A message on the markets from our CEO and CIO

Transcript

Tim Buckley: Hi, I’m Tim Buckley, Vanguard’s CEO. And I’m joined by Greg Davis, our Chief Investment Officer and we’ll be sharing our thoughts on the current market environment.

It’s been a challenging year so far, as we all adjust to the unfolding coronavirus pandemic. As countries and companies around the world grapple with this health crisis, we are thinking of all those affected by the outbreak, especially those who have fallen ill and the health care providers on the front lines who are working to preserve our health and safety.

Now, markets don’t like uncertainty, and we’ve seen this play out in one of the most volatile periods in more than a decade. After an 11-year bull market, we are experiencing an inevitable downturn, and the daily swings are enough to make anyone unsure.

So, what should an investor do? We all wish we had the ability to anticipate market drops, go to cash, and get back into equities right before the unexpected rally. Unfortunately, I have yet to meet a person who can predict the future.

The next best strategy, well it’s to diversify and stay the course. But most investors incorrectly interpret “stay the course” as batten down the hatches and do nothing. While considerably better than abandoning equities, doing nothing is not necessarily the best approach. Our studies show that the best thing to do in a bear market is to rebalance into it. 

Sticking with your desired allocation is not easy, but now is not a good time to change plans. It takes an iron will to buy equities when they are off 20{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} and even more courage to repeat the process when they are down another 10{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}. Always remember that you are investing for the long term, and this is just short-term pain.

It bears repeating— just stay the course. Tune out the noise, focus on your long-term goals, and let the benefits of diversification and low costs play out.

Now, Greg, would you have anything to add to that from your experience?

Greg Davis: Just a couple of quick thoughts for those people in retirement. In a bear market you don’t need to drastically cut your spending, but you should try to trim it by a few percent. Second, avoid big purchases that will cause you to lock in the capital loss.

Tim: That is a good rule for everyone, not just retirees.

Now, let’s turn to the markets a bit. Your team, especially your fixed income team is in the middle of this storm. Any perspectives you can share there?

Greg: Absolutely, Tim.

Obviously, no one could have predicted the coronavirus and the efforts to contain its spread are massive. Mitigating the health risk is the top priority, and the markets finally realized that containment actions will have significant economic implications. We might even drop into a mild recession.

Fortunately, we started the year knowing that valuations across many asset classes were stretched, and we conservatively positioned our fixed income portfolios.

The repricing of securities has been rapid.

At Vanguard, we have a highly experienced investment team ready to manage this volatility and any temporary disruptions it causes. The team keeps our portfolios liquid, and they have even capitalized on a few exceptional investment opportunities. It’s not all about defense in a market like this.

Tim: Now, Greg, you said recession. Should investors fear that word?

Greg: You know, in the U.S., we do believe a recession is likely, but we expect it to be mild. The markets have essentially priced such a recession in. Policymakers could dramatically change the odds of a recession with economic stimulus. Whatever the case, a recession should not change an investor’s strategy. They are investing for the long-term and this pain should be short term.

Anything to add, Tim?

Tim: Greg, I think you captured it perfectly.

Now, we’re practicing the same focus and discipline as our investors when it comes to serving our clients.

The coronavirus is not something we could have predicted, but we are prepared.

Many of you have expressed concern for our crew. Thank you. We appreciate that. Please know that we are doing all we can to keep our crew healthy and safe, while continuing to serve you.

We have crew working across the globe to ensure you receive the support you need.

Our seasoned investment experts know how to navigate choppy markets, maintaining liquidity, mitigating risk, and seizing opportunities to deliver value back to you.

Our economics team is processing new information in real-time to deliver current insights on our short- and long-term projections for the global markets and economy.

And we are here to help you with your questions and with your portfolio, no matter what the market conditions are.

Stay healthy and safe. Thank you.