Vanguard Investor Questionnaire recommends 100% stocks!

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CFM300
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Vanguard Investor Questionnaire recommends 100% stocks!

Post by CFM300 » Tue Nov 15, 2016 11:33 pm

In another thread, Taylor provided a link to Vanguard's Investor Questionnaire designed to help investors choose an asset allocation. Here it is:
https://personal.vanguard.com/us/FundsInvQuestionnaire

I decided to complete the questionnaire for fun.

I was stunned that based on my answers Vanguard's "Suggested Allocation" for me was 100% stocks!

Below are my answers to each question.

Does anyone else find Vanguard's recommendation surprising?

I would have thought that my answers to questions 9 and 10, along with my current allocation, would have caused a recommendation for at least some bonds. I'm almost wondering if the questionnaire is functioning properly.

Edited to add: I'm not looking for allocation advice. That's not the purpose of this post. I'm just curious whether others are surprised that the answers below led to a 100% stock recommendation, that's all.

****************************
1. I plan to begin taking money from my investments in . . .
More than 15 years

2. As I withdraw money from these investments, I plan to spend it over a period of . . .
More than 15 years

3. When making a long-term investment, I plan to keep the money invested for . . .
More than 8 years

4. From September 2008 through November 2008, stocks lost over 31%. If I owned a stock investment that lost about 31% in 3 months, I would: (If you owned stocks during this period, select the answer that corresponds to your actual behavior.)
Buy more of the investment.

5. Generally, I prefer investments with little or no fluctuation in value, and I'm willing to accept the lower return associated with these investments.
Disagree

6. During market declines, I tend to sell portions of my riskier assets and invest the money in safer assets.
Strongly disagree

7. I would invest in a mutual fund based solely on a brief conversation with a friend, co-worker, or relative.
Strongly disagree

8. From September 2008 through October 2008, bonds lost nearly 4%. If I owned a bond investment that lost almost 4% in 2 months, I would: (If you owned bonds during this period, select the answer that corresponds to your actual behavior.)
Buy more of the investment.

9. The chart below shows the greatest 1-year loss and the highest 1-year gain on 3 different hypothetical investments of $10,000.* Given the potential gain or loss in any 1 year, I would invest my money in:
B (loss of $1,020, gain of $1,921)

10. My current and future income sources (for example, salary, Social Security, pension) are:
Somewhat stable

11. When it comes to investing in stock or bond mutual funds (or individual stocks or bonds), I would describe myself as . . .
Experienced

Your current asset allocation:
10.0% Short-term reserves
35.0% Bonds
55.0% Stocks

Suggested Allocation:
100% Stocks
Last edited by CFM300 on Wed Nov 16, 2016 2:27 am, edited 2 times in total.

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SeekingFI
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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by SeekingFI » Wed Nov 16, 2016 12:45 am

I answered similarly and was also surprised to receive a recommendation of a 100% stock allocation. Other tools and calculators also recommend aggressive AA's for me as well (i.e. 90/10 for someone 15 years from retirement). Not sure why there is such a gap in AA's recommended on Bogleheads vs. vendors but it's definitely there.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by stemikger » Wed Nov 16, 2016 1:18 am

No tool can tell you what it would take for you to sleep at night. Most people would have a hard time with a 100% stock portfolio. Stay on the conservative side.
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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by sport » Wed Nov 16, 2016 1:49 am

I find the questionnaire woefully inadequate. It does not ask how much money you have invested. It does not ask how much you need for living expenses. It does not ask if you need to withdraw from your portfolio, or will need to do so in the future, or how much that withdrawal will be. DW and I are retired. Pensions and SS meet almost all of our needs. We have no need to take a lot of risk with our investments. Yet, the questionnaire suggests 60% stock. I am quite happy with 35% stock. It is much more important to me to preserve our assets than it is to grow them. We only wish that interest rates were more normal so that we could get a decent return from all those bonds. Even so, our portfolio has done very well for us.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by CFM300 » Wed Nov 16, 2016 2:07 am

stemikger wrote:No tool can tell you what it would take for you to sleep at night. Most people would have a hard time with a 100% stock portfolio. Stay on the conservative side.
I agree and just completed the questionnaire for fun.

My current allocation is 10% cash, 35% bonds, and 55% stocks (44% U.S., 11% international), which is obviously way more conservative than 100% stocks.

But I'm curious about the logic that converts the answers I gave into a recommendation of 100% stocks. I would have thought the fact that I said that my income was only "somewhat stable" would have been enough for them to include some bonds or cash, but I guess not!

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by sunnywindy » Wed Nov 16, 2016 2:11 am

No, I'm not surprised. If you want to invest aggressively, you should think twice about owning bonds. Bonds serve as 'ballast' in a portfolio, muting the volatility of stocks. If they make money, great, but that's not their purpose in a portfolio, especially in the context of the Boglehead philosophy (diversification is the other biggie). You shouldn't count on bonds making any money for you and thus, that percentage of your portfolio won't add to your future returns.

But, you must recognize that a 2-minute online calculator isn't day-to-day reality and the psychological ramifications of big bear markets on most people is that they can not tolerate a 100% stock portfolio. It is better for them to give up some future returns (with bonds) versus jumping in and out of the market at the wrong time (which completely destroys their returns).

So, use the calculator to be honest with yourself and to also question your preconceived notions of what a good asset allocation is for you.

{For a little personal perspective, I've lived through 1987, 2000, and 2008 and these events haven't caused me to panic and/or do something stupid. These events did steer me towards a much better asset allocation, though (no more individual stocks). In '87, I only owned IBM and I think it lost over $30 on Black Monday...(or was it Black Tuesday?) In 2000, the internet bubble didn't hit me too hard as I owned about 25 giant-cap blend & value stocks that didn't suffer too greatly (it was harder not owning the rapidly rising tech stocks than it was suffering the bubble bursting). And in 2008, I got killed on some stocks (Fannie Mae, AIG) because my impulse was to not sell (which I should have). Fortunately, my mutual funds made it through just fine because I didn't do anything.}
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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by CFM300 » Wed Nov 16, 2016 2:40 am

sunnywindy wrote:No, I'm not surprised. If you want to invest aggressively, you should think twice about owning bonds.
But where in the questionnaire did I say that I wanted to invest aggressively? In fact, I chose option B on the volatility/returns question (#9), which means that I'm not looking to maximize potential returns if that means I'll have to accept maximal losses as a possibility.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by celia » Wed Nov 16, 2016 5:15 am

CFM300 wrote:But I'm curious about the logic that converts the answers I gave into a recommendation of 100% stocks. I would have thought the fact that I said that my income was only "somewhat stable" would have been enough for them to include some bonds or cash, but I guess not!
According to your answers (and mine when I first saw this many years ago), I think 100% stocks is the correct answer. Turn your question around for a minute. For the 100% stock investor, what answers do you think she would have given? (The same as yours.)

In some cases, AGREE and STRONGLY AGREE are the same answer, in my opinion. I think the "STRONGLY" answers belong to those who are more passionate but basically think the same as those who weren't "STRONGLY".

If you look at question 9 closely, answers A and C pretty much show the same chance for profit vs loss, whereas answer B shows twice the profit compared to the potential loss. Answers A and C show a 50% chance of "winning" vs "losing". With those odds, I would feel like it wasn't worth investing. I want to know that overall, I will probably "win" if I invest.

I think the most telling questions are what you did during both the 2008 stock market and bond market drop. You didn't panic and sell, but threw more money towards stocks and bonds. That is exactly what a 100% stock investor lives for.
Last edited by celia on Wed Nov 16, 2016 5:18 am, edited 1 time in total.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by sunnywindy » Wed Nov 16, 2016 5:16 am

CFM300 wrote:
sunnywindy wrote:No, I'm not surprised. If you want to invest aggressively, you should think twice about owning bonds.
But where in the questionnaire did I say that I wanted to invest aggressively? In fact, I chose option B on the volatility/returns question (#9), which means that I'm not looking to maximize potential returns if that means I'll have to accept maximal losses as a possibility.
I think (and guess) Vanguard's methodology equates your answers to the bear market questions (Questions 4 & 8) as aggressive and these answers are more important (are given a higher weight) than the volatility answer (Question 9). I guess Vanguard figures when fear is at it's worst, when the market is going down, that is when people freak out and sell their holdings. You answered that you would buy when everyone else is selling. This takes a brave soul and probably one who is psychologically able to handle a bear market in 100% stocks.

I would also interject that even though the tool says '100% equity' that doesn't mean the Market beta is appropriate for you. You could buy low-volatility funds such as iShares MSCI US Minimum Volatility (USMV) or Vanguard Global Minimum Volatility Fund (VMNVX) to dampen the volatility, but still be in stocks.
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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by Quark » Wed Nov 16, 2016 7:18 am

sport wrote:I find the questionnaire woefully inadequate. It does not ask how much money you have invested. It does not ask how much you need for living expenses. It does not ask if you need to withdraw from your portfolio, or will need to do so in the future, or how much that withdrawal will be. DW and I are retired. Pensions and SS meet almost all of our needs. We have no need to take a lot of risk with our investments. Yet, the questionnaire suggests 60% stock. I am quite happy with 35% stock. It is much more important to me to preserve our assets than it is to grow them. We only wish that interest rates were more normal so that we could get a decent return from all those bonds. Even so, our portfolio has done very well for us.
It's a major flaw in the questionnaire (and just about every similar questionnaire) that these questions aren't asked. Need to take risk is a critical issue.

The questionnaire mainly focuses on psychology and, to a lesser degree, holding period. The implicit assumption seems to be that if you can hold long enough you should be heavily in stocks.

They've added one question about income stability, which is a step in the right direction, but not nearly enough. They didn't even have this the last time I looked.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by tigermilk » Wed Nov 16, 2016 7:21 am

Even if not 100%, based on your answers I would say you have the head and stomach of someone who should be more than 55% stocks. I would have answered each question similar to you, and FWIW I am 100% equity aside from cash in my checking account. The computer answered based on the logic path of the questions, not your gut. So clearly there may be a disconnect there. But the questionnaire doesn't know the intricacies of your situation. House paid off? Pension?

But no, I'm not surprised.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by nisiprius » Wed Nov 16, 2016 7:31 am

Now, let's go to their Get a Recommendation tool and try the same thing, answering the somewhat different questions as consistently with your answers as we can.

1. I plan to begin taking money from my investments in . . .
More than 15 years

2. As I withdraw money from these investments, I plan to spend it over a period of . . .
I plan to withdraw money from this investment over a period of:
More than 15 years

3. When making a long-term investment, I plan to keep the money invested for . . . -- No equivalent question


4. From September 2008 through November 2008, stocks lost over 31%. If I owned a stock investment that lost about 31% in 3 months, I would: (If you owned stocks during this period, select the answer that corresponds to your actual behavior.) -- No equivalent question

5. Generally, I prefer investments with little or no fluctuation in value, and I'm willing to accept the lower return associated with these investments.
Disagree

6. During market declines, I tend to sell portions of my riskier assets and invest the money in safer assets.
Strongly disagree

7. I would invest in a mutual fund based solely on a brief conversation with a friend, co-worker, or relative. -- No equivalent question

8. From September 2008 through October 2008, bonds lost nearly 4%. If I owned a bond investment that lost almost 4% in 2 months, I would: (If you owned bonds during this period, select the answer that corresponds to your actual behavior.) -- No equivalent question

9. The chart below shows the greatest 1-year loss and the highest 1-year gain on 3 different hypothetical investments of $10,000.* Given the potential gain or loss in any 1 year, I would invest my money in:
B (loss of $1,020, gain of $1,921)

10. My current and future income sources (for example, salary, Social Security, pension) are:
Somewhat stable

11. When it comes to investing in stock or bond mutual funds (or individual stocks or bonds), I would describe myself as . . . -- No equivalent question

Image
Last edited by nisiprius on Wed Nov 16, 2016 1:27 pm, edited 1 time in total.
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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by Svensk Anga » Wed Nov 16, 2016 9:41 am

Given that you said it would be more than 15 years until you planned to withdraw funds, Vanguard might suggest you use the Target Retirement 2030 fund (14 years out), or perhaps one of the even later dated ones. TR 2030 is 73% equity. It seems that at 55% equity and with a high risk tolerance per your other answers, you could be taking more risk. The designers of Vanguard's target date funds think the average investor should be taking more risk than you are currently. 100% equity might be a bit much though.

For reference:
TR 2030, 73% equity
TR 2035, 80%
TR 2040, 88%
TR 2045 and all later dated funds, 90%

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by dbr » Wed Nov 16, 2016 10:13 am

It might be more prudent if the output involved limiting the stock allocation to the range 25%-75%, except perhaps 0% for the short term saver.

However, the real answer is that it is pretty much GIGO.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by Engineer250 » Wed Nov 16, 2016 10:59 am

Svensk Anga wrote:Given that you said it would be more than 15 years until you planned to withdraw funds, Vanguard might suggest you use the Target Retirement 2030 fund (14 years out), or perhaps one of the even later dated ones. TR 2030 is 73% equity. It seems that at 55% equity and with a high risk tolerance per your other answers, you could be taking more risk. The designers of Vanguard's target date funds think the average investor should be taking more risk than you are currently. 100% equity might be a bit much though.

For reference:
TR 2030, 73% equity
TR 2035, 80%
TR 2040, 88%
TR 2045 and all later dated funds, 90%
I was curious how VG's target funds compared to other people's so here's a quick sample (admit I could have made some mistakes, don't take this as gospel) as their % of equity in each one:

Code: Select all

        TSP       Fidelity        Schwab
2030    63        80              70  
2040    75        90              84
2050    84        95              90
I used the index versions of the year retirement accounts at Fidelity and Schwab (I can't figure out the difference, but it does appear Fidelity has different percentages whether it is a Freedom 2030 or an Index Freedom 2030 for instance).

Just thought it was interesting.
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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by CFM300 » Wed Nov 16, 2016 12:51 pm

Thanks for all of the responses.

My opinion is that Vanguard's recommendation is inappropriate and irresponsible, given my answers.

Let's start with question 9, which is:

The chart below shows the greatest 1-year loss and the highest 1-year gain on 3 different hypothetical investments of $10,000.* Given the potential gain or loss in any 1 year, I would invest my money in:

A (loss of $164, gain of $593)
B (loss of $1,020, gain of $1,921)
C (loss of $3,639, gain of $4,229)

Image

The question is clearly about short-term volatility. (Look at the horizontal axis labels.)

My answer of B, rather than C, should have been enough to preclude a 100% stock allocation.

Yes, in other answers, I said that I would push more money into stocks if they declined, but I also said the said thing about bonds. That's just evidence that I'll stick to an allocation, not that the allocation should be 100% stocks.

Let's also look at question 10, which is:

My current and future income sources (for example, salary, Social Security, pension) are:

Very unstable
Unstable
Somewhat stable
Stable
Very stable

My answer, "Somewhat stable," should also have been enough to preclude a 100% stock allocation. Yes, in other answers I said that PLAN to leave the money invested for more than 8 years (Q2), and PLAN to begin taking money from my investments in more than 15 years (Q1), but those are PLANS. My answer to question 10 clearly indicates that I might be forced to change my plan, and begin withdrawing early, to meet my expenses. This is a completely separate issue from whether I maintain an allocation in market declines or whether I can stomach volatility. This question gives a hint about whether I might HAVE to withdraw money during a down market, because I lose my income.

