the research that Vanguard has done, it’s shown that putting it in as a lump sum tends to work out in the majority of situations. The way that I always, because it’s a question that we get a lot from clients. The way I always explain it is if the joy you would feel by investing in a lump sum would be a fraction of the anguish you would feel if you invested in a lump sum and then the market went down, then you could consider moving in over time. But if you do that, we would say you’d want to set pretty predefined, a schedule as far as how much you would do it, I’m going to do it on this particular day on each month for this dollar amount.

What typically doesn’t work is I always call it the eyeball method, which is I’m going to wait until the market does this, and then I’ll do it because you look back six months later and they haven’t made any changes because they’ve either waited for the market to go down and it’s gone up, or the market has gone down and you get nervous and you worry about it dropping further and they still haven’t done anything. So the lump sum, one of the other benefits is it then removes all the decision-making that goes into, okay, well, then when do I do it? You do it. And also if you’re investing for the long term, if you do it today versus a month from now, it’s probably really not going to make that much difference.

Ken Day: So we have a related question here from Bruce. Bruce says, “I’ve always managed my own investments. As I go into retirement, I’m wondering whether I should consider using an advisor.” So how should Bruce think about that?

Don Bennyhoff: Sure. So I think it really depends on, really, we always talk about the time and the willingness to do it, how comfortable are you with investing. For the vast majority of people, financial planning and investing wasn’t their occupation. And I certainly talk to a lot of people that are pretty well-versed in it, but you have to look at maybe the change in mentality a little bit, which going from a saving mentality where you were just putting money in on a regular basis to, okay, now how do I turn that into a stream of income that I can spend over time? And sometimes people have a little bit harder time on how to do that as well as things like how much can I afford to spend in retirement without decreasing the risk or increasing the risk that I’ll run out of money at some point in the future? And then also the emotional aspect that we were talking about before if someone is really prone to want to look at things and try to absorb a lot of information. Those could all be reasons why someone would want to engage with an advisor.

Ken Day: And it’s a timely question in terms of managing those emotions. And when I look at the polls, where’d I put the numbers here, 60% of our viewers are retirees. And you alluded to this idea that it could be more complicated to manage maybe the spending aspects compared to the investing. I think that’s a really relevant topic for our viewers who 60% of you are retired and you’re facing that challenge. Maybe you found investing easy and now you’re transitioning into that phase where you’re trying to figure out how to spend down that portfolio in a sustainable manner.

And that actually leads to a question from Terrence. Don, I’ll send this one to you. And asks, “Do you think an investor can do better by using an investment advisor, particularly Vanguard?”

Don Bennyhoff: That is a controversial question. I’ll tip my hand and say yes just so that my friends and relatives don’t call me out because I’ve actually told them the same thing. And it’s mainly because of how hard investing can be to do by yourself with the uncertainty that’s involved and the doubt that may come in. Similar to the question we had before about, you know, should I use an advisor? Well, sometimes people do better when they’re working with someone to help them along, even if it’s just to be able to bounce ideas off of.

So the example that I’ve used when my family has asked me the same question is that you can build a very well-diversified portfolio that’ll do just fine probably using one of our fund of funds, our life strategies, or our Target-dates or, you know, even just some of our large market funds like the Total Stock Market international bonds and so forth. You can do that, but will you have the ability or discipline to rebalance when you need to or continue to contribute like you have in the past or need to do for the future? Or do you need somebody to help you kind of nudge you along?

If you looked at the same portfolio with and without advice, I actually think that most people with the help of somebody, and it’s not even just a financial advisor. It could be a personal trainer, for example. People do better with personal trainers than maybe they would do on their own because they have someone to maybe provide them that motivation or that nudge to do it.

So it is a debatable question, but I suspect that if most people are like me or like most of my family, probably having someone to kind of keep you on track, keep you focused, assuming you’re doing it for a pretty low cost and you’re not overpaying for it – there’s a lot of expensive advice out there, so it’s not just any advice – that probably people should pay attention to. I think most people would probably find that they’d be more successful as investors if they did have somebody helping them along the way.

