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vanguard study

My wife is a high school basketball coach. There are so many times she’ll create a game plan, explain the game plan to the ladies on her team, however once the game is played, the game plan is not executed to its total perfection. Why? Because everything is easy in a simulated, non-real environment. In your game plan, you’ll typically assume what you want to do, you can and will do. Investing strategy is similar in my eyes, in the sense that we as investors are ready for good returns and the volatility that goes along with them, however once the game is played (the market actually drops), many investors are ready to head for the door “until it gets easier”.

Warren Buffet through his annual letters has constantly tried to remind us to stick to the game plan. Here are a few exerts:

  • In his 1991 annual letter to shareholders, Buffet exclaimed, “We continue to make more money when snoring than when active” He continued, “our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from active (investors selling) to the patient”

  • In his 1996 annual letter to shareholders, he advised: "Inactivity strikes us as an intelligent behavior”

  • In his 1998 annual letter to shareholders, he continued to advise: “our favorite holding period is forever”

  • In a June 1999, interview with Business Week, Buffet advised, “Success in investing doesn’t correlate with IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people in trouble investing”

  • In his 2013 annual letter to shareholders, he advised, “Forming macro-opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important”

  • Finally, Buffett has famously quoted, “A prediction about the direction of the stock market tells you nothing about where stocks are headed, but a whole lot about the person doing the predicting.”

Vanguard Investor Behavior Study

Investing is dealing with money and money is often an emotional thing for people. Most investors are aware of time-tested principals of investing but sticking to them is the hard part. It’s made even harder in today’s, “connected world” environment where you can, right from your phone, get an “experts” opinion, often making a recommended change to your investing strategy, based on what has already happened, which is a fool’s errand. Yet the most logical thing for you to do, is stick to the strategy, you pursued, that was time tested and executed before the emotions, of a stock market decline or increase, factored into your decision.

Vanguard recently did a study of 58,168 self-directed IRA investors. The study looked at the time period between the end of 2007 and December 31st of 2012, which of course includes 2008, thus was one of the most extremes in terms of volatility in market history, starting with the financial crisis and ending with the strong market returns of 2012.

When reviewing all 58,000 accounts during this period of time, the investors that made a change (switched investments) often resulted in a lower return than the respective benchmark of an applicable Vanguard Target Date Fund. If you look at Figure 1.1 you’ll see the purple area shows the amount of underperformance, by those investors who made a change and it was around 150 basis points (1.50%). That led Vanguard to put out the Vanguard Advisor Alpha Study, which has helped advisors quantify the amount of value they provide to clients, with their services. Vanguard concluded the total value an advisor can bring to their client is around 3.00% However the largest factor was what they call behavioral coaching, which is helping clients manage their risk tolerance and prevent emotional decision making, which can add about 1.5% to the clients returns. The other 1.5% is comprised of things such as portfolio rebalancing, asset location, drawdown strategies and total return vs. income investing.

Manage Risk Tolerance

Making the assumption that during your entire retirement there will never be a stock market correction (-10%), let along a bear market (-20%), would be a foolish assumption of your advisor and yourself. To date, in world history, there has never been anyone able to consistently predict stock market crashes and the ones that finally get one right, are typically perma-bears, which means they consistently predict doom and gloom. Ever hear the phrase a broken clock is right twice a day? About two months ago, a popular hedge fund shut down, because of a history of betting that the market will drop, which didn’t happen. Thus, you know market drops coming but you don’t know when and for how long.

This is why you should follow some Ramsey Solutions and Whitaker-Myers Wealth Managers principals in regards to your balance sheet.

  • Clear off your debt as soon as possible. Debt represents risk and one way to mitigate risk in your life is to eliminate it, when possible. Some risk is impossible to eliminate but debt is one that can and should be eliminated

  • Fully fund your emergency fund and don’t forget about building sinking funds, for future expenses as well. Those that have a rainy-day fund, will be prepared when it rains

  • Invest relative to your retirement goals. Meaning, if you’re within five years or sooner to retirement, make sure your investment strategy reflects that. This is one reason we advocate for in-service rollovers (which is moving money from your corporate 401k to your IRA). If the market were to drop right before retirement, you’d be burned if you were to, as Dave Ramsey states, jump off the roller coaster in the middle of the ride. However, if you had money invested in assets that were non-correlated to the stock market, then you wouldn’t be forced to sell stocks to begin your retirement income stream, thereby allowing time for those stock assets to recover.

  • Review your 2022 Financial Plan. Many times, analyzing the projections of your income distributions in retirement, based on what has happened this last year in the market can help to provide you with a level of comfort about your long-term picture. Your Whitaker-Myers Financial Advisor is always happy to spend time reviewing your updated financial planning projections to help you uncover any potential issues or pitfalls.

  • Don’t pay attention to short term movements in the market. While we don’t advocate for non-involvement in the financial planning process, sometimes the best strategy for some people is to turn off the business news and not log onto every single day. If market movements give you too much stress, you’re only tempting yourself to make a mistake by watching it daily. I can promise you; your financial advisor is watching things daily and through our blog, website, newsletter and YouTube page, we will let you know if there is anything you should be paying attention to.


Investing is simple yet not easy! Dave Ramsey says financial success is not about head knowledge but rather about building great habits. One habit Dave consistently advocates for is consistency with your investing strategy. The best book one will ever read on investing is the tortoise and the hare. Thus, let’s commit to being more like the tortoise – consistent in our strategy and disciplined with our decision making.


February 20, 2022

John-Mark Young

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