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Rebecca Katz: Well good evening and welcome to this live Vanguard webcast, I’m Rebecca Katz. And tonight we are here to talk about a very special topic, women and investing, because women do face some unique situations, and we are here to give you some practical suggestions.
Now we know this is a popular topic because we’ve had more than 20,000 people register for this webcast, taking a lot of questions. So we know there’s a lot of enthusiasm around the subject, and we’re happy to talk to you about it.
Now, before we dive in, if during the webcast at any time you need technical assistance, you should look on your screen and select the blue widget, and there will be someone right there to help you. And you can learn more about Vanguard and all of our services by selecting the green Resource widget, and on there you can also see old webcast replays, and you can listen to our latest podcast.
So tonight our panelists will share with you their perspectives on “women and investing” and answer your questions. Thanks for sending them in in advance, and you can keep sending them in throughout the webcast.
We’re going to talk about the unique situations that women face, investing trends and challenges for women, and what you can do—potential solutions.
Joining me tonight are three experts in their fields. First, we have Jane Greenfield. She is the president of Vanguard Charitable. Jane, thanks for being here.
Jane Greenfield: Thank you, Rebecca.
Rebecca Katz: We also have Kelly McShane. Kelly is an investment analyst with Vanguard Investment Strategy Group. Kelly, thanks.
And finally, we have Kahlilah Dowe. Kahlilah is a Certified Financial Planner™ professional, and she works in Vanguard Personal Advisor Services®. Kahlilah, thanks for being here tonight.
Kahlilah Dowe: Sure, and thank you for having me.
Rebecca Katz: So, before we dive into our questions, we took a lot of questions on this topic and there was a lot of interest. And I asked the ladies to look through the questions and see if they noticed any trends that came from men and women.
So maybe, Jane, start with you. As you looked through the thousand plus questions that we received, what did you notice?
Jane Greenfield: Well, you know, what was interesting to me is generational themes really popped. So, for example, our traditionalist women often said, “I’m a little worried. My husband’s been taking care of the finances and the investments, and what happens when he passes? I really need to start to understand this better.” And, actually, the traditionalist men also weighed in and said, “What should I do? Should I help my wife get more acumen on the topic or should I hire a financial advisor, and how do I find one I trust?”
And on the flip side of things are millennial women who were pretty engaged in investing, but they have a lot of college debt. And so they had questions like, “Do I pay off the debt before I save for retirement or do I do both at the same time?”
And then you have the Gen X and the boomers in the middle. Gen Xers have house and kids and retirement and ask, “What am I supposed to solve and when?” And then the boomers were kind of interesting. It’s kind of a tale of two cities with the boomers. Some of them were saying, “I’m ready for retirement or I’m in retirement, and I’m good, but I want to put money aside for kids and the charities that I care about.” Others were saying, “I’m in my mid-50s or late 50s and help. I’m not ready.” So definite generational themes.
Rebecca Katz: Lots to talk about. Kelly, what did you notice?
Kelly McShane: Yes, I agree with Jane. I think the generational differences were pretty telling. We also saw a clear grouping of questions around various different changes in status. So getting married and how to navigate investing or getting divorced or becoming a widower, even leaving the workforce to become a caretaker for either young children or an elderly relative—all important questions. And the reality is that most of us women, at some point in our lives, will face at least one of these changes in status, so it’s crucial to know how to navigate the investment journey through those changes.
Kahlilah Dowe: Great. And then we also saw quite a few questions from single women and single women with children who had questions around whether or not they were saving enough and which accounts they should save in. And questions around what are some of the other things they should think about when considering investments and where to start. So a pretty big variety.
Rebecca Katz: I think “variety” is the word. There was just no real stereotype and lots of challenges that women face and men face too. So we’re going to jump into those questions in just a moment, but actually, we recently had a conference here at Vanguard. And we had some women here who are very, very passionate about investing, and they offered to share some of their perspectives with us. So let’s take a look.
Video: “I believe there are unique challenges. Oftentimes I think women leave it to their husband.”
“I feel like women doubt themselves more and that it’s such a hard barrier to enter to get started investing.”
“And you don’t see a lot of women in positions that you could go and ask about investing.”
“Women may have a hard time taking the initiative. Maybe they feel intimidated by taking that jump and investing. But I think it’s changing a little bit. I’ve had three daughters, and they are all Vanguard investors.”
“My parents encouraged me to explore investing and to hold onto it, that it would be worth something long term.”
“Most of the time you find out that women wind up spending time on their own without their husbands, either through widowhood or through divorce, and it’s just so important that women are equal partners.”
“You have to have the right people to follow and listen to—leaders to look up to.”
Video: “Well, one piece of advice is to definitely read the Boglehead’s Guide to Investing because that’s what got me hooked.”
“First dollar you put in, the younger you put it in, the bigger it gets.”
“Start early and often, pay yourself first, always get the match of the 401(k), and get your Roth.”
“You have to save early, and you have to save as much as you can and to live below your means and stop trying to keep up with the Joneses.”
“Keep it simple and not try to make things too complicated, and just start reading and learning.”
Rebecca Katz: So what have we heard? We heard “keep it simple.” And, to be frank, that’s the same advice we give men and women here at Vanguard.
But sometimes, to be honest, it just doesn’t feel all that simple, and we saw that in the questions. So I think without further ado, why don’t we start jumping into some of those questions and help problem-solve a little bit. And, you know what, I’ll start with you, Kelly. The first question will go to you. It’s from Mariana in Boston, Massachusetts. And she says, “Are there techniques to help prevent the tendency for me and many other women to avoid the details of money and investing? I’m consistently shocked that I and so many women I know are smart, very ambitious, and accomplished but fairly ignorant about investing.” So what would you suggest?
Kelly McShane: Absolutely, and I love that we’re starting with this question because this is something that we see around the globe with both women and men, this tendency to not dive into the details of investing.
And what we like to remind investors though is there are really two ways to think about investing. You can dive into the details, but you don’t have to. We actually believe that there are these broad fundamentals. We call them our investing principles—that’s a good place to start. And they’re the things, if you focus on them, that actually lead to that long-term success. So I encourage investors to start there.
The first is establish goals. So clear, appropriate goals. What are you saving for? What are you looking to do with your investments? The second piece is focus on balance. So creating a diversified portfolio that balances risk and return. Number three, focus on minimizing your costs. So every investment has a cost. The more you pay, the less that you get in returns. And number four is maintain discipline. So whatever your goals are and how you’re investing, stick to that and continue to focus on that for the long term. And from there you can dive more into the details or really choose how much more you want to go. But we really do believe that those four fundamentals are what lead to long-term success, so we encourage investors to start there.
Rebecca Katz: Sounds simple, but even just figuring out your goals can be a little bit difficult.
Kelly McShane: Absolutely.
Rebecca Katz: You might have a lot of competing goals too.
Kelly McShane: Yes.
Rebecca Katz: Well our next question is from Annette. Annette’s local here in Pennsylvania, and she says, “What common mistakes should widows avoid when managing their money after the death of a spouse?” So we did see that in the video that that can sometimes happen. Jane, why don’t I turn that one to you?
Jane Greenfield: Sure, we do see common mistakes, and you do want to avoid them. It’s a very difficult time that you’re going through. But the first common mistake is people sometimes rush to make changes, and this is a good topic for “women and investing” because women tend to live longer, so often it is the woman who is the surviving spouse. So if you think about what happens after the death of a spouse, there are a couple of things you do want to think about and take action on.
One, you want to collect on any life insurance policies. Two, you want to make sure you keep up with your bills and paying taxes and that you know your health benefits and those types of things. But other than that, there’s really nothing else that is time-sensitive, where you should feel pressure to do anything.
We do see people sometimes deciding to pay off their mortgages or send money out to their kids, and those are kind of irrevocable steps that you can potentially regret later. So until you get your feet under you, don’t do too much. Don’t rush in.
The second thing is really a subset of that, and it’s don’t sell your house immediately. Because if you do, there are decisions that need to be made about where you go next. If you sell your house immediately, you have to think about “do I want to still live in a house nearby and deal with all of the home repairs and all the things that I may not want to deal with now in my widowed status.” You may want to decide where you’re going to live—same neighborhood or do you want to live close to kids or close to friends? There are a lot of decisions, and get your feet under you before you make those decisions.
And then the third thing is you don’t want to hastily either hire or fire a financial advisor. I would say you never want to be hasty when choosing a financial advisor because these are individuals who are really important to your financial future. You want to make sure that you are in line with them in terms of their approach and philosophy. You want to really understand what the fees are. And you also want to understand their compensation structure. Are they commission-based, are they not?
I have firm views on all these things, and you need to think about what your views are and be thoughtful and planful about it.
Rebecca Katz: That’s great advice. So take a breath, take some time, ask a lot of good questions.
Jane Greenfield: Yes.
Rebecca Katz: Well, shifting gears a little bit, we have a lot of questions about retirement, both getting near retirement, in retirement. So our first question around retirement is from Daisy, and she is in Marietta, Georgia. And I’m going to throw this one to Kahlilah. “How should I withdraw from my retirement accounts without paying more than necessary?”
Kahlilah Dowe: In taxes, I’m assuming she means.
Rebecca Katz: Yes.
Kahlilah Dowe: Okay, so, yes, that’s a good question, and that’s probably one of the first questions I get from those who are retiring. And I think it’s important, first and foremost, to make sure that you’re not taking more money out than what you actually need to spend. And I think that’s important because there tends to be this sentiment that I want to keep my paycheck going. Right? So let’s say you’re used to getting $5,000 on the first of the month; that’s what you want to keep getting. But that could result in you paying more in taxes than what you need to. And I see that, because at the end of the year, there’s quite a bit left over at the bank.
So the first thing I would say is make sure you’re very clear on how much money you actually need to spend, and then that’s what you should take out of the portfolio. So that’s one way to reduce taxes.
The other thing is you want to be aware of the tax bracket that you’re in, and they’ve changed, so it’s important that you take a look at that. And the reason why I say that is because, depending on the type of account that you withdraw from, that could impact the amount of taxes that you pay.
Now, ideally, you may have, let’s say, a few different types of accounts. You may have a taxable account. You may have an IRA, a Roth IRA, a traditional IRA, and you have to decide which of those accounts you should withdraw from.
And I’ll just give an example. You know, you may be in a situation where you have very little income, and so you could take money from let’s say an IRA and pay some taxes. But then you could also stop and say, “Okay, now that I’m at the top of this tax bracket, let me stop taking money here and start taking money from a taxable account.” I think that’s the benefit of having more than one type of account.
I have to say though that this normally involves, at least initially, consulting with a financial advisor.
Rebecca Katz: I was just going to ask. It sounds like something you would want to have a conversation with someone about.
Kahlilah Dowe: Definitely, yes, because it sounds like a pretty complex strategy, but it’s actually a very important strategy. We refer to it as a “spend-down strategy,” and it’s very important when it comes to managing the taxes that you pay.
So the first thing is, just to recap, make sure you’re taking out just what you need. When I say “what you need,” I don’t mean just living like “I can’t spend a dollar more.” But not taking out excessively if you don’t actually plan to spend it is what I mean. And then besides that, I would say consulting with an investment professional to look at all of the accounts that you have and to let you know which you should go about drawing from first.
Rebecca Katz: That’s great and we actually have some additional questions about picking financial advisors and when you need them. This is, obviously, a situation where you might need one.
But let’s flip to the other end of the spectrum. Kelly, I have a question here from Clara in Raleigh, North Carolina, and she says, “What is the number one tip that you would give to a young woman at the start of her career about investing with a limited budget?”
Kelly McShane: The number one tip, hands down, is to maximize your savings. So start as early as possible, and save as much as you can. And even with a limited budget, this can sometimes be a little bit difficult. But it’s so important to start as early as you can because the longer that your assets are invested, the longer you have to take advantage of the power of compounding.