Ken Day: So on this same line of thought, Chris in San Jose, California, asks, “How do you objectively evaluate whether a financial advisor is adding any value while they’re managing a portfolio for a fee?” And as you said, and as Chris points out, those expenses add up. So how should we think about that?

Don Bennyhoff: You know, I’ll let Kevin answer this after me because I think he might have some great insights here. But I would also say that I think what you’re asking is not necessarily a question about returns. I don’t think this is where you evaluate value-based on a percentage term. I guess I would equate it to other aspects of life where we all have cars and four wheels and two or four doors. They largely serve the same functionality, but they have very different brands and badges and price points. And a car that’s $300,000 may or may not be functionally better than a car that’s $30,000, but value is in the eye of the beholder.

I think to the caller’s question or the question, the idea is that they’ll have to decide for themself. It’s a very subjective assessment, but I think they’ll know whether they’re getting value or not. Just don’t make the mistake of judging it simply on returns alone.

Kevin Miller: And I would add to that the value can often be, we would call it lumpy in the sense that it may not be consistent year over year or quarter over quarter. It could be a scenario like we saw at the end of last year where we had a lot of volatility. Maybe someone that’s more emotionally driven would’ve made these big changes, and we had a pretty dramatic change in market returns in that time period. And if you have a sizeable portfolio and the decision that you made to maybe get out of the market cost you tens of thousands of dollars, depending on what you’re paying for advice, that could’ve covered multiple years’ worth of the service. So if we didn’t do anything else for you for the next couple of years except prevent you from making that one decision, the service has then paid for itself.

And then you also look at the other aspects. I always think about what are the things that people are missing in terms of now maybe just even taxes, looking at purely returns on funds and saying, “Okay, this one is really tax-efficient, this one isn’t so much; and I can put both of those in the portfolio, but one’s better suited for maybe an IRA versus a taxable account.” And maybe the decision to maybe swap those saves you a few thousand dollars in taxes each year. So it can be things like that as well.

Ken Day: Another way of looking at it. And you said it at the beginning. It’s counterintuitive potentially with investing. You said, I don’t want to get this wrong, “Don’t just do something, stand there.”

Kevin Miller: Um-hmm.

Ken Day: Right. So the idea that an investor could be or an advisor could be delivering value to an investor by stopping them from doing something is another way to think about it.

And we’ve actually got a ton of questions on this. Diane, in particular, she asks here, “What is the cost of Vanguard Personal Advisor Services?”

Kevin Miller: Sure. So for clients that are between $50,000, which is the minimum amount that we’ll manage up to $5 million, the cost is .3% per year. Stated otherwise, it would be $300 per $100,000 under management per year.

Ken Day: Okay, thank you. And I do want to remind our viewers, if you go to the Resource widget, you’ll find a link there to Personal Advisor Services; and you can learn about how the service works and the fees associated with that. So feel free to check that out.

So take another question here. We have a live question. Slight change of pace here, but John asks, “Will investing in international funds ever pay off again?” Don?

Don Bennyhoff: I would say I certainly hope so because I’m a big believer in diversification and that includes international. I think that’s always a challenge. I know we’ve gone through a kind of tough period, but I’ve actually been in the industry 28 years, mostly working with clients. And I remember other periods in the past where, I’m thinking about the mid-to-late ‘90s, for example. We were in a period where you had five consecutive years there at the end where the S&P delivered 20% gains or more, which had never happened before. And it was all driven by large growth, and it wasn’t just international that people were wondering whether they needed. It was do I ever need value? Do I even need mid and small or bonds or do I even need to asset allocate?

