Building upon decades of thought leadership and investor advocacy, Vanguard today introduced How America Invests, a comprehensive analysis of Vanguard investor behavior. The compendium examines the investing activities of more than five million Vanguard retail households from 2015 through the first half of 2020, and exemplifies the sustained discipline, discretion, and long-term orientation demonstrated by Vanguard investors.
Findings from the report illustrate how Vanguard investors, across all generations, wealth segments, and account types demonstrate a similar diligence to balancing risk and reward, avoid common trading pitfalls, gravitate to broadly diversified funds, and maintain a long-term outlook. Additionally, the report uncovers emerging trends, such as the increasing prevalence of ETFs.
Key insights include:
- Vanguard investors take appropriate risk with balanced and diversified portfolios. The average asset-weighted portfolio consists of 65% equities, 22% fixed income, and 13% cash.
- Millennials allocate 90% of their portfolios to equities. Appropriately, Vanguard investors reduce their equity exposure commensurately with age, in alignment with the portfolio construction of Vanguard’s target-date funds. While younger investors have looked to position their portfolios for long-term growth, the typical boomer maintains a more conservative equity allocation of 66% and the typical silent generation household has an equity allocation of 62%.
- Less than a quarter of Vanguard investors trade in any given year. A reflection of Vanguard’s time-tested investment philosophy, the majority of investors “buy-and-hold.” Those who do trade typically only trade twice and move about one-fifth of their assets. Most traders are either professionally advised or exhibit behavior that is consistent with rebalancing.
- Vanguard investors stayed the course during the volatile first half of 2020. 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 Vanguard’s continuous message that time in the markets beats market timing. Specifically, looking at market returns from 2000-2019, Vanguard research found that investors who invested $100,000 in 2000 and missed out on the top 25 days of market performance ended with
- $229,000 less than those who remained invested through the market’s ups and downs.
ETF usage has doubled over the last five years. The majority of Vanguard’s ETF investors are “diversifiers,” allocating less than a quarter of their total assets to ETF investments. However, there is a small but growing group of ETF “enthusiasts,” comprised primarily of younger investors, who build complete portfolios from ETFs.
“Vanguard is unwaveringly focused on improving investor outcomes, and the insights featured in How America Invests will help us continue to refine and enhance our investment products and services, client education, advice offerings, and advisor resources,” said Colin Kelton, Vanguard’s Chief Marketing Officer. “Encouragingly, but not surprisingly, the report also reinforces our clients’ philosophical alignment with Vanguard’s long-term approach to investing. Their focus on goals, balance, cost, and discipline—the core pillars of Vanguard’s investment principles—pays dividends in any market environment, but proves especially valuable in times of volatility like we’ve experienced this year.”
Vanguard has leveraged decades of experience serving the individual investor and produced thousands of pieces of industry-leading research and insights. The introduction of How America Invests augments the firm’s extensive library of investor behavior research, including How America Saves, Vanguard’s seminal defined contribution (DC) report that has provided key insights on the DC landscape and plan participant behavior for two decades.
Additionally, the firm has a rich history of data-driven research focused on topics addressing the behavioral and psychological aspects of investing. Of note is a recent analysis illustrating the value of taking a long view when thinking about market shocks and portfolio wealth, and how Vanguard investors’ propensity for balanced portfolios was a tailwind during the volatile first quarter of 2020.