Navigating the market with confidence

Transcript

Hi. I'm Jon Cleborne, head of Personal Investor Advice at Vanguard. Today I'd like to take an opportunity to update you on some recent market trends and how they may have affected your portfolio with Vanguard Advice.

As many of you know, 2022 was a very challenging and unusual year for the financial markets. A portfolio weighted 60% stocks and 40% bonds was down about 17%. It's the worst performance since 1937, and it was a truly unusual year with both stocks and bonds being down so significantly.

As interest rates have been rising over the past few years, bond prices have continued to fall. And it's understandable how these returns could have been a shock to some of our more conservative investors. These concerns might be particularly acute for those nearing or in retirement, where investors' time horizons are relatively shorter, and portfolios are more likely to be heavily invested in bonds.

Many of our clients have been asking us, "Why stay the course?" And I'd like to take a moment to share with you Vanguard's current perspectives on the markets, and how you can think about your portfolio. First, the good news, the stock market has been strong for much of 2023, and there is some evidence that bonds may have turned the corner by delivering positive returns year-to-date. In fact, bonds are up nearly 5% in the month of November alone. These recent trends display the importance of maintaining a disciplined investment approach— as a balanced portfolio, like those Vanguard recommends for our advised clients, has generated positive returns in 2023.

So what was happening earlier in 2023? Bonds continued to struggle as the Fed raised interest rates in their battle against inflation. While higher rates may negatively affect bond prices initially, investors who stay the course may benefit from reinvesting and compounding at higher yields in the future. The higher yields can compensate for prior years' capital losses, meaning the cumulative return should become positive.

As you can see from this chart, over time, the majority of returns delivered by bonds are from the interest they pay, not the movement in the share price. Bonds are providing healthier yields than we've seen since before the 2008 financial crisis. And higher current yields support a much-improved outlook for bond returns going forward.

Another question that's been top-of-mind for some clients is the role of cash in your portfolio. Cash rates have been recently at 20-year highs, tempting some investors to abandon their well-thought-out plan. However, when comparing the performance of bonds and cash over longer periods, bonds have outperformed cash in the majority of cases, even when cash yields are relatively high. Making temporary shifts to your plan comes with risk to your long-term investment goals.

Clients have also challenged us around what Vanguard Advice has been doing during this time of unusual market returns. One thing that will always remain consistent is our commitment to helping you reach your financial goals. While markets may move up and down, we're going to focus on taking actions we believe will lead to the best outcomes for our clients. Your Vanguard success rate, which is based upon over 10,000 possible scenarios, can help put short-term market fluctuations in context, and help you understand how you may or may not have impacts on your goals.

We know your investments with Vanguard represent more than just dollars and cents. They are the financial hopes and dreams of you and your family. We take our responsibility to help you reach your financial goals very seriously. Some of you may be wondering what other clients are doing. Honestly, they're sticking with their plans.

The vast majority of our advised clients have remained committed to the financial plan they developed with Vanguard. Thank you for entrusting your assets to Vanguard. We are proud to partner with you to help you reach your financial goals.