We know what happened there during the early part of the 2000s. All of those things that people were doubting their benefits in a portfolio were really what helped temper the volatility that showed up when large growth had that rough patch. So I’m a big believer. I do believe that they, for most people, probably deserve a permanent place in the portfolio if only because we’re using diversification as our acceptance that the future is uncertain, and I don’t have that crystal ball with 2024 set.

Ken Day: And, really, if those funds were performing exactly the same and we were getting the same performance, in one sense they wouldn’t be offering the diversification we were looking for.

Don Bennyhoff: Correct, we wouldn’t need them both.

Ken Day: Right, right.

So we are just getting a ton of questions on Personal Advisor Services. So I do want to send this one to you, Kevin. Diana asks, “How can you make full use of Advisor Services, and can you speak to what are the most valuable things an investor can get from advisors?”

Kevin Miller: Sure. So I would say it really depends on the individual. Some people are looking for different aspects; and some people are more concerned about traditional topics like portfolio construction, asset allocation. But a big thing that we do, obviously a lot of the people that we’re talking to tonight are retirees, and their questions might be around how much can I afford to spend? Someone that is having the portfolio managed by us, we have the ability to use a tool called dynamic spending which will alter how much they spend or how much we would suggest that they spend based on previous market conditions. So market does a little bit better, you have some flexibility to spend a little bit more. Market has a downturn, you spend a little bit less. And that can really extend or improve the likelihood of not running out of dollars in the future. So it can be things like that.

You know, we talk to clients about Social Security, if they have claiming strategies, when’s the best time to take it. A new one for us is looking at healthcare costs. For someone, again, that’s either in retirement or a few years away from retirement, we have a tool that can help them estimate how much that will cost, which is a big uncertainty for people. So it can be any or all of those things that we end up talking about just, again, depending on what the client is really concerned about.

Ken Day: And a lot of things that we may not even know to think about.

Don Bennyhoff: If I could add one more to that that I think gets overlooked is, and Kevin alluded to it earlier, sort of like the willingness and ability to do it. With so many people in retirement, I’m hoping that when I’m in retirement, the last thing I want to think about is my portfolio. I’ve worked my whole life and now I’m looking to enjoy it at that point. And sometimes having a trusted advisor allows you the peace of mind or at least the flexibility to know that the portfolio and the planning aspect is taken care of so you can concentrate on so many more fun things than worrying about the investment side of life.

Ken Day: Great. And a follow-up question on this. I think you outlined a lot of the tools, a lot of the considerations that Personal Advisor Services or any advisor, really, could be helping a retiree think through. John asks, “How do the advisors help when retirees need to spend their portfolio for expenses?” So maybe zero in a little more in a practical sense on how we would think through that and what decisions they’d be making.

Kevin Miller: Absolutely. So there’s a few different ways that we can do it. If we’re looking at sort of the broadest first, which would be maybe how much can you afford to spend because a lot of times people aren’t really sure, and it’s especially helpful for the person that’s maybe not in retirement but a year or two from retirement or pretty close to retirement so it gets them thinking about what retirement looks like for them.

And then it might be really as simple as setting up a single place where they’re able to draw money from, whether they have the ability to do it on an on-demand type basis, so they take the dollars as they need it, or in a lot of cases, we have it set up so that it runs automatically and they’re less concerned about sort of where the money’s coming from. They just want to make sure that X number of dollars ends up in their bank account on the 15th of every month. And we can make sure that the dollars are always going to be there to make sure that that gets paid off. And so clients will fall into different categories there depending on what their looking for.

Ken Day: Great. And very timely information. We have 25% of our audience, our viewers, are preretirees. So these are things that they should really be thinking through and planning before they make that decision to retire. And then, obviously, if you’re there and you’re spending down your portfolio, getting a lot of great tips of things you should be thinking about.

Don, anything you would add?

Don Bennyhoff: No, I would totally defer to Kevin on the process there.

Kevin Miller: Yes. And I would also say, one thing I just thought of is for people that have multiple types of accounts, the strategy about sequence of where do we take money from first? When someone gets to the age where they have to start taking out a required minimum distribution, now maybe that jumps to the top of the list because you have to pay taxes on that anyway. So it could be a different strategy for someone who’s maybe 68 and then they get to 70-1/2 and now we flip it. Whereas if someone wasn’t as sure, you know, maybe they continue to do- They could’ve made some modifications there along the way. And so things like that could be really helpful as well.

Ken Day: I think we’ve alluded to that a couple times. Headlines of your life, right, that age milestone. And I think we’ve also circled around this a number of times about staying the course, tuning out the noise.

John, I think has zeroed in on the question. He asks, “If I was using Vanguard’s Personal Advisor Services, would they have taken me out of the market earlier this week?” Right to the point.

Kevin Miller: No.

Ken Day: Also, right to the point.

Kevin Miller: Yes. And to be more broad on that, so when people talk about should I make changes to my asset allocation, there are scenarios where it can make sense, but it’s usually around, like we’ve talked about before, has something changed in your circumstances that would warrant that? Again, the person that’s close to retirement, and it’s either accelerated or they’re going to continue to work longer. Even when we’re talking about risk, if someone was at an allocation and they said, “You know what, we’ve had a period of ten years of really good returns, and what we saw at the end of last year, it made me revaluate how much risk I’m really comfortable with because it’s easy to have a lot of stock allocation when markets are giving really good returns.” And when they saw the downturn, they may say, “Maybe not as comfortable as I thought I was,” and making a slight shift in an allocation. If it helps them sleep better at night, it can be a good thing.

But there’s not a scenario where we would ever call a client up and say, “Hey, the market’s doing this, so we think you should go to all cash, and we’ll jump back in later on.” We simply would almost never get that decision correct or be able to do it consistently where we could add value.

Don Bennyhoff: I think the one thing that this raises is this aspect of stay the course. Stay the course isn’t burying your head in the sand. The choice not to take investors in and put them into the market or out of the market tactically is a choice in itself. And it’s an important one because we do believe that the odds of being successful with those strategies are probably low. There’s a lot of evidence that suggests that that’s very tough to do, and so we want to lean on those things that, that as a firm and as advisors ourselves, we can control and market timing’s probably not one of them.

Ken Day: Okay, yes, and just staying the course, right, that sailing analogy you encounter storms but you’ve still got to get to the destination; and hopefully we’ve made those decisions ahead of time. Again, that plan, you’ve determined that asset allocation, and it was appropriate and now you’re sticking with it.

So we have actually a question from Facebook, so thank you for submitting this. Maxine asks, “I’ve had stock gifted to me, and I don’t have a retirement plan. Could a Vanguard advisor help me?” Kevin?

Kevin Miller: Sure, we can talk to about sort of how that fits in. Depending on if that’s sort of your only asset, maybe it makes sense to diversify into something else if you have a really concentrated position in one individual stock. But, yes, we can, that’s really just like any other asset where we can talk about what makes sense for them.

Ken Day: And I want to parlay back into one other question. We’ve talked about staying the course. Stanley from New Mexico asks, Kevin again for you, “In what instance might my advisor not say ‘stay the course’?”

Kevin Miller: Sure, so, I think it ties back to what we were talking about a moment ago when it’s something in your life that’s changed that would warrant doing that or, again, if making a slight modification in your asset allocation and it’s something that you’re then going to be able to stick to long term, that would be a time that we would potentially look to do it.

But, again, we’re not looking to make these big changes based on market volatility. The other one would be to, for someone that is in say the accumulation phase, maybe 15-20 years out, we have sort of a systematic way that we would recommend changing the allocation because generally the thought is you’d want to get more conservative as you get closer and closer to retirement, so that can be another big one for clients as well, to sort of what’s the strategy to gradually get more conservative, and we can help with that as well.

