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Bill McNabb and Tim Buckley answer more of your questions

January 24, 2014

Vanguard CEO Bill McNabb and Chief Investment Officer Tim Buckley recently took part in an hour-long video webcast in which they took questions from viewers and offered their perspectives on such topics such as the stock market, Federal Reserve policy, and asset allocation.

We received more than 7,000 questions for Mr. McNabb and Mr. Buckley. Some of those questions are addressed in these brief video excerpts. Here are their responses to some of the questions they weren't able to get to during the webcast:

I'm 68 years old, and my husband passed away two years ago. He handled all of our finances. What would you recommend to someone who knows nothing about investing?

Bill McNabbBill McNabb: First of all, I'm sorry for your loss. We hear this sort of story quite often—one spouse takes care of the finances and the investments, and when he or she is gone, the other is left not really knowing what to do.

If you search for "loss of a loved one" on, you'll find a range of articles, blog posts, forms, and other resources to help you deal with these challenges. We've also put together a package of articles called Your Investing Life, designed to help answer the financial questions that come up during major life events such as marriage, having a child, and taking care of aging parents. One of the topics this series will be focusing on later this year is how to manage your finances—and your portfolio—after the death of a spouse.

Tim BuckleyTim Buckley: This may be an opportunity to think about whom you can enlist for support. If you don't have a close friend or family member who's adept at financial matters, you might consider working with a professional financial advisor. If you'd like information on how Vanguard can help in situations like this, call 888-200-3109 or visit the advice section on We assist thousands of clients every year to create and sustain financial plans, examine their asset allocation, and provide guidance by looking at the total financial picture and devising a step-by-step plan tailored to their specific needs.

Does Vanguard have a program to help teach children about investing?

Bill McNabb: Indeed we do, and we're quite proud of it. It's called My Classroom Economy, a classroom-based curriculum designed to teach kids how to be financially responsible.

It started after the 10-year-old son of one of our crew members asked, "I wonder when I'll be able to pay off my mortgage?" (How many children even know what a mortgage is, let alone wonder about paying one off?) It turns out the child had a "classroom mortgage" and a "classroom job" that prompted the question and the concept took off from there.

The course contains modules for each stage of a child's life, from elementary school through high school graduation. It's a fun learning environment where kids get to earn "dollars" based on making sound financial decisions. I encourage you to visit the site and see how your child can benefit from having "real life" financial experiences in the classroom.

Tim Buckley: Just as an aside, I've got young kids, and when they get money for their birthdays we have a basic rule: Save something, spend something, and give something. Kids need to understand the importance of saving, but also the importance of giving back to those who aren't as fortunate. That's a great lesson to learn at an early age.

How does Vanguard feel about alternative assets that many pension funds invest in besides stocks, bonds, and real estate?

Tim Buckley: "Alternative investments" can run the gamut from hedge funds to derivatives to antiques. But the question we get most often from individual investors is about using gold as an alternative, and here's my take.

For me, gold is an asset based on fear. When fear is highest, the value of gold goes up. There is no intrinsic value to gold. It's a metal used for very little except to show off and to hold value, but that value is in the eye of the beholder. It's not like owning a stock, where earnings can go up, or a bond, where yield is an expectation.

Bill McNabb: One of my favorite active investors said that gold breaks people into two camps: First, there are those who say gold and other precious metals offer protection against uncertainty. Then there are those who point out that precious metals offer no cash flow and no earnings. They can't be valued rationally. I'm in that camp. It's never made a lot of sense to me as an investment.

I know many pension fund managers have been moving a small portion of their portfolios into hedge funds, since they at times can produce higher returns than conventional investments and they're not as regulated, either. Some may see this as an opportunity, but again, we're more about asset allocation and sticking with a long-term plan. Alternative investments often have higher fees, too—and you know how we feel about costs: the lower, the better.

Please comment on the significant increase in price-to-earnings, price-to-dividend, and price-to-book ratios that has occurred over the past 20 years.

Tim Buckley: Well, we're hearing talk about a market bubble. It's a topic our chief economist, Joe Davis, addressed in a recent webcast. We do believe that stock prices are in many cases elevated beyond what their traditional valuation measures would indicate.

I don't think the situation is as exaggerated as much as it was back in the '90s, when we saw nosebleed levels on everything from price-to-book, price-to-earnings, and price-to-sales—you had valuations that were nine standard deviations from the mean at some point. But it stands to reason that investors' expectations should come down a bit. Rather than expecting 9% or 10% returns on your equity holdings, maybe think in terms of 7% or so as a kind of mean, with a standard deviation around it.

Bill McNabb: In terms of expectations, Vanguard runs projections of various market outcomes—the Vanguard Capital Markets Model®—and one of its key inputs is valuation. The model generates a series of probabilities of different ranges of returns.

Today, the model's central tendency for the next ten years is on the lower side of long-term historical averages. It's in the 6%-to-7% range, as Tim was suggesting, as opposed to 9% or 10%. And if you factor in inflation, assuming a rate of about 2%, that would mean real returns in the 5% range. That's on the low end of the normal range for equities, true, but not unheard of.


  • All investing is subject to risk, including the possible loss of the money you invest.
  • The projections or other information generated by the Vanguard Capital Markets Model regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. VCMM results will vary with each use and over time.
  • This article is for educational purposes only. We recommend that you consult a financial or tax advisor about your individual situation.
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