Finally, I told them that I consider myself an experienced investor and that my current allocation has 10% and 35% bonds, and yet they tell me shift to 100% stocks!

In conclusion, I would not recommend this tool to anyone seeking help with their allocation.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by CFM300 » Wed Nov 16, 2016 12:58 pm

celia wrote:If you look at question 9 closely, answers A and C pretty much show the same chance for profit vs loss, whereas answer B shows twice the profit compared to the potential loss. Answers A and C show a 50% chance of "winning" vs "losing". With those odds, I would feel like it wasn't worth investing. I want to know that overall, I will probably "win" if I invest.
Question 9 is not chances of winning. It's about volatility. Look at the horizontal axis on the chart. Anyone who selects "A" or "B" should not receive a recommendation of 100% stocks.
celia wrote:I think the most telling questions are what you did during both the 2008 stock market and bond market drop. You didn't panic and sell, but threw more money towards stocks and bonds. That is exactly what a 100% stock investor lives for.
I disagree. That's what a disciplined investor would do, regardless of allocation.

"Stay the course" -- the mantra of this site -- is not equivalent to "Invest 100% in stocks"!

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by Toons » Wed Nov 16, 2016 1:02 pm

60/40
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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by CFM300 » Wed Nov 16, 2016 1:05 pm

sunnywindy wrote:I think (and guess) Vanguard's methodology equates your answers to the bear market questions (Questions 4 & 8) as aggressive and these answers are more important (are given a higher weight) than the volatility answer (Question 9). I guess Vanguard figures when fear is at it's worst, when the market is going down, that is when people freak out and sell their holdings. You answered that you would buy when everyone else is selling. This takes a brave soul and probably one who is psychologically able to handle a bear market in 100% stocks.
Question 8 is about whether I'd maintain my stock allocation in a major decline. Question 9 is about whether I'd maintain my BOND allocation in a major BOND decline. How does the fact that I'd maintain my allocation to stocks and bonds when either is facing a decline lead to a recommendation of 100% stocks and 0% bonds??
sunnywindy wrote:I would also interject that even though the tool says '100% equity' that doesn't mean the Market beta is appropriate for you. You could buy low-volatility funds such as iShares MSCI US Minimum Volatility (USMV) or Vanguard Global Minimum Volatility Fund (VMNVX) to dampen the volatility, but still be in stocks.
You're correct, of course, although I've never heard of Vanguard recommending anything but total stock market funds, U.S. and International.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by CFM300 » Wed Nov 16, 2016 1:09 pm

tigermilk wrote:Even if not 100%, based on your answers I would say you have the head and stomach of someone who should be more than 55% stocks.
Even though I said that my income is only "somewhat stable"? Not "stable" or "highly stable"?

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by friar1610 » Wed Nov 16, 2016 1:15 pm

I have done this questionnaire a number of times. I'm 71, have essentially "won the game" (not because I am so wealthy but because of an excellent pension) and am therefore on the conservative side (40-ish % stocks.) No matter how conservatively I answer the questions it has never suggested anything lower than 50% equities.
Friar1610

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by nisiprius » Wed Nov 16, 2016 1:16 pm

CFM300 wrote:My opinion is that Vanguard's recommendation is inappropriate and irresponsible, given my answers.

Let's start with question 9, which is:

The chart below shows the greatest 1-year loss and the highest 1-year gain on 3 different hypothetical investments of $10,000.* Given the potential gain or loss in any 1 year, I would invest my money in:

A (loss of $164, gain of $593)
B (loss of $1,020, gain of $1,921)
C (loss of $3,639, gain of $4,229)

Image

The question is clearly about short-term volatility. (Look at the horizontal axis labels.)

