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Articles by Tom Rampulla
Demographics and equity returns: A far-fetched horror story
During a recent Financial Advisor Services webcast, a question was submitted that I wanted to be sure we addressed. Ernest, from Connecticut, asked, “Will the baby boomers’ reduced equity exposure be offset by the millennials’ equity investing?” Let’s take a look. If you wanted to write a stock market horror story, the plot might look something like this: As baby boomers retire, they will begin selling stocks.
Bitcoin: Digital gold or fool’s gold?
“What do you think about bitcoin?” Over the past few months, I’ve gotten this question more than any other. In 2017, bitcoin, the world’s first cryptocurrency, rose by almost 1,200%, prompting excitement and bafflement. My answer: I’m enthusiastic about the blockchain technology that makes bitcoin possible. In fact, Vanguard is using such technology. As for bitcoin the currency? I see a decent probability that its price goes to zero.
Why we believe in active and passive-No ifs or buts
I’m always a little surprised when people talk about active and passive management as if it’s an either/or question. At Vanguard, we believe the right conjunction¹ is not or. It’s and. Both active and passive strategies have earned spots in your clients’ portfolios.
Enemies of investment success
I will not make you wait for my thesis, advisors: Intuition and nostalgia are enemies of your clients’ investment success—and, therefore, of your business success. For your mutual benefit, you should shun investment choices based on intuition and nostalgia and look for opportunities to replace them with sound investment habits. Intuitively, we believe we get better products and services when we pay more for them.
Why Cost Matters In The Active Vs. Passive Debate
What a difference a few decades can make. When Vanguard launched the first index mutual fund for retail investors in 1976, we were ridiculed. Industry "experts" mocked the idea that investors would ever settle for performance that matches the performance of the market. Fast-forward 20 years. In the mid '90s, I can remember working in institutional sales for Vanguard. It was the early days of the tech boom, and it was my job to sell our investments and retirement services to Fortune 500 companies.
Why cost matters in the active vs. passive debate
What a difference a few decades can make. When Vanguard launched the first index mutual fund for retail investors in 1976, we were ridiculed. Industry “experts” mocked the idea that investors would ever settle for performance that matches the performance of the market. Fast-forward 20 years. In the mid ’90s, I can remember working in institutional sales for Vanguard. It was the early days of the tech boom, and it was my job to sell our investments and retirement services to Fortune 500 companies.
Does your active manager pass the factors test?
With the recent implementation of parts of the U.S. Department of Labor’s fiduciary rule, advisors are sharpening their pencils when it comes to performing due diligence on equity and fixed income holdings in their clients’ portfolios. The good news is that advances in financial research and technology have made it much easier to dissect individual funds, or even a combination of funds, in different ways (sector, country, factor, etc.).
The truth behind indexing
Indexing has become an undeniable force in the investment world. Consider: $1.4 trillion in net new cash flow and reinvested dividends went into domestic equity index funds and ETFs in the decade through year-end 2016, which is astonishing when compared with the $1.1 trillion in net outflows from domestic equity active funds in the same period.1 Indexing’s rise didn’t happen by accident.
Do clients know you have a blockbuster practice? Show them your value
The summer blockbuster has been an integral part of the season since Jaws. But these days, it seems a blockbuster’s value rests in its ability to draw in fans for a multifilm experience.
Vanguard and low costs: Not about headlines or halos
The news media have proclaimed another ETF “fee war.” Providers are “slashing prices” and waging an “arms race.” I get it, and it makes for a compelling story. In the battle for ETF market share, some firms are tactically pricing selected funds to grab a headline with a loss leader or seeking a low-cost halo that they hope will shine on their other products. At Vanguard, low costs are not about headlines or halos.
Risk appetite awakens
The U.S. stock market, as measured by the MSCI US Broad Market Index returned 12.7% in 2016, with a powerful rally in the final weeks. Animal spirits seemed to be running wild. As expected, fund cash flows followed suit toward the end of the year.
Vanguard’s investment tips for 2017
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.
Year-end financial planning moves to manage the Roth conversion “zone”
One way retirees can make the best of their inevitable reckoning with the tax collector is by doing a series of Roth conversions before the start of required minimum distributions (RMDs) at age 70½. The big benefit is tax diversification. Vanguard’s research shows that IRA investors are doing just this, since we see Roth conversions increase as RMDs approach (a period we’re calling the Roth conversion “zone”).
It’s all relative
ETF issuance, viewed over the past few years as innovation, is now seen as proliferation. There is a growing concern that ETFs are too many in number and too niche in nature. When I hear these concerns, I ask myself, “relative to what?” My answer is always, “relative to mutual funds,” since ETFs are overwhelmingly similar to mutual funds. In that case, I thought it would help to review the claims of “too many” and “too niche,” but relative to mutual funds.
Want a reliable strategy? Embrace change
In the year that I’ve been back in the United States, there’s something I’ve been noticing in conversations with advisors, interactions with colleagues, and just reading the financial news every day. Regulatory rumblings, robo-advisors, product innovation (and proliferation)—they’ve all been grabbing headlines and making us plan for their possible impact on our businesses. They dominated discussion at the Inside ETFs conference held by ETF.com this January.
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