blog

Latest from the Quantamize Blog

"Dumb Money" is not so Dumb, a New Study of Vanguard Clients Finds

Apr 22, 2019

Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions
Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions

 

  • Despite Wall Street's repeated mantra that Main Street investors, or individual investors, lack the ability, knowledge, and patience do successfully invest on their own, mounting evidence suggests that the, “dumb money” is not so dumb after all. A recent report published by the Wall Street Journal, which cites a study into Vanguard Group clients, finds that Main Street Investors are better suited for self-investment management than many previously thought.
     
  • The study, conducted by Harvard economist Matteo Maggiori, Yale finance professor Stefano Giglio, New York University finance professor Johannes Stroebel, and head of the Center for Investor Research at Vanguard Group Stephen Utkus, ran surveys every two months starting in February 2017 of more than 11,000 investors at Vanguard Group -- it is worth noting that Vanguard paid for the study.
     
  • At a high level, the surveys find that many Vanguard clients tend to follow the investment strategy professed by the firm’s late founder, John Bogle -- to buy a few low-fee ETFs that track market indices and hold them over decades. The fact that so many Vanguard clients follow this investment strategy speaks to the patience of Main Street investors that so many on Wall Street adamantly believe does not exist.  
     
  • Wall Street investors also criticize Main Street investors for having unrealistic expectations for future returns. Well, the results of the study challenge that theory.
     
  • Over the course of the surveys, the average Vanguard investor estimated that stocks would return 5.2% over the upcoming 12 months and 6.3% per annum over the next 10 years. As the Wall Street Journal so beautifully put it, “Most professional fund managers would rather chew broken glass than set their expectations that low.”
     
  • The study also finds that the average Vanguard investor holds about 68% of their portfolio in stocks. Additionally, this allocation percentage barely fluctuates when investors’ expectations for future returns changes, speaking further to the patience and prudence of Main Street investors.  
     
  • For decades, Wall Street has professed that Main Street investors lack the ability to self-manage their investments in an attempt to sway individual investors to pay fees for their services. Evidence, however, continues to support that individual investors possess the knowledge and tools to manage their own investments.

 

Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS
Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS