Bill McNabb was decidedly straightforward in a note about the unprecedented concerns he’s hearing from investors and 401k participants.
“Never before—not even during the global financial crisis—have investors come to us so concerned with such specific questions about the movements of the markets and governments around the world,” McNabb, CEO of 401k behemoth Vanguard, wrote. “We certainly can’t predict what 2017 will bring. And if you know Vanguard, you should know not to expect hot stock tips or “sure bets” from us either.”
However, he did provide reassurance in the form of the following four “can’t lose” ideas, which are fundamental, but with all that’s happening, easy to forget.
- Prepare for uncertainty.“Several political and economic events caught observers by surprise in 2016, including the results of the Brexit vote in the United Kingdom and the presidential election in the United States. Markets respond to surprises with volatility, and we expect more surprises in 2017. With a new administration in the U.S. comes the potential for changes to policies that affect investors. Some changes may benefit investors, some may trigger market volatility. The best approach for investors in any environment is to maintain a long-term perspective and a balanced and diversified portfolio.”
- Save more.“In addition to the potential for near-term volatility, we expect the stock and bond markets to produce lower returns in the next 10 years than they have over the past several decades. If markets produce less, that places the burden on investors to save more. We recommend that retirement investors save 12 percent to 15 percent of their income (including any employer match). Saving more is an asymmetrical proposition: If you don’t save enough and the markets don’t bail you out, there’s nothing you can do. If you over save and do well, then great—you can retire a few years earlier.
- Safeguard your assets.As the threat of cybercrime continues to grow, we work hard to protect our clients’ assets and data. But investors must be aware of the risks and take steps to protect themselves. One action you can take to further protect your accounts is to sign-up for two-factor authentication. It’s a simple step that can make your assets even more secure.
- Stay well-informed. Great investors understand how all the pieces fit together. Become familiar with all the funds in your portfolio, and know the role that each one plays in your investment plan. Stay abreast of the markets and economy, but don’t be driven by their movements. I realize it sounds paradoxical to say stay current but resist the urge to act. But that’s exactly what you should do.
The note came on the heels of recent commentary from McNabb in Vanguard International Vale Fund’s annual report, in which he had an equally blunt take on whether or not active management is “dead.”
After claiming that over the three years ended August 31, 2016, investors poured more than $1 trillion into index funds, and that indexing now accounts for nearly a third of all mutual fund assets, McNabb said his response “is both yes and no. High-cost active management is dead, and rightly so. It has never been a winning proposition for investors. Low-cost active funds, though, can potentially play an important role for investors who seek to outperform the market.”