How America Invests 2020 [Vanguard]

[Midpack]

For those who don’t follow Vanguard, this might be of interest to some (less experienced) investors.

https://personal.vanguard.com/pdf/ho...tion-guide.pdf

https://personal.vanguard.com/pdf/ho...vests-2020.pdf

Quote:

Choosing Vanguard means partnering with a different kind of investment company—we’re client-owned. As a client-owner, you own the funds that own Vanguard. This unique structure allows us to prioritize your needs and leads us to advocate on your behalf and on behalf of all investors. As investors, your needs have evolved, and it’s become more crucial for us to understand your behavior so we can better help you achieve investment success. Vanguard has been researching investor behavior for decades. This year, we’ve expanded our research and thought leadership with the introduction of How America Invests—a comprehensive look at individual investors and an evolution in our understanding of investor behavior. We’ve gathered these research insights informed by more than 5 million retail households (from 2015 thru 2019). Publishing a study of this scope is a natural extension of our passion for developing a deeper understanding of investor behavior. How America Saves, which explores the investing behavior of employer-plan participants, is in its 19th year of publication.

[Bruno]

Thanks for the articles.

[chassis]

Quote:

Originally Posted by Midpack For those who don’t follow Vanguard, this might be of interest to some (less experienced) investors. https://personal.vanguard.com/pdf/ho...tion-guide.pdf https://personal.vanguard.com/pdf/ho...vests-2020.pdf

Interesting. Advised portfolios decrease equity weight over time. No surprise because that’s the flavor of the kool aid.

Self directed portfolios make a less pronounced shift from equities. People acting in their own interest choose actions differently than people with advisers. Are self directed investors right or wrong?

What are the portfolio performances for the two categories of Vanguard clients? Didn't see this in the attachment.

[Out-to-Lunch]

But I see a problem! And it was not addressed in their methodology.

Our household is close to 50/50 at the moment. But Vanguard thinks we are at 100/0. That is, I have all of our bonds in 4xx-type accounts, and our Vanguard (taxable and Roths) are 100% stock. I have not "told" Vanguard about the other accounts.

I cannot be the only one!

[Sunset]

Quote:

Originally Posted by Out-to-Lunch But I see a problem! And it was not addressed in their methodology. Our household is close to 50/50 at the moment. But Vanguard thinks we are at 100/0. That is, I have all of our bonds in 4xx-type accounts, and our Vanguard (taxable and Roths) are 100% stock. I have not "told" Vanguard about the other accounts. I cannot be the only one!

You are not alone..

Our Vanguard funds are nearly 100% stock in Vanguard funds/ETF's
A little is in Wellington, but overall probably 95% stock allocation.

They cannot see the other brokerages, and online bank CD's.

[Carol1862]

Quote:

Originally Posted by Out-to-Lunch But I see a problem! And it was not addressed in their methodology. Our household is close to 50/50 at the moment. But Vanguard thinks we are at 100/0. That is, I have all of our bonds in 4xx-type accounts, and our Vanguard (taxable and Roths) are 100% stock. I have not "told" Vanguard about the other accounts. I cannot be the only one!

Exactly

[Taxman59]

I also note the "Characteristic of Vanguard retail households" 1 account, 2 investments, 1 member of the household, age 54 and an average balance of $60,900. This doesn't reflect the typical member of this board.

[sengsational]

Yeah, no one of the three (Vanguard, Fidelity, Hewitt 401k) can know what my AA is. It's like the blind men describing the elephant.

[SecretlyFI]

Very true. Several months ago I finally agreed to a free consultation call with VG, since they were trying hard to sell me their PAS services. I knew I wasn't going to sign up but agreed to the call because I had questions on this exact topic that I was curious to hear the answer. The rep started with an overview of their PAS (AUM) services, including quarterly rebalancing, then moved onto Q&A.

His first question for me was what my AA is. When I told them 80/20 and the rationale behind it being that I factor in pension and SS on the fixed side, the guy was very honest with me. He said they are not even allowed to have a client at such high equity % because it's considered too aggressive. He said they have to get special approval to have a client at 80/20.

I then told him that actually my Vanguard holdings are more like 100% equity because my 401k is at FIDO and that's where I hold bond investments (thank you, pb4uski). I then asked the question I was most curious about - since my VG holdings are 100% equity, how would they perform any rebalancing, since my bond holdings are at a different brokerage and in a 401k which they can't manage. He was again very honest and said they can't. I think it was at this point in the conversation, about 6 minutes into a 1 hour call, that he told me I am the ideal DIY investor and would not really benefit from their services. I applaud the honesty, again.

I did ask several more questions about the areas where I could see needing help in the future, hoping they could be the smart ones helping me. I asked about whether they provide tax related consultation to figure out withdrawal sequence, considering things like ACA thresholds and keeping MAGI at a certain level. I also asked if they factor in Roth conversions and provide a holistic approach to withdrawals / conversions from each source. I also mentioned my concern about the tax torpedo at RMD age.

He said they don't really recommend Roth conversions, since they don't provide much tax savings. He used my current 401k balance as an example. It's a bit over a million right now and he said when you start RMD's, let's say your first year you have to withdraw 5%. On a million dollar balance that would only be $50k, so see, that's not much taxable income, right? But sir, I said, my RMD's would be starting 20 years from now. So a $1.4m 401k today could grow to around $3.7m by then, just using a 5% growth rate. That would be a $185k RMD and that's in addition to my pension, SS and dividends/cap gains in my taxable investments. So that's a pretty high tax bracket, right? He agreed.

On the question of withdrawal strategy, he basically said they follow a formula which always uses taxable first. I didn't love the idea of a set formula which "always" does anything. He also was honest in saying that any advice along these lines is more of the "side dish" alongside their main course of AUM work and said they really are not allowed to give specific tax advice. This aligns to the usual disclaimer I see on their website, emails and documents reminding us that they are not allowed to give tax advice.

So this was a worthwhile call to have, as it clarified and confirmed their limitations for me and boosted my confidence that staying DIY is the right course for me.

[Midpack]

^^^ Thanks for sharing the exchange. From my discussions over the years Vanguard “advice” is good for people who can’t or don’t want to understand much about investing - and that’s a sizable segment. The advice they give is essentially the same for all, the personal tweaks are pretty subtle if any.

For a DIY investor with moderate to advanced needs, Vanguard is not really staffed or trained for that, which keeps expenses low as DIY investors usually prefer. And they won’t touch tax planning with a 20 foot pole, I’ve tried several times. You’re on your own there.