Compounding is, essentially, how your assets build on themselves over time. And the earlier you start means that, later down the line if your assets compound, you’ll actually have to save less to get to that same point. So start as early as possible. I often hear from young investors that they feel like they maybe don’t have enough to start investing, but every little bit counts, so start there.
And that second component is to save as much as you can. Find a way to at least save 1% to 2%. Another way to save as much as you can is if you have an employer with an employer match—that means that all of that savings may not fall on you. So that employer match means that every dollar you save, they match up to a certain percent. So you want to take advantage of that. Save at least up to the match because that means that it’s essentially a 100% return on your money, and you’re probably not going to find that anywhere else.
So remember that every little bit counts. Start with what you can, and then build from there. As your income increases, hopefully over the progression of your career, you can automatically increase your savings percent as well so that, over time, that amount builds. It’s going into your investment account, and then before you know it, you have a secure financial foundation underneath you.
Rebecca Katz: It’s so important. I think so many of us look back and just think, “Oh, I could have foregone a couple of coffees and put that away.” And it’s hard to do when you’re new to this, but we regret it later on in life, I’ll tell you that.
Jane Greenfield: Well, I’m going to have Kelly talk to my kids because they’re 24 and 22, and if I say it, they may not do it, but that was great.
Kelly McShane: Let’s do it, yes.
Jane Greenfield: That was great, so I’ll give you their phone numbers afterwards.
Rebecca Katz: So, well, as you know, many of us get closer to retirement and have some regrets that maybe we didn’t start early enough.
Jane Greenfield: Yes, it’s so true.
Rebecca Katz: And so we have a question in, and this is from Lisa in Upper Marlboro in Maryland. And she says, “I’m 56, and I don’t think my IRA is where it should be. I’m not someone who wants to work until I die, so what should I be doing to beef up my retirement plan?” So Jane, any tips?
Jane Greenfield: I love the way she said that, she doesn’t want to work until she dies, so there’s probably a number of people viewing this webcast who would feel the same way.
Rebecca Katz: Right.
Jane Greenfield: So, yes. I would actually start, before you even think about how much you need to make up and how quickly, I would start by taking a look at what you think you want your retirement to look like. And I know that sounds so basic, but so many people skip over that step, and they go right to “what is the number?” And what your retirement looks like can vary a lot from person to person. You could say, “I want to travel the world and I want to give lots of money to my kids and charity.” Or you could say, “I don’t have the travel bug. My hobbies are pretty inexpensive, and I want to stay close to home.”
So start with that, and I would say when you talk about what you want your retirement to look like, you should talk to your partner or your spouse about it. I made that mistake. My husband Jim is 12 years older than me, and we were out to dinner one night with another couple and the topic of retirement came up. And unlike Lisa, I said, “I want to work until I drop dead. I love work. I love what I do.” I know that sounds so sad, but I do.
Rebecca Katz: Do you have a boss watching tonight?
Jane Greenfield: Oh, well, not tonight hopefully because he will make me work until I’m dead, no doubt.
But I do. I said, “I love to work, and I could absolutely see working until I’m at least 70.” And Jim looked at me and he said, “I’d be 82.” And there was a bit of a silence because I don’t think I had done that math, so I realized I should probably have talked to him one-on-one about that topic. Now we’re on the same page. He recognizes that having me at work is actually a really good use of my energy versus all channeled at him at home, so it’s all worked out.
But, needless to say, really think about what you think the picture of your retirement should be. And then once you’ve figured that out and you know how much you need for retirement—and there are great tools on vanguard.com to figure out the number—then there really are three levers to save more. The first is saving more, the second is saving longer, and the third is saving more aggressively.
So to save more, you can do what Kelly said so beautifully and just kind of make sure you save. Forego a little today for tomorrow. And once you hit age 50, you can save more tax-free or tax-deferred with catch-up contributions.
Saving longer is really just saying, “Okay, I don’t want to work until I die, but maybe if I work a few more years than I thought I wanted to or …”
Rebecca Katz: Part-time.
Jane Greenfield: … even part-time, yes. I mean, that income will help. And then saving aggressively is really looking at your asset allocation. If your asset allocation is really conservative, chances are you might want to invest a little bit more aggressively because we are living longer. So that’s my advice for Lisa.
Rebecca Katz: Great. Well, so Kahlilah, we just got a question in from Karen, and she said, “Do you have any particular guidance for single women approaching retirement?” So we have a woman—we don’t know her status— approaching retirement. But is there anything different that applies if you are single approaching retirement that you need to think through?
Kahlilah Dowe: Yes, so I would say, so again we know what the statistics show: that women tend to live longer than men. So one of the questions you’ll have to ask is when you want to take Social Security. That’s a big one. So do you defer it or do you take it earlier? And that can be tough because if you have, let’s say, just your portfolio, then you have to decide “do I draw down my assets or do I take Social Security early?” So there are benefits to deferring it for sure, and there are some instances, you know, depending on health, where we’ll say you should think about taking it earlier. But I think that’s one opportunity.
The other thing I would say, and ideally you would look at this before you get to the point of retirement, but I think it’s important for single women to have a solid, long-term health care plan in place—not necessarily insurance, although that could be what you decide to do. But you definitely want to have a long-term care plan in place because if you don’t have a spouse that you could rely on to take care of you—and let’s say you own your home—well, the reality is that a lot of people expect to use some of the equity from their home to cover long-term care or they expect to sell it. But you may not live in a nursing home for the rest of your life. You may need to come back to it, so that’s something I would say to consider as well. So Social Security, having a long-term care plan in place. Going back to what Jane said, definitely doing the assessment to make sure that the amount that you’re planning to spend aligns with how long you think your assets will last.
And I would even say, taking it a step further and being a bit, maybe some would say, unrealistic, when we run our analysis, we assume that investors live until age 100. And while that may be unlikely for a lot of people, think about how much security that gives you in terms of unexpected health care costs and things like that.