Don Bennyhoff: And there are a lot of these events over, I mean we kind of think about retirement as the big one. But, you know, when you have a child or you start to plan for college or with your children maybe you’re thinking about weddings and all of these other aspects that involve sort of major financial events that you need to probably plan in advance for so you can make the best decisions.

And each time one of these headlines of your life kind of occurs, this is an opportunity to revisit your financial plan and reevaluate the circumstance to see if maybe you need to do something different. Maybe it’s not changing your asset allocation, maybe it’s changing how much you’re contributing. That’s a great way to grow your portfolio, because you’re adding money to it without actually burying more risk with the portfolio or hoping that the market provides more growth. You’re helping provide the growth through your capital contributions.

Ken Day: I have a question for Kevin here. They just keep coming in on Personal Advisor Services. So Julia asks, “Can you get a personal advisor for the family – husband, wife, kids’ accounts – or is it only for an individual person?

Kevin Miller: Sure. So normally spouses, they tend to look at assets collectively. You know, you might have things, like an IRA has to be a separate account, but they really consider it to be their joint assets. So, and I have some clients that are married, but they look at things separately. They may have very different asset allocations. So it’s really each situation’s different; but most people tend to look at them collectively for spouses.

Usually children we would look at separately, only because the goals that you have as someone that’s maybe in retirement are going to be very different from someone, your child that is maybe midcareer, so we would look at those differently because, again, they have an entirely different set of goals that they’re trying to achieve.

Ken Day: A little change of pace here. Don, I’m going to throw this one your way. This is a presubmitted question from Dennis is Clifton Park, New York. It says, “Please comment on the effectiveness of indexing versus actively managed mutual funds.”

Don Bennyhoff: I think the question stems from a lot of the headlines that have actually shown how poorly active managers have done relative to their benchmarks. A lot of them have underperformed over the last ten years, and I think the mistake when you talk about it as active versus index is that it really ignores a big factor, which is the cost differential. It’s really less about active and index than it is sort of why indexing is usually a little more effective than active, because the typical actively managed fund, not necessarily at Vanguard, but elsewhere, is dramatically higher cost than the typical index fund, whether at Vanguard or elsewhere. And that differential really creates a tailwind for the average index fund.

And that’s just simple math from the standpoint of the gross return less the expense ratio of the fund gives you your estimate of your expected net return, and that is an important benefit that lower cost funds, whether they’re active or index, can use to increase investors performance or to, in the spirit of the conversation, to increase investor success.

Kevin Miller: And I would just add that I think that a lot of times people think, well, it’s Vanguard. We’re going to receive this cookie cutter portfolio that’s just going to be a small number of broad market index funds, and sometimes those are totally appropriate. But if someone, let’s say, already has active in the portfolio and they like it and they want to try to keep it and it’s say a tax-deferred account where we don’t have to worry about year-end distributions or the tax inefficiency of the funds, we can, in a lot of cases, work around those things.

Even for someone that’s coming to us with cash, you know, we have the ability to, if they want to, again, if they have tax-deferred assets because we think that’s a really important component if you’re going to hold active, we can say we want to add in a certain percentage of what we’re doing as active. You know, that’s something that we can add to the portfolio pretty easily. So we do have a lot of flexibility when it comes to active versus indexing.

Ken Day: And a similar question here, maybe tangentially related, from Marian, College Park, Maryland. Don, she asks, “Is it possible to be too cautious when investing?”

Don Bennyhoff: That’s a great question. I’d say yes, and I do think that it depends on the individual and their circumstance. One of the things that we have seen is some people, because of the market volatility, they do invest very conservatively; and given their goals and objectives that they’ve set, it puts the burden on growing their wealth really on their savings rate.

And so for somebody that is maybe very risk-adverse, they need to bear more of the responsibility of growing their wealth, which is different than sort of the return aspect we’ve been talking about.

Ken Day: So saving more.

Don Bennyhoff: They have to save more and contribute more. They have to bear more of that burden than hoping that the market and investment returns will help them grow their money.

