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Rebecca Katz: Well good evening, Happy New Year, and welcome to this live Vanguard webcast, I’m Rebecca Katz. Now I don’t know about you, but I for one am at the age where I like to enjoy a really nice calm and quiet holiday season and New Year’s Eve, but the markets certainly weren’t having any of that as we closed out 2018. So we investors are seeing volatility we haven’t seen for a long time, although our guests tonight are going to tell us this is not out of the ordinary.

I am very pleased tonight to have the opportunity to talk with Vanguard’s chief executive officer, Tim Buckley, and our chief investment officer, Greg Davis. Tonight we’re going to talk with Tim and Greg about their overall outlook on the markets and economic conditions, along with key trends and signals they keep an eye on. We’ll also discuss some of the things that you, our community of Vanguard investors, can expect from us in the year ahead.

As always, I’ll be asking Tim and Greg your questions. Many of you already submitted questions when you registered. We picked representative ones, but you can keep sending additional questions our way; and I see them here on my monitor. More than 50,000 people registered to watch this broadcast, so I know we have a lot of ground to cover.

But before we get to it, some quick housekeeping. If you need access to technical help, it’s available by selecting the little blue icon on the left of your screen. If you want to learn more about Vanguard’s services, you can do that by clicking the green Resource list on the far right of the screen. From there you can download a copy of Vanguard economic and market outlook for 2019. We just published that a few weeks ago. You can look at old webcast replays or listen to a recent podcast episode.

So with that, let’s turn to our guests tonight, Vanguard’s CEO Tim Buckley and chief investment officer, Greg Davis. Thanks to both of you for being here.

Greg Davis: Thank you.

Tim Buckley: It’s our pleasure.

Rebecca Katz: So, Tim, Greg, you know, I always start these webcasts by asking our viewers a question, take their pulse a little bit. So before I get to you guys, why don’t we see what our viewers think about the outlook for 2019. So on your screen you should see our first polling question.

Which of the following best describes your outlook for the financial markets in 2019? Are you optimistic, pessimistic, or uncertain? So vote now, and I’ll share the results in just a moment.

But first I’ll turn to you; and, Greg, actually, before we get to 2019, why don’t we start with a little look back at 2018, which just left us. Our first question is from Joria in San Diego, California. And Joria wants to know, “What was the reason for the 2018 market downturn?” And you might want to just give some context on how down the markets were.

Greg Davis: Yes, when you look at the returns in the S&P 500 Index, as an example, they were down about 4.5% for 2018, which is not a big deal in the grand scheme of things. But it felt worse because the first part of the year, the first three-quarters of the year, we saw that the equity markets were actually up quite a bit. And we did see a correction, a couple corrections, and close to a bear market where the S&P dropped by almost 19.8%.

These fears and concerns in the marketplace were driven by concerns about the economy starting to slow down; concerns about trade tension; uncertainty in terms of what’s happening in Washington, D.C., with policy; and then with this all going on, you have a backdrop of Federal Reserve tightening interest rates. So all those things coming together caused some uncertainty in the marketplace, and we saw a bit of a correction.

Tim Buckley: But, Greg, people should be used to that volatility, right? When we look over the longer-term periods, usually a typical year, you’d have 20 days where the market would be up or down 2%. You’d have a 2% swing 20 days of the year. Was it in 2017, how many did we have?

Greg Davis: We had zero.

Rebecca Katz: Wow!

Tim Buckley: Zero, so people have been lulled into this false sense of calm; and when there’s uncertainty in the market, when there’s uncertainty out there, and you’ve mentioned the uncertainty around a government shutdown, a trade war, that should be reflected in the market. So I think the markets were actually behaving rationally.

Rebecca Katz: In the short run anyway.

All right, well let’s see if we have the result from our polling question. I would think based on where we left 2018 and the first few days of 2019, people would feel pessimistic; but, actually, I’m wrong. So we asked if you’re pessimistic, optimistic, or uncertain. Most people are fairly uncertain; 56% of our viewing audience said uncertain, about 19% said pessimistic, and about 25% said optimistic. So, actually, more optimists than I thought. You’re a bit of an optimist, aren’t you?

Greg Davis: I am an optimist in the short run, but I do think we’re at a period now—

Tim Buckley: Greg, man, we’re long run.

Greg Davis: Yeah, exactly. Well—

Tim Buckley: We’re in for the long run. Going toward—

Rebecca Katz: It’s a Vanguard webcast after all.

Greg Davis: Agree. But, again, if you’re thinking longer term, yeah, it’s a bit uncertain, right? You’re getting to a point now where the Federal Reserve is trying to slow down the economy to some degree; and we’re at a point where there’s concern they’ll be successful, and there’s concern that recession risk will start to rise when you start getting into 2020. So that will have an impact in terms of the financial markets, how equities are priced, how the fixed income markets are priced. So it’s not unusual that investors will feel uncertainty at this point in the cycle.

Rebecca Katz: Tim, you talk to many investors when you’re out on the road, meeting with them. Has this surprised you at all?

Tim Buckley: The uncertainty hasn’t. We actually see it in investor flows, at both Vanguard and the market on the whole. Really, if you go back 18 months, people have been investing less in what we call risky assets, equities. They’ve been favoring more bonds and now money markets. They’ve been cautious. They’ve seen that stocks have been very high-priced, and they were steering away from equities so the survey reflects their actual cash flow and how they’ve been investing.

So it’s rational behavior, investors are procyclical. And what we mean by that is they usually chase returns. When the markets are doing well in the first three quarters of the year, markets are doing well, we expected cash to be flowing at equities. Not so much. Still, more toward bonds and money market funds, especially now that they have a yield.

So it’s countercyclical behavior right now by clients, and that’s probably okay.

Greg Davis: To add to Tim’s point, money markets are attractive to investors because with a yield of about 2.4%, that’s actually compelling relative to where we’ve been over the last several years. Then if you have muted expectations around equity markets and bond markets, money market looks attractive to investors.

Rebecca Katz: Right, that’s great.

Well, one of the things that often comes up in our webcast is that many of our viewers are actually close to retirement or in retirement. We tend to talk a lot about “stay the course; you have a long time to save,” but retirees are particularly concerned. And we have a question from Lisa in Anchorage, Alaska, who says, “I’m nervous. I’ve lost so much money already in 2018, and I’m very close to retirement age. What advice would you give me?” So, Tim, how do you talk to those clients?