So that’s the other thing—I’ll just tie it back to her question around tips or things you should consider—think about spending a little less up front than what you may be able to because it gives you a lot more flexibility when you think about covering those medical costs or even covering long-term care costs.
Rebecca Katz: That’s great.
I want to shift gears a little bit, again, to a situation that can particularly affect women, which is time out of the workforce. So jumping around a little bit here, we have a question from Sharon in Virginia. And she said, “I’ve been a stay-at-home mom for more than ten years and will be starting a full-time job in a few weeks. What’s the best way to start investing?” And we’ve also seen women say, “I’m leaving the workforce.” I left the workforce for a few years when I had my daughter. “And what do I need to think about there?”
So Kelly, if we could start with you, that would be helpful.
Kelly McShane: Yes, absolutely, so it comes back to that change in status that we talked about earlier. One of those questions, leaving the workforce for a few years, what does this mean for my retirement savings, my retirement accounts? There are a few things to look at and a few places to start.
So first and foremost, if you were leaving the workforce and leaving an employer plan, a good place to start is to look at that employer plan and make sure that you’re still allocated and in alignment with your goals and you’re still set up the way that you wanted to be set up. Even if you’re not continuing to contribute, those assets may still continue to grow with the market. So that asset allocation piece, that balance, that diversification is key.
From there a few options. So for those that are married and filing jointly, there may be potential to contribute to a spousal IRA. So if your spouse has earned income, you may be able to contribute up to $5,500 tax-deferred if you’re under the age of 50, and so you’re still contributing toward retirement. If you’re not eligible for a spousal IRA, we would still encourage you to prioritize that retirement savings in whatever way that you can. It comes down to save as much as you can. Open up a taxable account and invest in tax-efficient investments such as an index fund, an equity index fund, so that you can still at least have something earmarked for retirement. And that way in the future if your status should change or your earnings do change, you’re still ahead of the game or at least on track toward those long-term goals. So a few options there, but that retirement piece is key, so stay focused.
Rebecca Katz: Does anyone have anything they want to add to that? It’s a very common situation.
Jane Greenfield: It is a common situation. No, I think that sounds great.
Rebecca Katz: So we have had quite a number of questions. Some of the things we’ve talked about kind of feel a little bit complicated to figure out on your own. So we’ve had quite a few questions on how to pick a financial advisor. Lisa in Centerville said, “How do I find one that I can trust?” And then we’ve had others who say, “How do I know I need one?” So I know a few of you have perspectives on this. Why don’t we start with “figuring out whether it’s an advisor you can trust”?
I mean Kahlilah, you’re our resident advisor here.
Kahlilah Dowe: Right. Yes, so I think it starts with finding a firm that you can trust, unless you’re going to go out and vet different financial advisors yourself, which could be a lot of work. So finding a firm that you can trust, that vets financial advisors, and maybe takes some of the work off of your plate would be a good place to start. Finding someone who’s a fiduciary and who is required to put your interests first I think is important. Someone who has the Certified Financial Planner designation is a good place to start. Referrals from friends. I think understanding, and I would say this about any financial advisor, understanding the compensation structure. So how do they get paid—to make sure that there are no conflicts of interest? So those are some of the basics that I would say you should look at.
When I think about trust though, so trust is built over time, but I think ultimately you need to work with someone—like that feeling you feel when someone has your back. Right, like they call to check on you, they understand you, they know who you are. They’re the person that can effectively talk you off the ledge when you’re thinking about doing something that you shouldn’t do. And not everyone has that kind of rapport with a client.
So I think part of it is just that feeling that you get, almost like with a friend, when you know that they have your back and you know that they have your best interests in mind. And even though that develops over time, you could start out by just making sure that there are no potential conflicts of interest and that at least the firm that they’re working with is a firm that you trust and have confidence in.
Rebecca Katz: Well, it’s interesting you mentioned that—that sort of coaching piece of it. Because Kelly, your group has actually done some really interesting research around that being kind of the big value-add when you hire an advisor, right?
Kelly McShane: Yes, absolutely, so we call it our Advisor’s Alpha research, which means there is this value that advisors add beyond the portfolio management piece—so beyond what you would think traditionally for an advisor of picking your investments. And it comes down to a lot of that trust component that Kahlilah talked about, that relationship piece. How can you trust them? Are they that person you can go to and say, “Hey, I’m feeling this way about my finances. Am I good? What do I do from there?” It’s that additional value that’s so important to look for in an advisor and that behavioral coaching and that kind of being a friend in a way and talking through things is where that value comes from.
Rebecca Katz: So how do you know you’re ready for an advisor? How do you know that you need one? Is there sort of a tipping point?
Kahlilah Dowe: Well, I think there are a few things that you look at. I think for any long-term investment strategy to work, you have to have discipline, and you have to be able to consistently execute your strategy. If you find that you’re having trouble doing that, I think that’s the right time to consult with a financial advisor. If you’re overwhelmed by managing your own portfolio, I think that’s the right time to consult with a financial advisor.
And then I also work with some investors who, while they could manage their own finances—they have the ability to—perhaps they’d just rather spend their time doing something else. Perhaps they just retired and maybe their spouse is a little older than they are; they don’t want to spend their time managing their portfolio. They’d rather be off enjoying their life and doing other things.
So I think that’s also a reason to hire a financial advisor, even if you have the ability to do it yourself.
Rebecca Katz: Yes, outsourcing.
Jane Greenfield: Yes, my father, actually, years ago, years before he passed away, he signed up for a financial advisor. And he was a pretty astute guy with his finances, but he was thinking more of my mom. He wanted to make sure that the relationship with the financial advisor was there when he wasn’t, and that actually worked quite well.
Rebecca Katz: I’m seeing on my screen—I get to see the questions that are coming in live or at least some of them—and we had a question from Laurie who said, “I’ve always left it up to my husband to handle my investments. I just turned 60, and I realize I have no idea how to manage my portfolio, so where do I start?” So I guess an advisor might be one start. Are there other things that Laurie could consider if she maybe doesn’t want to take the steps of getting a financial advisor?
Kelly McShane: Absolutely. I think that being involved in finances, it doesn’t mean that you have to be involved in the day-to-day aspect of it. But even just starting with understanding where are the assets, how are they invested, what’s out there? The last thing you want is something unexpected to happen to your spouse, and there be some outstanding account or asset balance that you didn’t know about. So even just understanding what your situation is.
And then from there too, what’s the beneficiary situation? So where are those assets earmarked or who are they earmarked to go toward? So kind of getting that broad financial picture again. You don’t have to get into the nuances but understanding kind of what’s on the table. It’s not always the most pleasant conversation to have. It’s not something that you always want to think about, but when and if that happens, you want to be able to at least have that under your belt and a grasp on your financial situation.
Jane Greenfield: Again, having those conversations, if they haven’t already occurred, on goals and approaches and that type of thing versus sweating the details. Going back to what you had originally talked about, Kelly. I think that’s a great way to kind of get involved, and by doing so, you can kind of see what you would want to do or how you might approach it if you were by yourself.
Rebecca Katz: That’s great.
Kahlilah Dowe: Yes, and I think what’s interesting is that when I speak with clients who take the opposite approach—where they go in asking, “Well, how much should I have in international equities or do I want to have bonds when the Fed is raising interest rates?” When you go in with that approach, the stakes seem like they’re a lot higher than they actually are because if you make the wrong decision on that, now you’re talking about, “Okay, now I regret the decision or have I lost money because of that?” So if you’re trying to kind of get your feet wet or get involved, that’s definitely not the right place to start—even though ultimately you may come back to that. I think that part can be particularly intimidating because the stakes are a lot higher when you’re talking about actually investing the money, which is actually the last part of it once you get past some of the goals and other things Kelly mentioned.
Jane Greenfield: And at that level, there are so many questions. The number of questions that you could be asking is overwhelming and could actually cause you to stop asking any questions at all.
Rebecca Katz: Well, one of the things that sometimes as people get older they start thinking about their legacy—again, a difficult discussion—but what happens after you die and how do you prioritize all of these things that are important to you in your life—your retirement savings or maybe you have education savings.
So we had a question from Lynn in Southampton, Pennsylvania. And Lynn says, “Charitable giving is important to me. How do I balance saving for retirement, saving for my children, and also for philanthropy?” So Jane, how do people prioritize this and does that change over time? In your role at Vanguard Charitable, you talk to people who do want to leave a legacy or who have set up foundations and who give to charities.
Jane Greenfield: Yes, absolutely. So we do talk to our donors all the time about this. I think if you look at these goals, everyone wants to have a comfortable retirement, however they might define that. But beyond the comfortable retirement, we talk to our donors about what is the purpose of your wealth? Is it for giving to your kids so that they have a really comfortable life or is it giving to charity to make the world a better place? Is it giving to the government by way of taxes? Most people don’t choose that bucket, but we ask about that and we get such different answers. Some people say, “I actually don’t want to give any money to my kids. I want them to build their own wealth. I want to make the world a better place.”
But we talk about that. We watch to see if spouses and partners are on the same page on that, and then that helps them think a little bit more about how to plan. They’re used to planning for retirement, but there are also ways to plan to help your kids through 529s and trusts, etc. There are ways to really save for charitable giving so that you can give to charities—when you’re in retirement and your income has stopped—through donor-advised funds and other vehicles. So once you kind of step back and figure out the purpose of your wealth, you can plan from there.
Rebecca Katz: Great. Well, we have some new questions. We have live questions coming in hand over fist; I can’t begin to tell you. Oh, this is a great one though, as I have a daughter who is actually in the studio with us today. Looks like Nielli says, “How can I best raise my daughter to be a smart investor?” What a great question. And I guess it depends how old the child is, but do you ladies have any tips for raising smart investor daughters? And I know, Kahlilah, you have a 13-year-old as well. I have a 13-year-old.
Kahlilah Dowe: Yes. I love that question. I do.
Rebecca Katz: Do you do anything to try to get her thinking in that direction?
Kahlilah Dowe: Well, I do bring her to work with me occasionally so that she understands what I do. I talk to her about managing money, not only her allowance, but I actually let her see what her dad and I, my husband and I, how we manage the money. And what I love is that she gets to see that two people can drive this. It doesn’t have to be one person, whether it’s me or my husband. So that’s one thing that I do.
I think the kids nowadays—I’m saying kids, she’s 13—but I think schools are getting better with kind of putting it in the curriculum a little bit more as well, so I think that’s important also. The question was around tips that she could give her daughter.
I think the biggest thing is just allowing her to see you do it. I think that goes a very long way. Having the conversations. I feel like when I grew up, it was taboo to talk about money in front of children. I think that’s less the case, but I think also allowing them to understand how investments work.
It’s interesting because when I speak with women who are very much at the forefront of their investments in their portfolios, even those that are married, most of them were raised that way. Yes, most of them were raised that way and some of them just kind of did their own research.
And I have to keep coming back to that because I think it comes down to teaching them while they’re young, allowing them to see how you go about managing your portfolio. And there are different books as well that they could read.
Rebecca Katz: That’s great. Actually, very few people probably know, I know you mentioned education in schools, but Vanguard actually has a program called My Classroom Economy® that more than 800,000 kids are exposed to across the country. It’s free to schools. And it makes them rent their desk, and they have to figure out how to live on a budget. It’s not so much about investing as it is about actual money management skills, which is really fascinating. Sorry Jane, you were going to say something.
Jane Greenfield: Yes, I was going to mention two things. One is that I was asked to come to the high school I went to—and it’s a girls’ school—to talk about investing. And I tried to make it real for them. I said, “Okay, so assume you’re about to graduate from high school and your parents say, ‘Here’s $5,000; you can do anything you want with the $5,000.’”