If they’re prepared to do that, that’s fine. That’s certainly one way to do it. But I think people sometimes get affected by the risk or volatility in the market or the uncertainty. They are very conservative, and they’re hurting themselves because they’re giving them far less chance to actually meet the goals that they said were really important to them.

While volatility in the moment can seem really profound and some of the headlines can be really shocking, whether it’s a Brexit or it’s a Fukushima where they have very significant effects on a lot of people. In the long run, we’ve had it, you know, when we think about the long run for stocks and bond returns, there have been many, many of those individual events; and yet over a longer time period, the sensitivity or the volatility seems to be tempered a bit because of time. So if you have time on your hands, maybe you don’t want to be as sensitive to that volatility and maybe you don’t want to be as conservative because you can take advantage of it.

Ken Day: You know, we talk about risk in the market or risk tolerance with the volatility in the markets, but if we’re too conservative, we also run that risk of, we’re taking on another risk which is short-fall risk.

Don Bennyhoff: Absolutely, right. And it’s easily overlooked because people don’t really think of that aspect. And so it is definitely one of those things where there are tradeoffs. There’s pros and cons of doing anything with our money. Working with someone or working on your own with, devising your financial plan is a great way to sort of figure out the right balance of those pros and cons for each individual.

Ken Day: And you talked about that diversity, the diversification of the portfolio and time, we have another Facebook question, and this one is, it’s from Kife, and he asks, “Are the stock and bond markets moving too closely in tandem to provide good diversification anymore?” That’s the first part of his question. And then “Are there other investments we should be looking at to counter the equity and debt market?” So maybe take those separately. So are they too closely correlated at this point?

Don Bennyhoff: I won’t comment on it at this point because I think one of the things is we want to look at correlations over time. We see any number of, if you look at a particular time, things, even relationships that make a lot of sense, like stock market providing better returns than bonds; and both of them providing better returns than cash. Makes sense because of the higher risk that comes with it.

Yes, we all know that the first decade of the 21st century, that the [inaudible], stocks delivered negative, slightly negative returns for the entire decade, the Lost Decade, while bonds and cash or money markets delivered positive returns.

So I’d be careful about drawing a point-in-time conclusion. History has shown that the stock and bond markets are actually positively correlated, but there’s enough of a difference in the variability to make them a diversifier. But it’s not unusual for them to move together, but sometimes they move very closely. Sometimes they move less. We see that emerge quite often. For example, in periods of crisis you hear that aspect where during some of these strong downturns in the market, bonds really start to shine and temper the volatility of the stock portfolio.

Kevin Miller: Second part was-

Ken Day: So, are there other investments we should be looking at instead of the stocks and the bonds?

Don Bennyhoff: I think yes. I think when we think about stocks and bonds, I really do think that we still have a very domestic focus. I don’t see, and the cash flows would suggest, that we still have a pretty substantial home bias in the United States; and we see it everywhere, quite frankly, globally. And so international, whether it’s international stocks or international bonds, probably are underrepresented in most people’s portfolio. I would certainly turn to those first before considering some of the maybe alternatives that a lot of people might favor, whether it’s REITs or alternative strategies and things like that. Make sure that you have really the global stock and bond markets probably well covered before you start to take a step outside of that.

Kevin Miller: Yes, and I would agree with the international. It’s pretty rare, if ever, that when I talk to a client that they have the amount of international that we would typically recommend inside of a portfolio if any. And we always get into like why a broadly diversified U.S. stock fund that a lot of companies that do business overseas, why do I need international? And we can certainly talk about the reasons why we think it’s still important. But, yes, that’s when clients are coming to us for the first time, that lack of international is usually something where if they have a deficiency or a hole that we can fill, that’s typically it.

Ken Day: Okay, so they do correlate, but we don’t have any reason to think that we need to be looking outside of that stock/bond portfolio for the diversification.

