Tyler Mathisen: Welcome back, everybody. We are now just five days away from the Fed’s rate decision on Wednesday. Powell and company have hiked rates 11 times since March of just last year. And that historic pace has pressured the traditional 60/40 portfolio, with the Wall Street Journal reporting that strategy lost 17% last year. It was a bad year for stocks. It was a bad year for bonds. It's the worst performance, in fact, for that model since 1937.
So, with another chance of a hike next week, should investors ditch tradition and move away from the 60/40 mix? To discuss that and more, let's bring in Vanguard CEO Tim Buckley, along with Bob Pisani from Vanguard's headquarters to discuss. Hi, Bob.
Bob Pisani: Tyler, great to see you. I am right on the trading desk. Vanguard has revamped its trading desk. It's beautiful, it's sleek, it's modern. We're in Malvern, PA, and we're talking with the man in charge. Tim Buckley is the CEO of Vanguard. Thanks for joining us. Thanks for having us today.
Tim Buckley: You bet. Pleasure to have you.
Bob Pisani: Really appreciate it. So, I think the problem right now is investors are really confused. They're confused about the state of the economy. They're confused about should they stay in their 5% 10-year Treasuries and clip coupons and stay out of the stock market. Do they go back into the stock market. What is Vanguard telling their investors right now?
Tim Buckley: Bob, boring is successful. Stay the course. You probably knew I'd say that, but every environment has its temptations. Believe it or not, right now it's cash. So, we live in a 5% world. If you ask us the 10-year (return) outlook on stocks, around 5% for U.S. stocks a year for the next 10 years. Bonds, you're looking around 5%. So, people look at cash and say, well I'm making a little more than 5% there, why don't I just go to cash?
The problem with that is we're now talking about something new to most investors. Something you and I talked about in the ‘90s would be income risk. The fact that you can be getting a 5.3% yield, but suddenly the Fed starts cutting rates and you got to know, you have to know that perfectly, if you're in cash, bonds will have moved away from you, stocks will have moved away from you. Stay the course. It's nice you're getting paid for your liquidity. Just enjoy that. Don't double down on it.
Bob Pisani: Based on my emails, the viewers are loving their 5% Treasuries and don’t seem very interested in stocks. And yet we talk about a 60/40 split that Tyler was mentioning there. Is that gone away? That still makes sense, doesn't it? Do we want everyone suddenly sitting in Treasuries?
Tim Buckley: The fundamentals of investing, Bob, have not changed. Bonds are great for ballast. You've got this set income stream, you got senior claims on assets, but you need the equities for growth. We always say that's the wind in your sails propelling you forward. So as companies grow, you actually get to benefit from that earnings growth. And trying to time that, that's a fool's errand.
Bob Pisani: It's one of the fundamental principles on which Vanguard is founded. Jack Bogle said from the beginning, I met him in 1997, he said market timing doesn't work. I want to hear more about why you need to understand your risk profile. Why going forward, you need to stay invested long term. That's what Vanguard's been doing for years and years. Can you get that message out consistently, because people seem a little concerned. They seem a little panicky.
Tim Buckley: Well, we don't see that with our investors. They stay the course. Very few actually transact and move away in their portfolio. That doesn't mean that they're (not) concerned, but they stay the course and benefit over the long run.
Bob Pisani: Baby boomers need financial advice right now and not just what kind of stock picks or mutual funds I should own. You've gotten into the advice business, 30 basis points now you can hire Vanguard for it. That just started a couple years ago. It's sort of a new business line for you. How is that going and what are you finding people want to know about?
Tim Buckley: For us it's been a booming business, full financial planning for 30 basis points, digital for 15 basis points. And for us, client success is determined by the funds they hold and the advice that they get on those funds. We've been working on that fund side, can we lower the cost of investing, let you keep more of your return. Now we're doing it on the advice side. Full financial planning, 30 basis points, all in. Advice for less than an active fund would cost you.
Bob Pisani: Vanguard manages $7.8 trillion. It is hard to get your head around that. I tell people, to give you an idea, the U.S. government spent $6 trillion last year. That was the budget of the United States, 6 trillion. And you managed $7.8 trillion. It's a staggering responsibility. It's an awful lot of new people coming into Vanguard over the years. There's been complaints about the service level. I know you're trying to address that. Can you tell us what you're doing to make sure the service is at the level Vanguard investors are expecting?
Tim Buckley: You bet. First of all, the $7.8 trillion, that's the money of our 50 million clients. We always want to make (clear) that it's their money and they deserve the best service. They are our owners, so we serve them. And a few years ago, we looked at our service and said, hey, we're going to make a big jump here and we are going to totally modernize our digital experience. And 92% of our digital experience now has been modernized. That's just not just the look and feel and the flow; that's back in now cloud native, super available, we're pretty close to five 9s availability. Client satisfaction scores have jumped 70% since a couple years ago when some of those concerns were coming in.
Bob Pisani: Low-cost investing that's what the whole company was founded on 50 years ago. Active investing is coming back, but you're still doing it low cost in a way. What would you tell people to do right now who are concerned long term? Is Vanguard successful at educating people on the long-term investment principles the company was found on. Frankly we're in an era where a lot of people can make trades and bet on sports as easy it is to bet on stocks at this point. It's a tough environment to teach fundamentals of investing in behavioral economics right now.
Tim Buckley: Bob, I think when people come to Vanguard, they've usually learned a lesson somewhere else that market timing, trading meme stocks, doesn't always work for their long-term retirement. And so they come to Vanguard and realize that, hey, that buy-and-hold strategy, keeping more of your return, keeping costs low, staying diversified, staying tax-efficient, that's a winning game plan for the long run.