Tim Buckley: Rebecca, you already gave Lisa the advice. Stay the course. If Lisa’s looking toward her retirement, she has an asset allocation that considers her retirement. And hopefully Lisa will have decades in retirement. That’s what we aim for. And if she has decades in retirement, she probably wants to hold some equities in her portfolio. That will give her the ability to grow her portfolio. It will maintain her purchasing power.

Now, equities will introduce that volatility, but that’s why we have an asset allocation including bonds and cash. We talk about those bonds. We’ve mentioned it on this program before that, hey, they’re the ballast in your ship. They keep the keel down during a storm, make sure you don’t tip over. Now the equities in your portfolio, those are the sails. They capture that wind, and they propel you forward in good weather. So in the bad weather, we need those bonds; in the good weather, we need those equities.

Lisa shouldn’t get out of equities. She should just keep her eye on the long term and realize it will be a bumpy ride; but volatility’s a natural part of the cycle. Now if Lisa feels like she needs to do something, and, Greg, you probably agree with this. What you shouldn’t do is realize that loss if equities end up down.

Greg Davis: Right.

Tim Buckley: What you should do is curb your spending a little bit. We tell people take control of your portfolio by curbing your spending, not a lot, but a little bit so you’re not making big expenditures right when you retire or when the markets are down.

Rebecca Katz: And selling out of this—

Greg Davis: But it’s also an opportunity to look at your asset allocation in general because if it’s making you uncomfortable whenever there’s a move in the equity markets, like we’ve seen, you might have too much equity risk in your portfolio to some degree. So the key is that you have an asset allocation that doesn’t make you uncomfortable to cause you to make massive changes in the portfolio when there is a downturn.

Tim Buckley: So I’d encourage Lisa, if you’re feeling uncomfortable, hey, Lisa should give us a buzz. We’d be happy to talk to her about her asset allocation.

Rebecca Katz: Great. And, actually, we have information under the green tab on your viewer about our Personal Advisor Services®, and you can click there and learn more about talking to a CFP® who can give you some specific advice.

Why don’t we talk about Vanguard’s outlook for the financial markets in 2019. We have a question about international markets, but we should probably cover domestic markets as well. And that question is from James. Greg, I’ll throw this one to you as our chief investment officer. What are we thinking 2019 and beyond is shaping up to look like?

Greg Davis: Again, we feel that—

Tim Buckley: Remember, they’re all recording this right now. They’re writing it down.

Rebecca Katz: Well, we will ask you how your predictions have done in a little while.

Greg Davis: Okay, that’s fair.

When it comes to U.S. equities, we think that, hey, the U.S. equity markets over the next decade or so are probably going to produce returns in the neighborhood of 4.0%–6.0% on an annualized basis; and we expect 6.5%–8.5% on the international equity markets.

Now when we think about fixed income, we expect those returns to be in that 2.0%–4.0% range for global fixed income markets. If you’re a balanced investor, investing across both fixed income and equities, we think it’s very likely you’ll get a 4.0%–4.5%, 5.0% type return over the next decade. And the key thing to remember, if you’re a balanced investor, if you have a 5- or 10-year holding period, it’s rare for you to have a loss over that period.

So for those investors that are nervous over any one-year period, if you’re balanced, it’s very likely that a five-year investment horizon, ten-year investment horizon, it’s rare that you would ever see a loss on a portfolio that’s constructed in a balanced way.

Tim Buckley: But a balanced return of 5% is a far cry from what people are probably used to going back 8% across.

Greg Davis: Right. Absolutely.

Tim Buckley: And if you go back the past decade—

Greg Davis: That’s fair, that’s absolutely fair.

Tim Buckley: Right, so we always encourage people, “Hey, the other thing you can control, if you’re still accumulating, if you’re expecting a 5% return, is to save a little bit more.”

Greg Davis: That’s exactly it.

Rebecca Katz: That’s great. Well, I’ll come back to something actually that you said, Tim, but either of you can weigh in on this. Sati, in Georgia, says, “Is the stock market driven by data or by emotion?” I’m asking because I notice sometimes a stock decreasing in value, even when the company has had fairly strong earnings or has met expectations.”

Tim, you said the markets are reacting naturally to turmoil we’re hearing; but long term, shouldn’t the markets react to corporate earnings?

Tim Buckley: Yes to both.

Greg Davis: I’ll start. In the long run, it’s about fundamentals like corporate earnings, what’s happening in the economy, those types of things. But in the short run, it can be driven by emotion and short-term fear, technicals, things like that. However, investors should be focusing on the long run and doing your asset allocation that way, looking past any short-term noise. In addition, I think a lot of investors get caught up in the fact that there’s so many news headlines out there, and you’ve got to tune out that noise and really focus on the long term. And it’s very easy to get caught up in the short-term noise that tends to muddle the picture.

Rebecca Katz: Yeah, there’s a lot of short-term news lately.

Tim Buckley: Yeah, that’s for sure. I always think of the markets, they reflect human thinking overall, so there will be emotion behind it over those short periods.

And was it Keynes who had mentioned, I don’t mean to butcher this, but that “Markets can remain irrational longer than you can remain liquid.” So you have to expect them to be irrational for long periods of time.

Greg Davis: Right.

Rebecca Katz: Well, we’ve talked about expectations for the markets. Let’s turn to the economy and a question from Douglas, who’s asking, “What’s your expectation for Fed policy in 2019?”

Greg Davis: Yeah, Douglas, great question.

Originally, when we were coming into 2019, we were expecting the Fed to hike interest rates twice this year, in March and in June. However, given the recent rise in terms of volatility, the impact it’s had on financial conditions, we’ve revised our outlook; and we now expect the Fed to hike interest rates one time this year, given the fact that the uncertainty in the marketplace has increased. And we think that’s going to have a detrimental impact in terms of spending and things of that nature throughout the year, slowing economic growth.

Rebecca Katz: Okay. We had a question from Kathy in Michigan who was asking, “Do we predict a recession in 2019 because some other economists are predicting a recession?” We don’t, right?

Greg Davis: There’s always the possibility of a recession in any given year. Our recession probability has gone from about 30%–35% for 2019. So the way I would look at it is like there’s a 65% probability there’s not going to be a recession. Our base case in terms of economic growth in 2019 is about 2%, which we view as the long-term trend in the economy, given the structural factors. However, we do believe there is a rising risk of recession as you start to go into 2020 if the Fed keeps hiking interest rates.

Rebecca Katz: Can you elaborate on that? The interest rate hikes, that aspect.

Greg Davis: When you think about what the Fed is trying to do, as they continue to hike interest rates, in essence they’re trying to slow the economy down to some degree or try to limit the upside risk to inflation. They’re also managing their balance sheet in terms of how much easing or accommodation they’ve applied to the marketplace, and they’re pulling some of that back. That is tightening financial conditions in the marketplace and will slow down economic growth over time.

