00:00You found that the average Vanguard investor holds about 65% equity, just 10% fixed income,
00:06and 24% cash. But for investors under 45, that fixed income allocation, which was already pretty
00:12low, it drops to about 3% to 4% cash rising on the back of that. So walk us
00:19through that,
00:19because you put it together, it just seems like younger people are less interested in bonds.
00:24Yeah. When we looked at this report, this report looked at about 7 million of our direct retail
00:30investors. So it gives us a pretty good sense of what's happening with those clients. And I think
00:35it is a little bit of a surprise coming from the shop that really pushes forward with a 60-40
00:40portfolio. However, I think if you think about the younger investment group, they are going to be
00:45oriented towards stocks. And it goes with the theme we've been seeing. With the very strong
00:50performance of equities, as well as high cash rates, a lot of investors are finding
00:55themselves a little bit more invested in cash than maybe they should be or intend to be over
00:59the long term. See, this makes perfect sense to me. Because if you look at the money market mutual
01:05funds, they took in like $700 billion last year. So if you counted those as part of bonds, bonds did
01:11really well. But why would I even buy a bond ETF when I can get 4% yield with no
01:17risk and a stable NAV
01:19in a money market mutual fund? And then equities keep doing well. And the last of my own bonds in
01:242022, it went down the same as stocks. So there's no protection. It just seems like all signs point to
01:29like a 60-40 equities and money market fund or cash. Like, just skip the ag.
01:35Yeah. And to be clear, I mean, money market funds, cash, it's a real part of an investor's portfolio.
01:40It has its place. This is a conversation we've been having for the last couple of years. It remains
01:44just as relevant today. Even if you go in the fund space, the ultra short category is
01:48bringing in huge flows this year. I think a lot of investors feel comfortable there. They think
01:52it's a riskless trade to make. What the risk they're not thinking about is really the opportunity
01:57cost. You might get some nice yields. But if we have some moves by the Fed, those yields can be
02:01much lower pretty immediately. You also are not going to get diversification in the context of a
02:05total portfolio if you're over-allocated to cash. That's where bonds continue to serve a role.
02:10And we believe that that's not changed. Is this an issue of education, do you think,
02:14especially with the younger cohort? Because there's this perception, perhaps,
02:17that bonds are only important when you have money to protect, money you can't afford to lose,
02:21as opposed to something that you can really build wealth off of.
02:24Yeah. I mean, I think it makes sense, right? If we're talking to younger investors,
02:28they've gone through a couple of things. Very strong equity markets. They've gone,
02:33they've maybe started investing when they couldn't really get much in terms of interest rates on their
02:37bond investments. And then maybe they saw what was happening in 2022 when bonds definitely had
02:42a little bit of a bad moment. But we think that that's an anomaly. We think that your starting
02:46point for investors, if you're investing in broad fixed income, five percent for a very high quality
02:51defensive asset class that we think will be a diversifier. So I do think, Scarlett, to your
02:55point, there's some maybe room to educate there on the opportunity and the benefit bonds pose to a
03:00whole portfolio. And I want to talk a little bit about access points here, because another line in
03:05the report that caught my eye was that the crossover from bond mutual fund to bond ETF preference
03:10happens at age 40. What happens at 40? What do I have to look forward to?
03:15Your eyes are open. Do you see the benefits of bond ETFs? I mean, this is just what we see
03:19in the
03:20data, where you start to see that point change. But I think what we look at that and the most
03:26important piece that we're taking note of is the future is really ETFs. I mean, I'm not saying
03:30anything that will surprise any of you. Not on ETF IQ. Certainly not. It's a show around that.
03:35Exactly. So we're building our lineup for that as well. We've got more ETFs coming out. Just to
03:40make sure, to your point, Katie, the access points are there, because as we see wealth transfer, as we
03:45see millennials and the younger generations building more assets, we believe it's going to be more of
03:50an ETF game than fund. All right. I'm going to give you a product idea right now. So let's say
03:56I'm sold
03:56on this and I want to buy the ag or something like it. If you look at the flows this
04:01year, BND is doing
04:02well. But over at BlackRock, IUSB is taking in more money than ag. IUSB is the universal. It has a
04:08little high yield and a little international, a little kick. And it tends to do a lot better versus
04:13the bond managers. You don't have this. Why not? Like, why not have a universal type option?
04:19So we actually did launch a universal type option. BNDP. Oh, I'm sorry. I had to...
04:25Seven ETFs launched a day. So I'm excused, right?
04:27Yeah. You absolutely are. We did launch that ETF later last year. And we also have an active
04:34Core Plus product, BPLS. We think those can both be great solutions for investors. But definitely
04:38agree with you, Eric. There is a big universe in bonds. And just focusing on investment grades may
04:43leave out some opportunity in the higher yielding asset classes. And Rebecca, before we let you go,
04:48I do want to talk a little bit more about what we were talking about with younger investors.
04:54When they do look for bond type exposure, it's mostly in cash. Are they buying straight up
04:59money market funds? Are they looking more towards those cash like ETFs? Do you have data on that?
05:03Yeah. So if we look at the report itself and some of the accounts that we were looking at,
05:08a lot of investors, this is just sitting in their settlement fund, which for Vanguard,
05:12that is a money market fund. And so as you've seen pretty high yields, our money market fund
05:16is yielding about 3.7%, 3.6%. That's where a lot of that money is sitting. But the ultra short
05:23ETF space
05:23is booming as well. So that's been the second highest inflow category this year if you look
05:30at bond ETFs. So this data is mostly pointing to money market funds, but certainly the ultra short
05:34ETF spaces, it's popping as well.
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