Senior Vanguard Strategist: These Were the Smartest Moves American Investors Made in 2020

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When the COVID-19 pandemic struck and the stock market buckled, financial advisors urged Americans to stay the course and not make any rash moves around their investments. Taking a page out of the Warren Buffet playbook, money experts generally espoused a “keep calm and carry on” mentality. “Times like these stress test not just the market, but individuals too. Try not to be swayed by your emotions. Unless you have an immediate need for cash, do not sell your assets out of panic,” Dhruv Arora, CEO of the digital wealth manager Syfe told CNBC on March 15.

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Did Americans heed this advice? According to “How America Invests,” new research from Vanguard, they mostly did. The analysis of more than five million Vanguard retail households from 2015 through the first half of 2020 found that during the first half of 2020, “portfolio risk allocations remained mostly unchanged.”

“Vanguard investors stayed the course during the volatile first half of 2020,” Tom De Luca, senior investment strategist at Vanguard and research lead for the study told GOBankingRates. “Only 22% of households traded, and, of those who did trade, 62% moved assets into equities. During this time of market volatility, less than 1% of households abandoned equities completely, illustrating the benefits of something we have continued to espouse to clients: time in the markets beats market timing.”

Vanguard found that the average asset-weighted portfolio comprises 65% equities, 22% fixed income and 13% cash — a venerable strategy, De Luca suggests.

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“Vanguard’s guidance for investors is centered on four core principles: Define clear goals, invest with balance and diversification, minimize cost, and stay disciplined over the long term,” De Luca said. “In short, we tell investors to focus on those things within your control. As demonstrated in How America Invests, Vanguard investors are ‘walking the talk’ of these critical investment principles and, in particular, have demonstrated sustained discipline, discretion, and long-term orientation through this year’s toughest market volatility.”

Investors have stayed the course with a diversified portfolio over the past five and a half years, but their appetites have changed some: they’ve become increasingly keen on ETFs.

“As shared in the report, the number of Vanguard households using ETFs has doubled since 2015. ETFs, like mutual funds, can provide broadly diversified, low-cost access to a variety of markets and specific market segments, and can serve as the foundations of long-term portfolios,” De Luca said. “And notably, ETFs have lower minimum investment requirements–the cost of a single share–which could contribute to their popularity with younger investors. While most of Vanguard’s ETF investors are ‘diversifiers,’ allocating less than a quarter of their total assets to ETF investments, there is a small but growing group of ETF ‘enthusiasts,’ comprised primarily of younger investors, who build complete portfolios from ETFs.”

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Vanguard’s analysis is ultimately a reason for optimism for Wall Street, as it is “encouraging and reassuring to see how our clients reacted–or didn’t react–to the volatile markets,” De Luca said. But let’s not get carried away by the optimistic news. This study can actually be interpreted as more evidence of the “K-shaped recovery” that economists and president-elect Joe Biden have pointed at.

“People who are asset-secure have generally been less affected by the economic effects of COVID,” said Chris Motola, financial analyst, MerchantMaverick.com. “There’s a lot of talk of a K-shaped recovery, meaning that some people have recovered and/or are doing quite well, while others are in distress.”

Additionally, it should be noted that though the scope of this study is formidable (analyzing over five million retail households over five years); the true scope of investment in America is still much wider.

“The population of the U.S. was roughly 328 million in 2019 and according to a Gallup poll from April of 2020, 55% of Americans say they own stocks,” said Josh Simpson, financial adviser with Lake Advisory Group. “That would equate to roughly 164 million investors in the U.S., so the study looked at about 3% of the total population of investors, most of which are 401(k) participants who act and invest differently than other investors because of the limited number of choices they are given. So, while possibly providing valuable insight in the way that some Americans invest their money, to say that it is a definitive guide, is misleading.”

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Ultimately, “How America Invests” might better be titled “How Vanguard Clients Invest.” Readers should also take into account how major fiscal factors beyond portfolio asset allocation could shape the coming months with direct bearing on the economy. The more desirable V-shaped recovery is exceedingly unlikely, U.S. government debt is expected to issue $4 trillion of debt this year and behemoth companies are edging out small businesses who are shutting up shop by the thousands. Additionally, a recent study from Northwestern Mutual found that 20% of adults in the U.S plan to retire later than they expected due to pandemic, while 10% intend to retire sooner. The longer the pandemic rages on, it is reasonable to expect that more retirement plans will be altered, and eventually, that will catch up with investment portfolios.

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About the Author

Nicole Spector is a writer, editor, and author based in Los Angeles by way of Brooklyn. Her work has appeared in Vogue, the Atlantic, Vice, and The New Yorker. She’s a frequent contributor to NBC News and Publishers Weekly. Her 2013 debut novel, “Fifty Shades of Dorian Gray” received laudatory blurbs from the likes of Fred Armisen and Ken Kalfus, and was published in the US, UK, France, and Russia — though nobody knows whatever happened with the Russian edition! She has an affinity for Twitter.

Senior Vanguard Strategist: These Were the Smartest Moves American Investors Made in 2020
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