As I prepare for my annual look-ahead webcast with our CIO Tim Buckley, I’m struck by the questions we’ve been receiving. Never before—not even during the global financial crisis—have investors come to us with such specific concerns about the movements of the markets and governments around the world. We’re living in unprecedented times, so 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. But I do have four suggestions that I believe can help your clients reach their goals.
- 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 U.S. administration comes the potential for changes to policies that may affect you and your clients. Some may be beneficial; some may trigger market volatility. The best approach in any environment is to remind your clients to maintain a long-term perspective and ensure their portfolio is balanced and diversified.
- Save more. In addition to potential near-term volatility, we expect the stock and bond markets to produce lower returns in the next ten years than they have over the past several decades. This will place the burden on investors to save more. We recommend your clients save 12% to 15% of their income (including any employer match) for retirement. Saving more is an asymmetrical proposition: If they don’t save enough and the markets don’t bail them out, there’s nothing they can do. If they over-save and do well, great—they 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 precautions too. You should discuss with your clients the best way to secure their assets, whether it’s using a security code as we do at Vanguard, or other secure options you may have available.
- Stay well-informed. Great investors understand how all the pieces fit together. Help your clients become familiar with all the funds in their portfolio and know the role that each one plays in their investment plan. If your clients stay abreast of the markets and economy, make sure you play the role of behavioral coach to help them understand the need to resist the urge to act.
Here’s to a prosperous 2017,
Notes: All investing is subject to risk, including possible loss of principal. Bonds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer’s ability to make payments. Diversification does not ensure a profit or protect against a loss.