My answer of B, rather than C, should have been enough to preclude a 100% stock allocation..
Agreed.

Notice, too, that in my opinion they are soft-pedaling risk by using a hypothetical example of a loss of 36% in one year. That's about what the stock market did in the calendar year 2008 but if they were sincerely trying to measure risk tolerance it would have been better to confront the investor with the 50% drop that is how most investors regarded 2008-2009 (measuring to the bottom in March 2009). I believe they are trying to avoid confronting the investor with the idea of a "50% loss" because that's a psychologically significant number.
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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by CFM300 » Wed Nov 16, 2016 1:17 pm

nisiprius wrote:Now, let's go to their Get a Recommendation tool and try the same thing, answering the somewhat different questions as consistently with your answers as we can.
Image
That's weird. I just put your same answers into the "Get a Recommendation" engine, and received the following:

36% Vanguard Total Stock Market Index Fund Investor Shares (VTSMX)
24% Vanguard Total International Stock Index Fund Investor Shares (VGTSX)
28% Vanguard Total Bond Market Index Fund Investor Shares (VBMFX)
12% Vanguard Total International Bond Index Fund Investor Shares (VTIBX)

Which is an even higher bond allocation that you received.

I tried it with three different investment amounts ($10k, $100k, $1000k) and that had no effect on the outcome.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by CFM300 » Wed Nov 16, 2016 1:20 pm

nisiprius wrote:
CFM300 wrote:My answer of B, rather than C, should have been enough to preclude a 100% stock allocation..
Agreed.
Thank you. I feel vindicated.

Now I'll be able to sleep well at night. :D

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by nisiprius » Wed Nov 16, 2016 1:24 pm

friar1610 wrote:No matter how conservatively I answer the questions it has never suggested anything lower than 50% equities.
That's pretty interesting. Again, their "Get A Recommendation" tool gives a different answer.

https://personal.vanguard.com/us/funds/ ... mmendation

Enter (not my real personal answers)
Time before withdrawals: less than 1 year
Withdraw over period of: more than 15 years
I prefer an investment with little or no fluctuation in value: strongly agree
During market declines, I tend to sell portions of my riskier assets and invest the money in safer assets: disagree
I would choose the investment with the least volatility (-$164 loss, +$593 gain)
My current and future income sources are: somewhat stable

the resulting recommendation is 30% stocks, 70% bonds.
Image

If I say my income sources a "very unstable," it gives me 20% stocks.

If I say I'm only going to be withdrawing for 2 years or less, it recommends 100% Vanguard Prime Money Market!
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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by CFM300 » Wed Nov 16, 2016 1:28 pm

nisiprius wrote:Notice, too, that in my opinion they are soft-pedaling risk by using a hypothetical example of a loss of 36% in one year. That's about what the stock market did in the calendar year 2008 but if they were sincerely trying to measure risk tolerance it would have been better to confront the investor with the 50% drop that is how most investors regarded 2008-2009 (measuring to the bottom in March 2009). I believe they are trying to avoid confronting the investor with the idea of a "50% loss" because that's a psychologically significant number.
That's a really good point. They're recommending an allocation of 100% stocks without ever asking if you could stomach the actual, recent historical drop of 50%. The most they ask about explicitly is 31% (Q4) and implicitly 36% (Q9).

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by Gort » Wed Nov 16, 2016 1:36 pm

Vanguard has two seperate asset allocation calculators.
One is the "Investor Questionaire" linked in the original post.
The other one is "Get a Recommendation" as linked in the nisiprius post above.
The latter one seems to result in a more conservative asset allocation.
Some time ago, Vanguard simplified the original "Investor Questionaire" by eliminating some questions which resulted in the "Get a Recommendation" format. If you go through the Vanguard website Investment calculators & tools section it leads you to the "Get a Recommendation" calculator". I can't find the original questionaire on their website.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by whodidntante » Wed Nov 16, 2016 1:59 pm