What the Federal Reserve is trying to do is find that balance of tightening just enough and not too much, but you never know if it’s too much until after the fact. So that’s the hard part.

Tim Buckley: Yes, this is Goldilocks. I mean it’s difficult. They have a difficult task.

Rebecca Katz: Yeah.

Tim Buckley: How to make sure they’re not stimulating the economy too much with low rates but not raising rates so high that they stifle all growth and we go backward. And you don’t know until—

Greg Davis: Yeah, it’s too late.

Tim Buckley: It’s too late. So, you know, best of luck.

Rebecca Katz: Yeah, a tough job.

Tim Buckley: It’s a tough job.

Rebecca Katz: So I will come back, since we’re talking about making the right calls. We did get a question saying, “Greg, how accurate were your 2018 forecasts made last January?” And you might explain how we think about forecasts, because it’s never a point forecast or a one-year forecast. So how do we do when we think through economic and financial market forecasts?

Greg Davis: They’re done on a probabilistic framework, so basically trying to say, “What are the various ranges of outcomes, and what’s the median outcome in terms of this return distribution?”

We think there’s going to be a distribution of returns, because we, again, don’t make point forecasts per se. And we have a median, we have a 25th percentile and a 75th percentile, and a whole range. In addition, we try to anchor around, “Hey, we think the median return for a specific market is going to be in this type of range.”

And so, when we look back in terms of what we got right and what we didn’t get right in 2018, and we didn’t forecast bitcoin, but I can tell you that Tim and I, last year around this time—

Tim Buckley: You’ve got that right.

Greg Davis: —we feel good about the fact that we thought bitcoin was a bit of a bubble. We didn’t understand the economics behind it, and in January, bitcoin peaked at about 16,800. Before we came over today, it was somewhere around 3,300 to 3,600, so a significant decline on the bitcoin space.

What else I felt we got right was that we did have a cautiously optimistic outlook when it came to equities. We said there’s increased risk for correction in the equity markets because as we came into 2018, valuations were stretched. We thought they were above fair value, and the risk of a correction was higher. And we did see that. We saw the equity markets down, so we have—

Tim Buckley: And they have pulled back into fair value.

Greg Davis: That’s correct, and we feel good about that.

When we thought about the bond market, we felt investment-grade corporate bond spreads or the yield differential between investing in a government bond and an investment-grade corporate bond or a high-yield bond, we thought those yield premiums were too low. And we thought those spreads were going to widen over time, and we did see that as investment-grade yields did rise by 60 basis points and high-yield spreads widened by about 180 basis points, relative to Treasury. Those were some of the things we got right.

In terms of the things we got wrong—

Tim Buckley: Okay, let’s stop there.

Greg Davis: In terms of the things we got wrong, I think we were a bit more moderate in terms of our expectations around the growth of the labor market. We were thinking jobs were going to grow somewhere in the neighborhood of about 150,000 jobs per month, and they were actually growing at a rate of about 220,000. And we thought that, hey, the ten-year U.S. Treasury was going to hover somewhere around 2.5%, and it did break out to the upside. So those two calls were probably a bit on the—

Tim Buckley: Coming back.

Greg Davis: Yeah.

Rebecca Katz: And you’re using this information as we’re running our actively managed, fixed income funds, correct?

Greg Davis: That is correct. It’s a key input.

Rebecca Katz: Yeah, it’s not just information for our viewers and our investors, but it’s actually work we’re using.

Greg Davis: Absolutely.

Rebecca Katz: Great. Let’s shift gears because we’ve touched on this. However, I know there are many people who’ve gone through this period of volatility who’ve said, “Maybe it’s time for a financial advisor. I might need some help.”

And we had that question from Elizabeth, up the road in Lancaster, Pennsylvania. She says, “I’ve been debating whether I should have a financial advisor. How should I expect an advisor to add value? Would they have helped me avoid these huge market declines?” Tim?

Tim Buckley: Elizabeth, if you have an advisor who’s telling you they can avoid market declines, run the other way. That’s an advisor who is a market-timer because they’re going to try to avoid declines—nobody can do that. At least I haven’t found the person that can do that consistently.

That’s not an advisor’s job. An advisor’s job is to add value well before market decline. To help Elizabeth to set up the right asset allocation for her, to make sure we rebalance that asset allocation to keep risk consistent, to manage it in a tax-efficient way, whether, Greg, it’s location that we care so much about or it’s tax-efficient drawdowns or tax-loss harvesting at a time of market downturns. These are all the areas an advisor adds value before decline.

Now in the storm, in the decline, what value do they add? They are the emotional circuit breaker. They are the ones who, when you’re panicked and you don’t like that volatility, they keep you from doing something foolish. They’re there to advise you, to say, “Okay, I know you want to sell out equities now, but it’s not the good long-term move. Look at the long-term horizon. You need them in your portfolio. Now is not the time.” They keep you from chasing return.

And to put a finer point on it, when we’ve studied people chasing return, right, Greg knows this, that those people who chase return on average, they will destroy about 1.5 percentage points of return in their portfolio over the long run. They won’t gain it. They will destroy it. An advisor will keep you from doing that.

So there’s a lot of value to Advice, and if Elizabeth wants to know more, feel free to give us a buzz for our Personal Advisor Services. We’ll happily take her through the value of an advisor. But don’t think of an advisor as “you’ll protect me from the downturn.” That’s not their role. Their role is to add value everywhere else.

Rebecca Katz: Great. And, again, the green button does have more information about PAS.

We’ll come back to advice. We’ve had a lot of questions about advice and advisors.

Tim, I’m going to give this question to you. Paul in Ohio says, “Because Vanguard offers such an excellent, low-cost variety of funds, ETFs, and services, it’s tempting to invest all or most of one’s assets with Vanguard. But is there an inherent risk in putting all of your assets in one basket?”

Tim Buckley: Well first, I would thank Paul for that kind of trust and then reassure him that there are different levels of security for him. First, he would have to worry about operational risk; and that’s a huge priority for us. We have a topnotch operational risk group run by a great investment mind we stole from Greg, Joe Brennan. On top of that, our information security’s our largest investment every year. That’s about keeping the clients’ assets safe.

Now, Greg’s job is to make sure they grow. The rest of us are here to make them safe, because that’s the number one priority. Make sure we keep those assets safe.