And I had them talk about what they would do. Well, some people wanted to spend it immediately. Others said, “No, this is a class on investing,” so they wanted to find a really good hot stock, just one stock, and blow it all there. We talked about diversification, asset allocation, so it made it a little bit more tangible. I think when you can make it something that feels a little bit fun and tangible, they’re more likely to connect to it.
But I’ll tell you another story. One of our donors at Vanguard Charitable told us that what they have done with their kids from the time the kids were little is anytime those kids got money, they were told there are three buckets to divide the money between.
Rebecca Katz: Yes. We do this.
Jane Greenfield: Do you do that?
Kelly McShane: Yes, I do that.
Jane Greenfield: It’s great—save, spend, and give to charity. And these kids are growing up not only, hopefully, thoughtful about saving but thoughtful about giving back as well. And then as they get older, you can kind of pepper in some good investment principles into the saving piece, but I think that’s actually a really nice way to do it.
Rebecca Katz: That’s great. I think we could have a whole webcast just on this topic. We’re very passionate about it.
Well, another milestone in your life is, obviously, finding the person you’re going to spend the rest of your life with and potentially getting married. And we had quite a number of questions from viewers who asked for advice to give to a newly wedded woman about investing and establishing good financial practices for marriage. That was from Lauren. And then just from Jordan, some tips on how to integrate your finances with a partner.
I harken back to your conversation about making sure you have the discussion.
Jane Greenfield: Yes.
Rebecca Katz: Interestingly, I had a lot of debt coming out of college and ended up getting married, and we hadn’t had that discussion. So it was a bit of a shocker to my new husband when he saw the bills coming in the door. So good to get that out upfront.
Jane Greenfield: Yes, I would say have the conversation about that absolutely. There are a few other things to have conversations about as well. One is budget and spending. People tend to have very different perspectives about how much they want to spend. Some are frugal; some are spendthrifts. So I think having that conversation upfront and really getting on the same page there is important and could avoid issues in the future.
Another thing to really focus on is your perspective on saving. I think you should both—in your marriage—focus on saving for retirement. Both of you should get into your employer-sponsored retirement plans. But what other goals might you have? You should talk about that. You may have goals for buying a house or whatever the case may be.
And then, finally, investing. I think you should talk about your risk tolerance. How much stomach do you have for volatility and what does that mean when it comes to investing your shared assets?
Rebecca Katz: That’s great. Anyone have something to add?
Kelly McShane: On top of that, so that communication piece I think is key—understanding how you both save and spend and how you view money in general. When it comes to the more technical aspect of how you actually integrate your finances from a budgeting standpoint, there are really three main approaches that we see. And the specific approach will come from that conversation and understanding your specific goals, but there are three main approaches.
First, you can merge everything into a joint account. This is usually the simplest way to do things, but it really requires the most communication because you have to understand, “Okay, we’re both spending from the same account. Are we on the same page here?” We encourage people to annually review that statement, your financials, so that you can make sure that that communication, that dialog, stays open.
There’s a second school of thought of “what’s mine is mine, so keep everything separate.” Not as common, but it’s another approach and tends to be a little bit more complex.
But then there’s also this hybrid approach that you see, especially for newlyweds and people just starting to integrate their finances. It’s that you allocate a certain percentage of your assets or your income to a joint account, and then you each keep your own percentage in your individual accounts. So whether you want to buy a gift for your spouse or something like that, you have it separate—almost like your own little pot of savings.
So again, different situations or different approaches, the best approach will come down to that communication piece and making sure you’re on the same page.
Rebecca Katz: That’s great. Well, and not to burst a bubble of wedded bliss, but we had a lot of questions on the other side of the equation too, which is divorce. And we have a couple questions here. “If there is a chance of divorce in the future,” Jennifer asks, “what are the kinds of financial issues a woman should consider to protect herself?”
So maybe some of what you just discussed works. If you’re worried about divorce, better to be separate. What tips do we have for people who think that might be in the future?
Kahlilah Dowe: Well, one thing I’ll say is definitely debt. And actually, it’s interesting, I have someone I’m very close with who is recently divorced, and they had purchased a house shortly before they got divorced. And so after asking her if she was okay, I said, “Well, what about the house?” And she said, “Well, I’m going to stay in the house, and I made sure that we purchased a house that I could afford on one salary.”
So I think that’s important, even when you’re in marital bliss, to think about that—the debt part of it and making sure that the debt that you’re taking on is manageable in case worse comes to worse.
Let’s see. The other thing I would say is around education savings, so 529s. And I think that’s important because most of the time, the children, if there are any, will stay with the mother, with the mom. And so if you think of it that way, the question will become, “Well, who is going to pay for college?”
If the 529s are not funded, that’s something that could be a source of conflict. So that’s something else that I would say to keep in mind—that you have to establish that. And if you have money earmarked for that before it gets to that point, that’s ideal.
So those are the two things I would say. I’m trying to think. I had one other on the tip of my tongue.
The other thing I would say is around beneficiaries. And I think this one is important because usually when someone establishes beneficiaries on their account, it’s with the thought that, God forbid, something happened to this person, here are the people that I want to get this money. Divorce changes that, and so beneficiaries can change at the most inopportune time when divorce is on the table. So that’s something else I would say to keep in mind.
And with that, you definitely want to consult an attorney for sure, but definitely your state’s laws because, depending on the state that you’re in, that, in part, will determine which assets you’re entitled to. And part of that will be based on how the assets are titled and how the beneficiaries are set up in terms of whether or not they could be changed. So that’s something else to consider.
Rebecca Katz: Great. Very helpful information. We have so many different questions, and they’re all on different topics. Sorry ladies, I would love to group these together, but our next question is from Brenda. And Brenda is asking a really good, very Vanguardy question, “How do I understand fees—fund fees, management fees?” We could talk about advice fees. “And how do I compare that to other firms?”
So, as you know, we pride ourselves on having changed the industry by making everyone lower their fees to catch us. So how should people think about fees? What do they look for when they’re evaluating both investments and investment advisors, other services? Kelly, do you want to take that?
Kelly McShane: Absolutely. So as I mentioned, that Advisor’s Alpha concept. So what are you paying for? I would say that’s a good place to start. Whether it’s investment cost, advisor fee—really what is the value that you’re paying for?
I also think it’s a good idea to explore, do your research, see how that fee compares to maybe what’s in the industry—the highest fees, the lowest fees—to see where you fall in that benchmark. But the biggest thing with fees is: Are you getting what you pay for essentially?
And we, of course, encourage low fees, but at the same time, if the value is there, then it may be worth it. But when it comes to investments, it is important to remember every dollar you pay in investment costs is a return that you maybe don’t get back in your pocket as much.
Rebecca Katz: Any other suggestions on fees?
Kahlilah Dowe: Well, I would say if you’re working with a financial advisor, it’s important to make sure that the advisor isn’t being compensated for what they’re recommending to you.
Jane Greenfield: Yes.
Kahlilah Dowe: Right? So there’s the potential for conflicts of interest when it comes to advisor or even broker compensation. So you want to make sure that you’re very clear on how your advisor is being compensated.
Jane Greenfield: That’s actually a great point because if you ask someone about fees, they may not actually talk about that because that feels like a bit of a different topic, but it’s really critical.
Rebecca Katz: So ask lots of questions. That’s great. Our next question is from, well, we talked about this a little bit, but it’s a slightly different take on this, from Meredith in Brooklyn, New York. And she says, “It would be of particular value to hear discussions or tips around investing as a single woman freelancer who doesn’t have access to full company benefits.”
So we have two issues here, single woman and also freelancer/small-business owner. Are there certain things that people need to keep in mind in both of those situations? Start with Kahlilah.
Kahlilah Dowe: Sure. So, first, I would say if you don’t have a company plan available, that’s not a deal-breaker. Like even worst-case scenario, you saved everything in a taxable account. I think that’s fine also. The main thing is that you’re saving as much as you can.
There are other account types that are more tax-efficient that you could think about using as a freelancer, like a SEP-IRA, maybe a SIMPLE IRA or traditional or Roth, but all of those have limits. So if you’ve maxed out those, there’s nothing wrong with just saving in a taxable account in a very tax-efficient way.
As a freelancer though, you probably want to have a larger cash reserve than some others who have maybe more steady work. The other thing is you may need to invest more aggressively because if you don’t have the company plan, perhaps you don’t have a match that an employer plan may be able to offer you, so you may invest more aggressively to make up for that. And then you may invest more aggressively to make up for any lags that you may have in employment. So those are some of the things I’d say to consider.
Kelly McShane: I’d say on top of that, investing aggressively when you maybe do have cash flow but also when you do have that stability of income as a freelancer versus times where you may not, invest and save a little bit more during those times.
So that savings piece is just as much aligned to your long-term goals and your long-term investment success. So when you do have that income coming in, make sure to take a little bit more maybe and invest it in your investment accounts.
Rebecca Katz: Well, let’s talk about that because one of the, I guess, mantras out there is that women tend to be a little bit more conservative than men when it comes to investing. That may be generational too.
But we did have a couple questions. We had one from Victoria that said, “Should I be a little bit more risky with our portfolio, because I tend to be more conservative?” And then Brittany in California said something similar. She said, “I really think I need to take more risk, but I’m hesitant. Is there anything you can tell me to help me with this?”
So how should women think about risk? Jane, do you want to take that?
Jane Greenfield: Yes. I do. I think sometimes taking on more risk feels like you’re going to lose it all, and people forget that if you’re too conservative, there’s a way to lose as well. The real value of your assets could decline because of inflation. So there’s more than one risk to manage. It’s not just market volatility. So that’s one thing I would say.
But the amount of risk you should take always really depends on your time horizon. When are you going to need the assets? And it also depends a bit on your stomach, like, how much volatility can you really stomach? And that differs person by person.
But if you’re really looking for a little context on what might be reasonable in terms of risk, my advice would be to go to vanguard.com and look at the target-date funds because target-date funds are structured for people who are saving for retirement.
So if you’re 20 years or more out from your retirement age, well, you really want a lot of equity exposure, 90%. But if you’re ten years out, that’s going to ratchet down; five years out, that’s going to ratchet down further. So I would just say it’s helpful context.
Rebecca Katz: Yes, a starting place.
Jane Greenfield: It’s a starting place.
Rebecca Katz: Great.
Kahlilah Dowe: And I would just add that I think it’s important to take on risk, but we don’t want investors to take on risk just for the sake of taking it, right?
Jane Greenfield: Right.
Kahlilah Dowe: You want to get more aggressive growth in the portfolio. And I want to make that distinction because even though that comes with risk, it’s different from speculation.
Jane Greenfield: Yes.
Kahlilah Dowe: Because some people may feel like, “Okay, I have a lot of time on my hands before I retire, that means I can invest more in individual stocks or I could invest more in sector funds.” And that’s also a form of risk.
So I just wanted to specify it’s not necessarily risk that we’re looking for. It’s more aggressive growth because you have a greater risk capacity, but we want to try and do it in a way that minimizes the volatility in the portfolio.
Jane Greenfield: Yes, that’s a great point. I always assume when we talk to our investors at Vanguard, they’re thinking about well-diversified funds and they’re looking at asset allocation.
Rebecca Katz: Not bitcoin? Come on, no bitcoin?
Jane Greenfield: But that’s right, no bitcoin. But, no, everyone defines risk differently. It’s a great point.
Rebecca Katz: Well, so you did mention, briefly, target-date funds. We should probably explain what that is.
Jane Greenfield: Yes.
Rebecca Katz: But Cynthia in Wisconsin actually asked a question and said, “Is it best to use a target-date fund or individual funds for retirement investing?”
So target-date funds are really funds of funds. It’s a compilation of different funds. And maybe, Kelly, you could give a quick explanation, and then we could talk about which is better—all-in-one or separate funds?
Kelly McShane: Yes. So a target-date fund is essentially, it’s allocated based on a certain allocation, and essentially you pick the year that you want to retire. They’re usually used for retirement, and then over time, they automatically rebalance their allocation to get more conservative over time.