Recent posts have shown that some investors can't tolerate losses from bonds. Maybe that's why. :happy

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by lostdog » Wed Nov 16, 2016 3:14 pm

I am looking forward to another bear market soon as we still have a long time frame. I did OK in 2008/2009.
VTWAX and chill.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by friar1610 » Wed Nov 16, 2016 3:24 pm

nisiprius wrote:
friar1610 wrote:No matter how conservatively I answer the questions it has never suggested anything lower than 50% equities.
That's pretty interesting. Again, their "Get A Recommendation" tool gives a different answer.

https://personal.vanguard.com/us/funds/ ... mmendation

Enter (not my real personal answers)
Time before withdrawals: less than 1 year
Withdraw over period of: more than 15 years
I prefer an investment with little or no fluctuation in value: strongly agree
During market declines, I tend to sell portions of my riskier assets and invest the money in safer assets: disagree
I would choose the investment with the least volatility (-$164 loss, +$593 gain)
My current and future income sources are: somewhat stable

the resulting recommendation is 30% stocks, 70% bonds.
Image

If I say my income sources a "very unstable," it gives me 20% stocks.

If I say I'm only going to be withdrawing for 2 years or less, it recommends 100% Vanguard Prime Money Market!
I used the link you quoted above and still got 50-50. (30% dom; 20% int). My answers were a little less conservative than your samples above; specific differences:
- Fluctuation in value: agree vs. strongly agree
- Selling during market declines: strongly disagree vs. disagree
- I chose the medium volatility

These tools are fun but I actually get more useful information from the posts of fellow BHs who have similar situations. Knowing what they do and why is invaluable to me.
Friar1610

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by abuss368 » Wed Nov 16, 2016 4:26 pm

That is surprising considering Jack Bogle has always recommended age in bonds!
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by dbr » Wed Nov 16, 2016 4:34 pm

whodidntante wrote:Recent posts have shown that some investors can't tolerate losses from bonds. Maybe that's why. :happy
Good one!

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by Engineer250 » Wed Nov 16, 2016 5:17 pm

whodidntante wrote:Recent posts have shown that some investors can't tolerate losses from bonds. Maybe that's why. :happy
This is why I don't hold any bonds or bond funds, can't handle the volatility 8-)
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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by celia » Wed Nov 16, 2016 8:18 pm

A while ago I read an article that discussed a variety of tools like this that were meant to help the user determine an appropriate Asset Allocation. I think it concluded that the resulting recommendations weren't meant to be strictly followed. Rather the questions were meant to make you think about things that might impact your choice.

After all, two people who entered the exact same choices might need different Asset Allocations due to their personality, other facts in their lives, spouses who think like them (or not).

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by abuss368 » Wed Nov 16, 2016 10:33 pm

Bogleheads,

My posts above is not correct or worded the best.

Here is our mentor, Jack Bogle's advice from his excellent book "Common Sense on Mutual Funds" (page 88): "I recommended as a crude starting point, that an investor's bond position should equal his or her age. - -Clearly such a rule must be adjusted to reflect an investor's objectives, risk tolerance, and overall financial position."

Best.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by Gort » Wed Nov 16, 2016 11:52 pm

Gort wrote:Vanguard has two seperate asset allocation calculators.
One is the "Investor Questionaire" linked in the original post.
The other one is "Get a Recommendation" as linked in the nisiprius post above.
The latter one seems to result in a more conservative asset allocation.
Some time ago, Vanguard simplified the original "Investor Questionaire" by eliminating some questions which resulted in the "Get a Recommendation" format. If you go through the Vanguard website Investment calculators & tools section it leads you to the "Get a Recommendation" calculator". I can't find the original questionaire on their website.
Well, you learn something new on the Vanguard website every day! Apparently the "Investor Questionaire" is still active on the website. I found it by going to the Set a New Target link in the Asset mix section on the front page after loggin into my account. I don't know why they use 2 different questionaires.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by knpstr » Thu Nov 17, 2016 8:15 am

Not surprised at all of the recommendation given your answers.