The next thing I think about is where do companies get in trouble? They get in trouble usually because they have leverage. They’re investing with leverage. We have an old adage in the investment world that, hey, usually everything bad starts with leverage, where you’re forced to sell something. Well, Vanguard doesn’t use leverage. We don’t invest with leverage. We’re not a company that’s levered up, unlike a bank or all the companies that got in trouble in the financial crisis.

Greg Davis: Financial crisis, yeah.

Tim Buckley: So you don’t have that leverage problem.

And then there’s the protection that our wise regulation protects us. The Investment Company Act protects us. It’s how mutual funds are actually constructed, and this is going to get a little technical for you.

But every fund that you invest in is actually its own entity. So it’s its own company, its own corporation. And the assets in one fund, if that fund has a problem, it has no claim on the assets in another fund. If Vanguard has a problem, we have no claim on those assets. In addition, to further protect clients, we don’t actually hold those assets. They’re custodied outside, and so the custody is outside of Vanguard and split and has the right protections and insurances around those.

So rather than thinking about you’re investing all your eggs in one basket, they’re actually invested in many baskets. They all just have the same name on them.

Rebecca Katz: That’s a great explanation. Thanks.

Another question about trust and doubt, more about what people hear in the media. “Through the media, we hear so many news and views and perspectives about the markets, the economy, etc. Sometimes those views are contradictory. As an individual investor, how do I reconcile all of this information and make smart decisions?”

Greg, we gave our point of view; and, obviously, if you watch TV all day, you hear lots of them. What do you do?

Greg Davis: It goes back to something we said at the beginning, this idea of tuning out the noise. These stories make good headlines, and you get asked questions about them, and you’ll see them in the media, what’s going to happen over the course of the next week or month; and people try to explain them and rationalize them, but it doesn’t really matter. Nobody’s going to care what happened this week when we look back five years from now.

These headlines create attention, clicks on websites, and get a lot of media attention. For long-term investors, they just need to tune them out and focus on making sure they you have the right asset allocation and the right level of risk in their portfolios.

Rebecca Katz: Is there anything investors should be listening for? Is there a key metric that we keep our eyes on?

Greg Davis: We look at many things in terms of economic indicators for our active portfolios to get a sense of how we think the economy’s accelerating or declining? But the key thing that we focus on when we think about our active portfolios is around valuations. So is there a disconnect between how the market is pricing certain instruments based on our economic view? And our active, fixed income portfolios will take positions, depending on if there’s a mismatch there and there’s value.

Tim Buckley: I’ll give you a perspective. We both know James Anderson, right? Actually, the three of us know James Anderson well. He’s one of our great portfolio managers, our equity managers. And I was talking with him once, and he said, “You could tell me what the rate increase is going to be, upcoming quarter by quarter, and that means nothing to me,” because he is looking out over the next decade; and what happens in the next quarter doesn’t matter much to him. It’s what’s going to happen in the next decade.

And that perspective rings through my head all the time when people worry about the short term too much.

Rebecca Katz: Here’s a slightly different take on that question from Christopher, who says, “As a new investor, what are some good resources to look at to learn about investing?” Thanks for that question, Christopher. So not so much what should I pay attention to in the news, but how can I learn more and get more educated?

Tim Buckley: Read all your publications, right?

Greg Davis: Yeah.

Rebecca Katz: Everything Greg writes.

Greg Davis: Yeah, well, it’s everything the team writes. There’s a lot of good information in terms of the value of different asset classes, how to structure a portfolio, which you can find on our website. And if you don’t know, we have good products out there when it comes to like target-date funds, balanced portfolios that will help investors ultimately meet their long-term objectives in a simplified way that’s kind of like a “set it and forget it.” So there’s a simplified way of investing and there’s a more complex way, and it all depends on how much research and time you have to do it on your own versus having a balanced-type portfolio already made up for you.

Rebecca Katz: Let’s go back to how we recommend people construct their asset allocation. John asks, “Vanguard seems to recommend a fairly high position in one’s portfolio to be allocated to international stocks.” We talked about international stocks potentially having higher outperformance. “Please explain why.”

Greg Davis: There are a number of factors. One, because you get the diversification from the various economies. We’re in various stages of economic growth when you look at the U.S. relative to Europe and Asia Pacific. We’re also in various different levels of monetary policy accommodation when you look at the U.S. relative to some of these other markets. You get the diversification of growth across different economies. You also have the diversification of sectors and companies. We have many U.S. multinationals that have businesses in different areas, but there are smaller companies, midsize companies in different business lines that these multinationals may or may not have access to or revenue streams from.

So it’s really about the concept of diversification—economic diversification, industry diversification—and we feel that highly diversified portfolios give you a better return relative to the amount of risk you’re taking.

Tim Buckley: If people have been investing with Vanguard for a while, they’d know we didn’t always advocate putting 40% of your portfolio toward international equities; it was 30%. Before that, it might have been a smaller number.

The biggest change, Greg, and you see this in the markets, what’s changed is the cost of doing it. That’s why we’ve increased the allocation. Before, the diversification wasn’t worth the cost. Now, with the efficient equity markets and fixed income markets and cheaper hedging—

Greg Davis: Hedging, yeah.

Tim Buckley: —it’s easier to do it in a cost-effective way. If people say, “Hey, why is this changing over time?” it has a lot to do with the cost of doing it.

Greg Davis: Cost.

Rebecca Katz: So the perspective and the belief in diversification was always there; it just didn’t make sense because of the cost.

Tim Buckley: Yeah, just was too expensive to do it.

Rebecca Katz: All right. We have so many questions coming in. Since we did talk about how hard the Fed’s job is, we have a question from Alvin, who says, “If you were the Federal Reserve, what would you do with interest rates?”

Greg Davis: You know, it’s a great question.

Tim Buckley: Watch out, they’re tuned in.

Greg Davis: Yeah. It’s a great question. I think one of the things I would recommend, and I’m sure some of my colleagues here would recommend, is taking the idea of a pause, and so actually reassessing what’s happening. So the Fed’s been on this course of basically tightening interest rates every quarter. We know monetary policy operates on a lag basis, so the idea of seeing what is actually happening and giving it some time to have an impact on the economy, wait and see, and then you could restart tightening. So the idea of pausing, reassessing, and then moving on, depending on market conditions. So we’re probably more geared toward pausing relative to what’s already priced into the marketplace.

Rebecca Katz: Tim, I’m going to ask you a different … well, this is the nature of these webcasts—we get varied questions so there isn’t a straight theme to hit.

Tim Buckley: Where are you going with this one?

Greg Davis: She’s warning you.

Tim Buckley: Yeah.

Rebecca Katz: This is a bit of a softball for you, Tim.