So, for example, if you are planning to retire in 2050, you would have necessarily a higher equity allocation, and over time it would ratchet down. They’re great for investors who maybe don’t want to be as involved in investments. They don’t want to get into the nuances. It’s really a one-stop shop that you can invest in and let the allocation, the rebalancing piece, leave it up to the fund to manage over time.
I really think whether a target-date fund or individual funds are better or worse for an individual comes back to that goal piece and that involvement and that desire to be involved with the investment portfolio. They’re not best for everyone. Some investors choose to be more actively involved and pick their own funds, but it really depends on kind of the desire to be involved. But they are a great option for people who are just starting out or maybe just want to pick one thing and let it go.
Rebecca Katz: Yes, a lot of 401(k) plans use them as the default fund so you just get automatically put in those.
Kelly McShane: Absolutely. Yes, yes.
Jane Greenfield: Really, even if you love to invest and you have perspectives and you want to monkey around with things, if you aren’t really confident that you’re going to remember to change your allocation or rebalance, it’s a really good thing.
Kelly McShane: The beauty too, I think, so on that balance point or that rebalancing point, target-date funds, they also check the box on diversification. So you get that broad international exposure, U.S. exposure, stocks, and bonds based on the appropriate investment mix for your age and risk tolerance. So again, a lot of benefits, target-date funds.
Rebecca Katz: Great. So Kahlilah, we have a couple questions. They’re calling you out by name. And it’s really around Personal Advisor Services. So we’ve talked a lot about advice generally and finding an advisor. Obviously, Vanguard offers advice services because that’s where you work. Can you talk a little bit more?
This is from Bernice who wants to know what services are actually provided by Vanguard Personal Advisor Services. And, also, I think there’s a widget on your website if you’re watching us where you can learn more as well. But if you could just explain it in a nutshell.
Kahlilah Dowe: Sure. So Personal Advisor Services, this is a service that we offer where we work with clients for their financial planning. We manage their portfolios. But before we get to that point, we work with them to make sure that they are clear and we are clear on the goals for, really, their life. So what is it that you’re trying to accomplish here in terms of your portfolio and how can we help you get there? And sometimes that’s retirement; sometimes it’s education savings; it could be charitable giving.
So once we have a very clear idea of what it is that you’re trying to accomplish, we come up with strategies for our clients. In managing the portfolios, we make sure that they stick with the strategy, so kind of acting as a coach.
The majority of our advisors are also Certified Financial Planner professionals, so we also offer more comprehensive financial planning where we deal with some of our clients’ estate planning. If they are purchasing a home and they need help from an advisor to think about “do I get a fixed or adjustable?” So it’s really a very comprehensive financial planning service that we offer where we, as a core of the service, want to make sure that our clients’ portfolios are invested and stay invested in a way that helps them to their long-term goals.
Rebecca Katz: That’s great. You’re the coach that calls and says, “Don’t do anything. Just stand there.” That’s great.
So, unfortunately, we are pretty much out of time. We’ve taken a lot of questions on really a broad variety of topics. Now you’ve probably noticed, almost everyone here has a book on their desk because one of the most popular questions we were asked was, “What can I read or what resources can I reference to learn more about investing and money?” And so Jane and Kahlilah, you both have books to share.
Jane Greenfield: We do. We do.
Rebecca Katz: Jane, what is yours?
Jane Greenfield: Mine is Straight Talk on Investing by Jack Brennan. What I love about this book is it actually starts with a section that talks about managing, you know, learning the basics, and then from there, all the guardrails and guidelines on how to put a portfolio together, etc. It’s in plain talk, easy to read. I do, actually, highly recommend this book quite often to people, so I would highly recommend it to you.
Rebecca Katz: And Kahlilah?
Kahlilah Dowe: Yes, the book that I have here is The Little Book of Common Sense Investing by our founder John Bogle. And I really like this book because, well, part of the title is The Only Way to Guarantee Your Fair Share of Stock Market Returns, and I like this because it really encourages investors to focus on the fundamentals of investing and helps investors to tune out a lot of the noise that’s really not important and really doesn’t help you in terms of reaching your investment goals.
So for anyone who is just starting out wanting to understand investments, wanting to understand what they need to know and what they don’t need to know, I think this is a great book to start with.
Rebecca Katz: Can’t go wrong with a book by Jack Bogle. So Kelly, as our millennial maybe, you have more of a digital point of view. What resource do you recommend?
Kelly McShane: Yes. So I’m much more of a podcast person. And I would recommend, actually, it’s relatively new at Vanguard, The Planner and The Geek podcast.
Jane Greenfield: Love it.
Kelly McShane: It’s with Joel Dickson and Maria Bruno. They talk about most of the things that we talked about here today, and they’re highly entertaining. You will laugh. I used to work with both of them and they are a great duo. So if you’re a podcast person like myself, The Planner and The Geek. I would highly recommend it.
Rebecca Katz: Yes. And you can look at the green Resource widget on our website, and you’ll find the latest version of the podcast there.
Well thank you for all of the great insights. We knew this hour would fly by, but it sure did. And thank you to all the viewers who have tuned in for our webcast tonight, those who are regular viewers and part of the Vanguard community, and those who are new and here for the first time. We really enjoyed being with you this evening.
Rebecca Katz: If we could borrow just a few more seconds of your time, you will see a red Survey widget, and we would really appreciate feedback on tonight’s webcast and any suggestions you have for future webcast topics.
In a few weeks, we’ll send out an email, and it’ll have a replay to tonight’s webcast and a transcript and some highlights for you. And share that with all the women in your life; that would be great. And please continue the discussion with us on social media. We’re on Facebook. It’s just facebook.com/vanguard or you can tweet at us, which is @Vanguard_Group.
So from all of us here in Malvern, Pennsylvania, where it is very chilly, to all of you watching, thanks for spending a part of your evening with us. Thanks for being a part of the Vanguard community, and we hope to see you next time.