So, Don, for you, what haven’t we asked tonight that you think would be critical for our viewers to understand or consider?

Don Bennyhoff: Oh, wow, that is not a softball question. You want to add to that while I noodle on that for a second.

Kevin Miller: Yes, no, I would just say, you know, really thinking about the investor and maybe taking an honest look at what someone’s done historically because it’s pretty easy. You see it a lot when clients have done say individual stock investment and will tell you about, “Oh, I bought this stock, and it’s up 50%.” It’s great, but they don’t tell you about the five that are down 30%. And so it’s pretty easy to say, “Oh, I’ve done really well in the past,” but maybe sort of put less emphasis on the things that they haven’t done as well. So I think really taking an honest look at how you’ve done things in the past and having that strategy, even in simple portfolio allocation, where people tend to look at, they focus on the funds or the investments first; and we tend to start more broad and really the investments are really the last thing that we’re looking at. So just maybe changing that mindset a little bit.

Ken Day: Okay, great. Anything you would add, Don?

Don Bennyhoff: Sure. Thank you very much for giving me just a second. Twenty-eight years in the business is not enough sometimes.

Yes, I think one of the things that we talked about at the very beginning, that Kevin brought up in terms of the characteristics of the plan, I don’t think we’ve talked a little bit about or maybe enough about that. We know that there’s different phases of plan, but I think one other thing that’s intimidating is that a plan seems very complicated. It takes a lot of time, and it requires a really significant investment of time.

And I think that’s a misconception. Plans, I don’t think, need to be very complicated for many investors, maybe some of the people that are just getting started investing. Probably their main considerations are what’s a well-diversified strategy that I can continue to periodically save to? They need to focus on the savings aspect because maybe some of the complications that a plan could solve for a retiree just aren’t their concerns yet.

I think the biggest misconception is that a financial plan has to be complicated. A financial plan can be very simple and still be very effective. And I do think that that’s probably something that a lot of people don’t think enough about because they automatically presume that it needs to be something big and robust and complicated and time-consuming.

Ken Day: Great points. And I want to say we are just continuing to get many, many questions on our Personal Advisor Services. And we’re not going to have time to cover all of them tonight, so I want to remind you to please go to the Resource List widget; and feel free to give us a call. We’re happy to talk to you about the service and how that would work and how it might be able to work for you.

And Kevin and Don, thank you both. We covered just a tremendous amount of ground tonight, so we want to thank you both for sharing your time and your expertise with us this evening.

Kevin Miller: Yes.

Don Bennyhoff: Okay, thank you.

Ken Day: Well we hope you’ll join us in two weeks, on Tuesday, March 19, at 7 PM for our live webcast, “Navigating Your Journey to Retirement.” Our panel will discuss simple strategies for managing your retirement portfolio to ensure you’re giving yourself the best chance to have the retirement you envision.

Now, we’re deviating from our traditional Thursday schedule, so, again, that’s Tuesday evening, March 19 at 7 PM. The registration link is also in the Resource List.

Well did you miss a key point or wish you could rewind to a specific section of tonight’s webcast, well don’t worry. In a few weeks we’ll send you an email with a link to view highlights of today’s webcast, along with transcripts for your convenience.

And while you’re waiting, why not join the thousands of other investors who’ve discovered our podcast series, The Planner and the Geek. It’s now in its second season, featuring Vanguard’s own Maria Bruno and Joel Dickson. You’ll find a link to the latest episode, also conveniently located in the Resource List.

And, finally, if you would be gracious enough to share just a few more seconds of your time, we would be grateful if you would select the red Survey widget. It’s the second from the right, at the bottom of your screen. We truly value your feedback on these webcasts, and we welcome your suggestions for any future topics you would like us to cover.

We’re so glad you spent you evening with us, and we sincerely hope you benefited from the program. On behalf of Don, Kevin, and all of us here at Vanguard, thank you and goodnight.

 

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