Tim Buckley: All right. Low cost.

Rebecca Katz: And it’s not because you’re my boss or anything. Frank would like to know, “What makes Vanguard different than any other financial institution and why should he feel confident about having his investments with us during this rocky time?”

Tim Buckley: Oh, well, I love that one. So thank you.

Frank, what makes Vanguard different, what he should understand is the mutual structure, that he’s an owner of Vanguard. So to explain the mutual structure again, that if you own the funds, the funds own Vanguard, and you essentially own Vanguard. You’re our boss. And we don’t have outside owners. We always remind people of that. We don’t have outside owners, whether private or public owners, which means that we only have to serve one group, our clients, those people who invest in our funds.

So when times are tough, Greg, right, we know with companies and times are tough, what happens? They worry about profits. And they have this conflict of should I maximize my clients’ returns or should I maximize the profits of my external owners?

We don’t have to deal with that. We have one goal to maximize the returns of our clients. And at tough times like this, you can rest assured that we’re still maximizing your return regardless of what we do. We’re putting your interests first because you are our owners. You’re our boss; we have to do that.

The other element is if Greg’s prediction comes through—I’ll say it’s our prediction—that it’s a low-return environment going forward, well, costs mean that much more. And you’re not going to find anyone with lower costs than Vanguard. I mean, we’re about a 50 industry average. Now you might find a couple products. But overall, you won’t find a lower cost portfolio. And you don’t want cost eating up your portfolio at these times.

Rebecca Katz: Right. Greg, we have a string of questions coming in live and everyone’s asking the same question, which is, “Do we think this crazy volatility will be over soon?” What do you think?

Greg Davis: It’s interesting how you describe it, “crazy volatility.” I think volatility is going to persist because we’re in a transition period in terms of the markets and the economy where it’s uncertain in terms of how far the Federal Reserve is going to go. We know we’re at the latter end of an economic cycle, so that is going to create increased volatility. But to Tim’s earlier point, volatility is just back to normal levels.

We’ve gotten so anchored to what happened in 2017, when we didn’t see any significant moves, when realized volatility in 2017 was the lowest level in 50 years. But people keep that in the back of their minds that that’s normal. That was completely abnormal. So we’re back to a period where realized volatility is about 17.5%, and that’s comparable to what we’ve seen over the last 30 years. So I think we’re going to be in this type of environment. It could have spikes here and there, depending on what happens from a geopolitical trade as well as the Federal Reserve standpoint.

Rebecca Katz: Right, not the new normal, it’s just the normal normal.

Greg Davis: That’s exactly it.

Rebecca Katz: Okay, great. We have a question from a Facebook Live viewer—hopefully, everyone is sending us lots of hearts on Facebook Live. The question is, “My son is 26, and he would say probably that Facebook is for old people. My son is 26, and he hasn’t started to invest. Where should he start?” So it’s a tough time, I guess, now if you’re taking your first leap into investments. What kind of advice or guidance do we have for her son?

Tim Buckley: Well, tough time, it’s a great time. Her son’s got a long-term horizon.

Rebecca Katz: That’s true. Things are on sale.

Tim Buckley: If you think about a new investor starting out, a long-term horizon can really take advantage of the power of compounding.

What we often tell people if you’re new to investing is “keep it simple.” Have a look at things like our Target Retirement Funds, balanced funds. We have a turnkey portfolio that starts aggressive when you’re young and gets more conservative over time. We would also tell a new investor—he’s probably got a job, and if he’s got a job—take advantage of any tax-deferred vehicle you get.

Rebecca Katz: Twenty-six.

Tim Buckley: And if you have a 401(k), max out your 401(k). If there’s a company match, take it, it’s free money.

Greg Davis: Absolutely.

Tim Buckley: If you don’t have that, an IRA is a great place to do tax-deferred investing. The government gives you a break. Again, take it. And always look to those low-cost funds. But those elements are great ways to get going and leverage that long-term horizon.

Rebecca Katz: Right. Yeah, the sooner you start, the more time you have for that money to grow.

Greg Davis: That’s exactly it.

Tim Buckley: Yeah. I’ll tell you a funny story around that one and the power of compounding because people don’t always get it. And I was amazed. I was chatting, it was my son. He was nine years old at the time. And I was trying to explain the power of compounding to him, and I told him, “Hey, in an 8% market return, your money’s going to double every nine years.” And we started kind of doing some of the math on it, and he disappeared; he ran upstairs.

And then he came downstairs with just a stack of random bills, and he handed it to me. And he said, “Dad, I want you to invest this for me.” I didn’t tell him it was below the minimum. “Dad, I want you to invest this for me.” And I said, “Well, for how long?” He goes, “I won’t need this for 40 years, 30 to 40 years.” And he figured, hey, you know what, maybe I’ll get like a 20 to 22 times return off this, and he figured it out. So if you’re 26, max it out. Think long term and you’ll be amazed with what the compounding will deliver.

Rebecca Katz: That didn’t work in my household. I’m going to invite you over to talk to my daughter. That’s funny.

All right, our next question is a shift in topic to index funds. And the question is, “Some of the analysts have been saying recently that passive investing in index funds has been ballooning, and it’s become a mania and investors should stay away from it.” We had a question just come in as well: “Are index funds still the way to go?” That’s from Steven. So a whole pile of questions around this topic.

I know you both have opinions on it. Tim, let’s start with you.

Tim Buckley: We’ll probably have both something to say on this because we hear a lot of it.

Index funds, really, they deliver so much good for investors. They’ve given them a diversified return, they’ve given them low cost. They will continue to do that. In fact, most active managers, you look over longer-term periods, only about 10% of them are able to outperform the market, so people are doing better with index funds.

And it scares the industry, so people speak out against it. It scares them that all the cash has gone toward index funds, and it’s gone toward low-cost active as well, but it’s gone toward index funds. So they push back against it, and you hear these crazy claims that it’s a bubble or it’s pushing up the market or undermining the price discovery in the markets.

Well, truth of the matter is we’ve looked at this and, yes, it makes up 35% of mutual fund assets, depending on the account 40%, and that’s the lens people like to talk about. The truth of the matter is if you look at the equity markets, what is it, about 15% of equity markets are in index funds, hold 15% of the market, but they’re 5% of the trading on any given day.

Greg Davis: So that means 95% of the trading volume is actually coming from active managers and other participants. They’re setting the price.

Tim Buckley: Yeah, that’s price discovery. So with index funds, you have all these active people setting the price; index funds just buy it at that price. They don’t push it up, they don’t push it down, they just buy it where active is setting it. So you have plenty of price discovery. It’s not a bubble.

