I’ve learned a few things over my 20+ years at Vanguard. For example, I’m prepared to play an icebreaker if I go to a meeting or training with employees from across the company. These activities can be awkward or amusing (depending on your perspective), but like it or not, participation is usually mandatory.
I recently had the opportunity to play Two Truths and a Lie.* The premise is simple: Each person offers two true statements and one lie. The group then guesses which two statements are facts and which one is a myth. You get to know who’s in the room (beyond names on name tags), potentially share a few laughs, and voila! The ice is successfully broken.
This icebreaker got me thinking about some of the ambiguity that surrounds my job as a financial advisor—as in, what do financial advisors do?
In the spirit of breaking the ice, I’d like to present a slightly modified version of Two Truths and a Lie: Four Myths and a Fact. So go ahead—get to know Vanguard’s advisor services. (No name tag required.)
#1: An advisor should get you out of low-performing investments—and get you into high-performing investments.
Myth. An investment strategy that’s based on predicting which investment will be on a hot streak or a losing streak (and predicting how long the streak will last) isn’t likely to succeed over the long term. The same goes for making investment decisions based on how you feel.
For example, investors who pulled out of the stock market in the 2009 bear market experienced a 7% loss. Those who stayed the course experienced a 59% return.**
As an advisor, my job is to help clients stay the course and focus on what they can control. I’m with them during market ups and downs, helping them avoid the temptation to abandon their long-term plan during market swings.
#2: An advisor will only focus on your account balance and performance.
Myth. Your financial life is bigger than your portfolio. My first job is to get to know my clients. Then I take a holistic view of their finances, using their investing goals, time frame for investing, and comfort level with risk to build a long-term financial plan.
My clients want to know: How can I save for college? How much can I spend in retirement without running out of money? When should I claim Social Security benefits? These are common questions, but each answer I provide is unique. My goal is to help my clients stay focused so they can reach their long-term goals.
#3: Don’t expect an advisor to make a change to your portfolio every time the market swings.
Fact! Market volatility is expected. On average, equity markets experience a correction, which is a drop of 10% or more, every 18 months.
Even if you’re rattled by this, rest assured that I’m not. I simulate various market conditions when I build a client’s portfolio so I can forecast how it’ll perform in different environments. Then I carefully select a target asset allocation to lessen the impact of market volatility.
When market movements knock clients’ asset allocations off balance (more than 5% away from their target asset allocation), I rebalance. This keeps their portfolios in check with their risk tolerance so they can trust their asset allocation when (not if) markets are on the move.
#4: If your portfolio doesn’t include the most popular investments, your advisor isn’t doing a good job.
Myth. If your investment goal is to get in on the ground floor of the next big thing, chasing trendy investments may be a winning strategy. But if you have real-life investment goals, such as retiring in X number of years, you’ll probably be better off investing for the long term with a diverse portfolio.
An asset allocation that’s designed to meet your goals is the cornerstone of a solid investing strategy. Your asset allocation impacts your portfolio’s performance more than any other investing decision you make, including individual investment selection.
#5: You only need an advisor if your portfolio is complex.
Myth. You can benefit from working with an advisor because life is complex—not necessarily because you have a complex portfolio. You probably have multiple investment goals, which will change over time. Saving for a child’s college education may be a top priority today, but in 20 years, your primary focus may be on making tax-efficient withdrawals from your retirement savings.
As life goes on, your portfolio needs to keep pace. I help clients build and maintain a goal-based financial plan, which I adjust as their goals and needs change.
Now that everyone’s been introduced
The ice is broken. (Thanks for being a good sport.) I hope you now know a bit more about what financial advisors do.
If you’re interested in partnering with a Vanguard advisor, you can learn more here.
* Here are my two truths and a lie. Can you spot the lie?
#1: I have three sons. #2: I’m an Ohio sports fan—go Browns, Indians, Cavaliers, and Buckeyes! #3: Cooking is my favorite pastime.
#3 is the lie!
** S&P 500 and Barclays Capital U.S. Aggregate Bond Index (rebalanced monthly). 100% cash represented by 3-month Treasury bill; 100% bond represented by Barclays U.S. Aggregate Bond index. Data provided by FactSet and Vanguard calculations. Data as of December 31, 2015.
All investing is subject to risk, including the possible loss of the money you invest.
Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.