Review of Vanguard’s Portfolio Recommendation Tool

What does the average record each year in the NFL? Remember, there are 32 teams and they each play 16 games.

The average record is 8-8, which is a 500 wining percentage. And that will ALWAYS be the average record.

Yet, in 2017, there were 17 teams with winning records, records above a 500 winning percentage and only 14 teams who were sub-500, with only 1 team going 8-8.

How can that be? Shouldn’t there be the exact amount of teams with winning records and losing? No. Because some teams do far worse than average, in this case the Cleveland Browns went winless.

What does this have to do with investing? The EXACT same thing happens in investing. Some stocks do incredibly well and others not so much, in fact some stocks go bankrupt, never to be heard from again.

However, regardless of what happens to Google or Sears all the investors will return an average each year. And just like the NFL if there are two teams both can not be above average. The records will always level off at 8-8.

In investing if one investor ‘wins’, i.e., beats the average, one must lose. Both investors can not be above average. It’s impossible.

But unlike the NFL, ALL investors CAN win the Super Bowl. How? Because investing is simply owning shares of companies that are increasing earnings and maybe paying dividends.

If I own a company that is growing in value and thus my net worth improves that has no affect on you whatsoever. We can BOTH increase our net worth at the same time regardless if we ‘beat’ the market or not.

Investing is nothing more than owning growing companies. As long as those companies earnings grow, we ALL make out. Notice it has NOTHING at all to do with “beating the market”. It solely has to do with owning companies that grow.

Yet, everyone seems to focus on ‘beating the market’. Why? If you ‘beat the market” inherently I must lose as like I said before we both can’t win.

The irony though is we can both lose! THink about it like this. The market averages 8%. Yet you got 8.15% and I only 7.85%. So, you win….

Oh but hold on there chap! Your investment strategy cost you .50% in fees as did mine. So, NET of fees, which is all that matters, you had 7.65% and I had 7.25% returns. We both underperformed the market average.

When fees are factored investing actually becomes a less than zero sum game because the vast majority of investors dont’ even get the average returns. THey are so focused on ‘beating the market’ the miss the forest for the trees.

If they simply reduced their expenses, diversified among owning many companies, via an index fund, they would have average returns, which would actually outperform the vast majority of investors.

This would be like the average NFL team being docked a win because of high salaries or something and thus the average team, NET OF COSTS, would be 7-9 when the average actual record was 8-8!

And we haven’t even factored taxes in yet either. Throw taxes in because of excess trading and the average investor does even worse.

So remember investing is simple. Own companies that are going to grow. Some will some won’t but on average in a somewhat capitalistic economy you could get decent growth out of these companies.

You making money does not prohibit me from making money either. The only time when we are in competition as investors is when we’re trying to beat the market. Then, one of us has to lose, but in reality, after taxes and fees we both will.

Anyone who follows me knows I’m a fan of John Bogle and by extension Vanguard. (In full disclosure, I worked at Vanguard from 1998-1999, maybe 2000. Can’t remember the specific date I left.)

 

Vanguard Saves Investors Billions

Anyway, because of what Bogle has done investors have more money in their pockets, to the tune of billions of dollars. It’s just that simple. The investment industry hates the guy, of course.

But in the past few years, as Bogle’s shadow has lessened over Vanguard, Vanguard has become a bit more like the investment industry with a WIDE ASSORTMENT of offerings that I think Bogle is not fond of.

The investment industry too has become more like Vanguard by dropping fees and offering more passively managed accounts. There is STILL a lot of fee compression that has yet to happen though. I don’t think the good folks on Wall St. are anywhere near living as paupers. So, even with Bogle having been cast aside in 1999, Vanguard is still a force for good in the industry.

 

Vanguard’s Model Portfolios

It was with a bit of disappointment then that when I went to Vanguard’s website how cumbersome, no, impossible, it was to find an actual portfolio recommendation. I clicked and clicked, and clicked some more and was unable to locate an area that said I should invest in X, Y, and Z offering. Weird actually.

I was able to finally find a PDF that breaks down model portfolios WITH holdings. I’ve attached that link below. That PDF is fantastic actually. But if you asked me how I found it, I wouldn’t be able to tell you.

Vanguard’s Personal Advisory Service

Now, Vanguard does have an personal advisory service and I followed a bunch of links there but again was uanable to get a recommendation. It appeared I’d need to speak with someone. I don’t want to do that. Also, Vanguard didn’t state their fees for their advisory services, which I find problematic. However, I believe the Vanguard fees are around .35%. I also believe they use their ETFs too which average say .10%. To get a REAL LIVE HUMAN BEING to chat with and full investment services for less than .50% is incredible. Take heed investment advisors, your days of having your own personal jets are numbered, as witnessed by the amount of assets Vanguard has brought into their advisory services.

I can not stress how fundamentally good this is actually. If Vanguard can offer personal advisory services AND investment management for less than .50% the industry will need to change, and change quickly.

 

Not Comprehensive Financial Planning

Now, notice I didn’t say Vanguard offers full FINANCIAL PLANNING services. Vanguard’s advisory services are solely on investments, asset allocation and running some analysis on safe withdrawal rates. Nothing wrong with that. But it’s not comprehensive financial planning.

So, I’m hoping at some point Vanguard offers a service where a comprehensive financial planner, such as myself, can use their investment platform and still offer full financial planning for the client. That would be a triple win. Client certainly benefits. Vanguard too and of course, I would as well. But for now, Vanguard’s service is still a HUGE step in the right direction for the good guys.

https://retirementplans.vanguard.com/… https://investor.vanguard.com/home/ https://advisors.vanguard.com/iwe/pdf…

 

 

 

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