Rebecca Katz: Well, a different type of fund, but a similar question. Lewis wants to know, “Due to rising interest rates, there’s been negative press about holding bond funds.” There’s been a lot of negative press generally. “What is Vanguard’s response to that?” Do you think they should still hold them?

Greg Davis: We believe that holding bonds is an important diversifier in a portfolio. Tim had mentioned the ballast, and it’s absolutely important in a diversified portfolio to have bond exposure. But the things investors have to remember is that if you have a long-term time horizon, you’re actually benefitting if rates rise. So if you’re investing in a medium-term, intermediate-term bond fund and you have a 10-, 20-year time horizon, if rates rise, those coupon payments, those principal payments are being reinvested at a higher rate. So your total return in the long run is actually higher if rates rise versus rates staying the same or declining. It’s something investors don’t take into consideration. When they hear that rates might rise, they forget that in the long run if you have that type of time horizon, you’re still better off if rates were to rise if you’re invested in the shorter intermediate-term bond product.

Rebecca Katz: And the issue is that when interest rates go up, typically bond prices will fall.

Greg Davis: Correct.

Rebecca Katz: And so your mutual fund bond NAV has to fall.

Greg Davis: Will decline, exactly.

Rebecca Katz: But it’s a short-term phenomenon.

Greg Davis: That’s exactly it.

Rebecca Katz: Why don’t we turn back to the economy. Here’s a question from Lou, who says, “Do you think the high public and private debt levels constitute a serious concern to economic growth in the U.S.?” This comes up consistently as we’ve been unable to reduce our debt. Are we worried about that?

Greg Davis: Yeah, it’s absolutely concerning. You get to a point where, whether it’s at the level of corporate debt or even government debt that it starts to become a challenge in terms of refinance ability. So if you look at the level of corporate debt, we’ve seen it continue to grow, we’ve seen leverage rise. We’ve also seen the percentage when you look at the U.S. investment grade market, 50% of that market is now rated BBB. That’s at an unbelievably high level, and there’s concern that over time if you get to an economic downturn, some of that debt could easily migrate to high yield, which could be a bit disruptive.

The other key thing is that—

Tim Buckley: Migrating to high yield’s not a good thing.

Greg Davis: It is not. Basically, those are junk bonds at that point. They’re no longer considered investment grade.

But the other thing we have to keep in mind is that the U.S. government is running federal budget deficits, to the nature of we’re expected to have to borrow, net new borrowing needs for the next four years of about $5 trillion. So about $1.25 trillion per year of net new borrowing.

Well, we also know that international buyers, to some degree, have been pulling back in terms of how much they’re investing in U.S. Treasury bonds. That additional supply will need to be digested by U.S. investors, much of it. As a result, U.S. investors have a choice. If they are going to buy more of that debt, they’re likely going to demand over time a higher yield to digest it, and so that could crowd out other markets and could reduce economic growth for a variety of reasons because that debt servicing cost will grow and grow and grow over time. As interest rates rise, it starts to compound the problem.

Tim Buckley: It’ll crowd out other markets and other government spending.

Greg Davis: That’s correct. That’s exactly it. It’s a significant risk.

Rebecca Katz: It’s a big policy issue too. Let’s see, lots of questions about national debt and the risks it poses to financial assets.

How about this question from Robert, who says, “At a fundamental level, how does investing in mutual funds differ from investing in individual stocks?” And why do we continue to hold positions in things when we know the market’s overpriced. Couldn’t you pick certain stocks where price is more reasonable? So why a mutual fund over individual stocks?

Tim Buckley: Do you want me to take the first one, you take the second part?

Greg Davis: Sure, sure.

Tim Buckley: Really, it’s about diversification. And recently a study came out that showed that if you go back to 1926, 4% of the stocks made up 100% of the stock market return. 4% of stocks make up 100% of stock market return.

Rebecca Katz: Wow!

Tim Buckley: Now that 4% changes over time, but if you’re active and you want to own individual stocks, you’ve got to be fairly certain you’ve got one of those companies, one of the rare 4%, that you’re going to do better because the rest of the companies actually get you about a T-Bill return.

Greg Davis: A lot of risk.

Tim Buckley: It’s a lot of risk. You really have to be careful. When you own the whole market, you don’t have to worry. You’ve captured those companies that will do well. You don’t have to worry: Did I get it right or not?

Now if you want to be more active, go after those active managers you think have the ability to find those companies that differentiate themselves over the long term. We spend a lot of time studying those managers, working with those managers. We’re proud to say that we have found many of them and they have outperformed the markets over the long run. But they do it and they do it by 80 to 100 basis points, and they keep it because we have low costs. However, it’s tough to beat the market and find those companies.

Greg Davis: And in terms of the question about being fully invested when there’s a potential forward downturn or things look overvalued, I mean, again, to the earlier points, it’s difficult to time the markets. When to get in, that’s one decision in terms of if you’re going to sell, well, when do you get back in? So you have to make two decisions and you have to make them right in the same way.

And then the other—

Tim Buckley: I’ll give you an example of that. I had an early mentor. In 1991, I entered this business. He was telling me, “Stocks are overvalued. Lay off stocks, they’re overvalued.” I would have missed the decade of the ’90s if I listened to that advice.

Greg Davis: And the thing to remember is that when we see a market downturn, a downturn in the equity markets on an individual day, usually some of the biggest returns positively are shortly thereafter. So if you’re out of the market, you’re going to miss those rebounds that happen. Again, that’s why we think timing is a futile exercise. Investors need to stay focused on the long run.

Rebecca Katz: All right. Well, with that said, we’ve talked a lot about diversification, but we have a more specific question from James in Pennsylvania, who says, “As investors, how do we think about bonds versus stocks given that neither have performed terribly well in 2018?” So I think what ultimately this is getting to is how do you think about your asset allocation, especially in light of poor performance?

Greg Davis: I think the best way to think about it is the amount of risk you’re willing to bear. So that asset allocation, so just think about if you’re 100% in equities, a typical 60/40 equity bond portfolio is going to have 37% less risk from a volatility standpoint. So how much you want if it’s 60/40, if it’s 70/30 or 80/20, whatever the case may be, a big part of that driving factor is how much risk are you willing to take when it comes to your investment portfolios? Because depending on how balanced it is, you can have the ability to reduce the risk relative to what you see in the equity market.

Tim Buckley: And, Greg, maybe touch on that usually equities and Treasuries don’t go in the same direction.

Greg Davis: That’s right.

Tim Buckley: And you’ve got an exceptional period going.

