Vanguard’s CIO discusses how rebalancing portfolios is tough for investors who don’t want to sell winners.
Tim Buckley, who started his career at Vanguard as founder and Chairman John Bogle’s research assistant, was appointed chief investment officer for the company on Jan. 1, 2013, succeeding Gus Sauter. In the 22 years he’s been at Vanguard, the company’s assets under management have grown from $60 billion to more than $2 trillion, and indexing has expanded from 2 percent of all assets invested to more than 20 percent. IndexUniverse Editor-in-Chief Drew Voros spoke with Buckley recently about his first year as CIO, about investing and the ETF industry in general. Buckley will be a keynote speaker at Inside ETFs later this month.
IndexUniverse: Maybe we’ll start off by talking a little bit about your keynote that you’ll be giving at Inside ETFs this month.
Tim Buckley: I’d like to start off by talking about investors' portfolios as a whole. Today portfolios are a lot riskier than they've been in years. Equity allocation hasn't been this high since 2007, and the bond allocations are far riskier than ever before. Bond investors are reaching for yield, and they’ve been chasing performance on the equity side. They're taking a lot more risk than they have ever before.
Beyond that, I'll address infrequent rebalancing or the failure to rebalance. Many investors out there still just let it ride, and they need to understand that they could do themselves a huge favor by rebalancing.
Also, given the returns of the past year, you've got to temper your expectation as to what the market will deliver. Yields are up a bit, yes. But with equity valuations at current levels, you can't expect year after year what we just had.
Savvy investors know that, and are looking for better answers. They look for new sources and new solutions in yield. They look toward bank loans, MLPs. But we have to be careful we're not adding risk to the portfolio as we look for this better solution.
I also want to talk about innovation versus proliferation. It's something I've wrestled with often—what is truly innovative, and what is just proliferation where certain products pop up given certain market conditions. Finally, I’d like to touch on some time-tested principles, such as what things work that you can always count on.