Greg Davis: Normally, you would expect that if there is a downturn, a major downturn in the equity markets like we’ve seen, normally what you would expect is that high-quality bonds, like U.S. Treasuries, will benefit from a flight to safety that tends to happen. Uncertainty, so typically you’ll see money flowing into U.S. dollars because of the high-quality nature of the U.S. market, and then into Treasuries because it’s the most secure asset class. So normally, there is the diversification benefit, but there can be periods where that diversification benefit declines. But in the long run, it tends to hold.

Rebecca Katz: One of the challenging things we always talk about or tell investors, “You need to think about your risk.” And I think for many people watching who maybe are novice investors, understanding how much risk I could take in any particular time might be difficult. I guess it’s one of the reasons you could potentially talk to an advisor, but, Tim, I mean how should people think about gauging what their risk tolerance is? It’s an abstract concept.

Tim Buckley: Look, it’s one of the toughest things to gauge, figuring out your risk profile? We have questions we ask you, “How would you behave in a 20% market downturn? How about a 30% market downturn?” There’s gamification, like we try to simulate and see what your behavior is.

The best way to understand your risk is to look how you behave. At the end of December, were you pulling your hair out? Were you checking your accounts? Could you stomach—

Greg Davis: Did you lose sleep?

Tim Buckley: Did you lose sleep, or did you not even know what was going on? Because part of it is, can you ignore the short-term gyrations in the markets, and do you have the ability to withstand those downturns?

Greg mentioned this, maybe you have too much. If you’re worried a lot, maybe you have too much in equities. As most people, you think about your equities, I’m not going to touch them for years, so the market doesn’t matter. I still have liquidity. I can pay my bills. I don’t have to change my lifestyle much. But the best thing is to look at your own behavior when we’ve been through a market cycle.

Greg Davis: And then keeping in consideration time horizon. So if you need the money in the course of the next year or two, being in a full—

Tim Buckley: Yeah, don’t go in the market.

Greg Davis: You don’t want to be in the equity market.

Tim Buckley: No.

Greg Davis: Right? Because there’s too much volatility. If you need the money in the short term, a portfolio will look different than somebody who’s looking to save a 20-year retirement horizon or something like that.

Rebecca Katz: I have a slightly different question from John, and it’s a good one: “All of my Vanguard investments are mutual funds. Is there any reason to switch over to ETFs?” Greg, your team runs both the funds and the ETFs so maybe you could take this one.

Greg Davis: From the ETF standpoint, the way we manage portfolios, we’re agnostic as a portfolio manager because we manage it as one pool of assets, and we manage the portfolios according to the benchmarks and things of that nature. But for an investor, an ETF gives you greater flexibility from a tax-loss harvesting standpoint, so it gives investors another conduit in terms of managing their personal financial considerations. For some investors, depending on which type of account that you’re in, the ETF could be a superior structure for those investors.

Rebecca Katz: I have about five questions and they’re all the same, “Please explain Vanguard’s advice services. What are the advantages of Vanguard’s personal advice services? What do Vanguard’s financial advisors do for their clients?” Lots of interest in this topic. Tim, do you want to elaborate?

Tim Buckley: On Personal Advisor Services? Sure. I’ll use the acronym PAS and talk about what it is and the value you get. The thing about PAS is taking the best of technology and the best of a Certified Financial Planner™ professional. We leverage technology to help set your asset allocation, rebalance your portfolio, do all the rote things, the tax-loss harvesting you talked about. We’ve automated all of those. The tax drawdowns, do it efficiently and do it effectively. And by automating it, we can bring the costs way down. Where most people will charge 1% to run the portfolio, we’ll do it for 0.3%, 0.3. And you still get a person with that. So it’s not just a robo answer; you get a Certified Financial Planner professional who can help customize your answer. Can understand what your goals are, what you’re trying to achieve.

If you’re in retirement and you want to start a bike shop, you want to buy that extra home, should you do it, should you not? They can help you think through that. They can help you think through what you do for your kids. That’s the added advantage of having a person. They also will be that coach when you want to do something silly. When the markets are taking off or tanking, they will be that emotional coach for you. So they play a big role, but that’s essentially what you’re getting—the best of technology and the best of a Certified Financial Planner professional combined together.

Rebecca Katz: We have a follow-up question for you, Greg. “Can you explain the yield curve and whether it predicts recession?” I think that’s coming from the headlines we heard when there was a yield curve that was inverted, which you’ll have to explain, and everyone said, “It means recession.”

Greg Davis: The yield curve is … imagine the maturity distribution of the bond market. Anything from a three-month Treasury Bill all the way out to a 30-year bond and all the points in between. If you were to put a dot on each one of those points and then connect the line, that will shape a curve.

Normally what happens is that curve is upward-sloping, meaning that three-month T-Bills, six-month T-Bills have a yield that tends to be lower than what you find for a 10-year bond or a 30-year bond because those investors are, in essence, taking on risk by lending the government money for 10 years or 30 years relative to lending them money for a 3- or 6-month period. So it’s upward-sloping.

Now typically before a recession starts, you have what’s called an inverted yield curve. That means short-term rates are higher than what you would see in the 10-year part of the curve. When that happens, it’s telling you the market feels there’s going to be an economic slowdown. It’s also going to have an impact in terms of the banking sector from the standpoint that banks’ ability to make money between how they get money in, in terms of deposits, to paying a higher rate relative to what they’re lending, that’s not profitable for banks and that tends to cut back lending activity.

Rebecca Katz: I see.

Greg Davis: So those types of things slow the economy down. Historically, when you’ve seen an inverted yield curve between 2-year rates and 10-year rates or 3-month bills and 10-year rates, that’s been the precursor for a recession. And it’s been accurate over the course of the last 50 years.

Tim Buckley: It predicts it going out 2 years.

Greg Davis: Correct.

Tim Buckley: Right, so it’s not like it’s just inverted.

Greg Davis: It’s not immediate.

Tim Buckley: We have a recession now.

Rebecca Katz: I see.

Greg Davis: It takes time.

Tim Buckley: There’s a two-year fuse and a lot can happen over those two years.

Greg Davis: Absolutely.

Rebecca Katz: That makes a lot of sense then when the headline said we’re entering recession and we didn’t. Maybe we’re not there yet.

You know, obviously, this has loomed large in the headlines and people’s minds. Ray wants to know, “What impact do you think the current federal budget standoff will have on the market short term and long term.” We’ve talked about the government closure and what that means for investors. What are your thoughts on those issues?

Greg Davis: Our Investment Strategy Group, our economics team, they’ve looked at it, and they’ve estimated that for every week we have the government shutdown, it could shave off anywhere between .10% and .15% in terms of quarterly GDP on an annualized basis. So if we’re expecting to grow at, call it 2% for the quarter on an annualized basis, if we have a shutdown that lasts five weeks, we could be potentially shaving off .50% in terms of quarterly annualized GDP growth. So the longer it lasts, the more impact it’s going to have and greater concern about the impact it’s going to have not just on economic growth but the financial markets to some degree as well.

Rebecca Katz: I assume the uncertainty of when it’ll end is what drives the financial market volatility.

Greg Davis: That is correct. Markets do not like uncertainty.

Rebecca Katz: None of us like uncertainty. We’re going to do a lightning round as we’re getting close on time. John wants to know, “Is there’s a rock investors can hide behind until the current political and economic crisis is over?” I’d like that rock myself, I think.

Tim Buckley: A balanced portfolio.

Rebecca Katz: Yes.

Tim Buckley: I mean, look, we sound like we keep just saying “balanced portfolio.” It’s the best rock you can hide behind. Make sure you’re balanced and diversified. Diversify, weigh your risks, keep a balanced portfolio, and hide behind that. Going all cash is way too risky.

Rebecca Katz: Okay, great.

Greg Davis: Agreed.

Tim Buckley: You get the next one.

Rebecca Katz: I think this one is for you, actually. Tim, it’s—

Tim Buckley: I really have no control.

Rebecca Katz: —a little different, yes.

This is from Barry. It goes back to something you said earlier. “I read several articles this past year of bank fraud where banks have lost millions of dollars, and fraudsters are getting much more sophisticated. Can you give your investors comfort about the security Vanguard provides?”

Tim Buckley: Oh, sure, I’m sure Greg could have answered this question too because it’s a huge priority for all of us, for the leadership team here.

Information Security, I mentioned it’s the largest investment we make every year. We figure out what are the best practices. We go after the best talent we can. We never sit back, so we’re not complacent. And we follow something that’s called “defense and death.”

So we look to harden every area. Let’s make sure that our firewall, we have the best hygiene on that firewall. But then we assume the firewall’s penetrated; and so you end up, okay, someone’s here in the network. Can they wander the network? No, that’s segmented off. And then they get through the network. They get to application. Well how is that application se— It’s secured down. And at each step you assume the last one was, had a fault and was broken through. So you have layer after layer after layer of security.

And just when you think you’re done, there’s a new thing you have to secure and a new way to do it and a new technology you have to roll out. And that’s why that investment has grown multifold, even in the past five years, and I expect it will continue to. It’s a sad state of affairs, but it’s a reality.

And, fortunately, we have the resources to do it. I worry about the smaller companies that don’t. But we have the resources to get it done.

Rebecca Katz: And this is an interesting point, one of the things I’ve heard you say is this is one area where we do talk to our competitors and we do collaborate because it’s in everybody’s best interests.

Tim Buckley: Yeah, you know, competition brings out the best in everyone, in the return environment, for value for our shareholders. But we don’t compete on information security. If we see something out there that could be a threat, we will tell our biggest competitors that it’s happening so they can make sure they’re secured down, and they do likewise for us.

Rebecca Katz: Well, we are steadily running out of time. Why don’t I give Greg one more question, and, well, we’ll see how many we can get through.

Greg, we have a question that says, “When investing in international equity, should I worry about the exchange rate risk?” And you did talk about the dollar a little bit. “Should I consider currency hedging?” I don’t know if everyone knows what that is, but how do you think about that when you’re investing internationally?

Greg Davis: When you think about equities, for the most part, because the equity market returns are going to be the most volatile component, and that’s where you’re going to get the majority of the returns anyway, we say, “Hey, you don’t really need to hedge out the currency risk when it comes to international equity investing.”

Now it’s a completely different story when you think about the bond market because currencies can be so volatile, and bond market returns tend to be much more muted relative to equities and foreign exchange. So when you’re talking about investing in international bonds, we absolutely say you should hedge out that risk.

Rebecca Katz: Right.

Greg Davis: Because in the long run, you’d expect the return from currency exposure to be zero in the long run, but there’s going to be a lot of volatility. And when you’re investing in equities, it’s fine. It’s just baked in there, and it’s less of a concern. But if you want something that’s very conservative like bonds, we think you absolutely need to hedge out that risk.

Rebecca Katz: Right, and then our international bond funds are hedged.

Greg Davis: They absolutely do that. That is correct. Hedged back to the U.S. dollar.

Rebecca Katz: Well, unfortunately, guys, we’ve had a lot of questions left and we’re out of time, which means you’ll have to just come back, and we’ll do this again.

Tim Buckley: We’re happy to do it.

Greg Davis: Absolutely.

Rebecca Katz: Tim, I wanted to allow you to have final thoughts and maybe speak to the investors.

Tim Buckley: Sure, yeah, you bet.

Well, first, I want to thank all of you for tuning in tonight. We appreciate your time. More importantly, we appreciate the trust you have put in us. You have put with us your assets, and we see those assets as your future; and that is something we will never take lightly.

Now we don’t know what 2019 holds. This was A Look Ahead to 2019, but it could echo 2018 and have plenty of volatility. If it does have that volatility, remember, keep that long-term view. And if you get concerned, please give us a call before you do anything you’ll regret. Thank you for tuning in tonight.

Rebecca Katz: Thank you. Thanks to both of you for the information, for spending the time, we always have a good laugh as well, and for the great advice you’ve given our shareholders tonight, so thanks.

Tim Buckley: You bet.

Greg Davis: You bet, thank you.

Rebecca Katz: And thanks to all of you, members of our Vanguard community, for spending an hour with us tonight. If you’d be gracious enough to give us ten more seconds of your time, there’s a red widget. It’s got a survey. Please tell us how we did, what else you’d like to see in the future, and any thoughts you might want to share with our CEO and CIO.

In a few weeks, we’ll send you an email with a link to a replay of tonight’s broadcast. We’ll have highlights and a transcript for your convenience.

And be sure to check out our new podcast series. It’s called The Planner and the Geek, featuring Vanguard’s own Maria Bruno and Joel Dickson. I could tell you which one’s the planner and which one’s the geek. To listen to the podcast, just click on the green Resource List widget, and you can listen to an episode.

It’s been great spending time with you tonight, but let’s keep talking. Visit us on facebook.com/vanguard or tweet at us by tweeting #Vanguard_Group.

That’s it from all of us here in beautiful Malvern, Pennsylvania. We wish you and your families a happy and healthy 2019, and we’ll see you next time.

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