I would have answered in nearly the same way... I am 100% stocks as well.
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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by vested1 » Thu Nov 17, 2016 9:45 am

I may be off base but bear with me please. Imagine yourself as someone who isn't doing this for fun, but is honestly answering the questions out of uncertainty about their investment direction. This person is likely one who would be more inclined to use the services of an investment counselor than the OP.

In my opinion, the first thing to include in risk evaluation is a simple self-ranking of risk tolerance from 1 to 10, as is done by Fidelity for instance when interviewing a new client. Subsequent questions such as the ones listed in Vanguard's risk assessment questionnaire could then be used to determine if the stated risk tolerance conforms with the answers given. If the answers diverge wildly from the self-ranking the advisor should bring that to the attention of the one filling out the questionnaire.

This would provide a much needed balance between what you see in the mirror and what a non-biased professional would see, which is after all the true value in having a financial advisor. I agree that the answers to these questions alone don't justify a 100% stock allocation when taken in isolation. If however the initial self-ranking indicated a risk tolerance of 10 out of 10 the suggestion of 100% stocks would be appropriate.

This leads me to believe that a stand alone questionnaire such as the one Vanguard provides can lead to dangerous and misleading assumptions.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by dbr » Thu Nov 17, 2016 9:50 am

Another approach to this, in line with the 25%-75% concept, is that an extraordinary conclusion requires extraordinary evidence. An outcome of 100% stocks or of 0% stocks depends on a deeper and more thorough investigation of the investor and what he is trying to do than you can get from a questionnaire. It includes, among other things, making sure the investor actually understands the implications of the choice in addition to simply claiming to have no fear and to wanting to be aggressive or claiming to be scared to death and wanting to take no chances. In both cases the investor probably needs some psychiatric intervention rather than simply the specification of an asset allocation to fit.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by vested1 » Thu Nov 17, 2016 9:54 am

dbr wrote:Another approach to this, in line with the 25%-75% concept, is that an extraordinary conclusion requires extraordinary evidence. An outcome of 100% stocks or of 0% stocks depends on a deeper and more thorough investigation of the investor and what he is trying to do than you can get from a questionnaire. It includes, among other things, making sure the investor actually understands the implications of the choice in addition to simply claiming to have no fear and to wanting to be aggressive or claiming to be scared to death and wanting to take no chances. In both cases the investor probably needs some psychiatric intervention rather than simply the specification of an asset allocation to fit.
Sign me up for the psychiatric evaluation, dbr. Does Vanguard offer that as well? Investment choices can sometimes drive one over the edge. :wink:

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by jrbdmb » Thu Nov 17, 2016 10:19 am

No, I'm not really surprised at all. You're answers show that you have a long time horizon and an aggressive investing attitude (buy more of an asset on dips, unconcerned about short term losses). It seems high a high percentage stock allocation is appropriate.

The only thing I'm surprised at is that Vanguard would ever actually recommend a 100% stock allocation, as even their most long-term retirement fund (Target Retirement 2060 Fund) still has 10% of assets allocated to bonds.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by garlandwhizzer » Thu Nov 17, 2016 2:10 pm

I am not surprised by Vanguard's recommendation and, if you answered the questions honestly, I agree with a 100% stock allocation. There are individuals who can tolerate market volatility and who do not need to sell investment assets for a multiple decades, and for those few 100% stock allocations seem to me appropriate. I was 100% in stocks/0% bonds until I was more than 55 years old and I was able to reap great rewards from it during the 1982 - 1999 bull market. Whether the future will be as kind to heavily invested equity investors is a serious question but even now it is very likely that for those who hold on during equity downturns long term returns from an equity will be greater than long term returns of bonds. The price you pay is greater volatility during the accumulation phase and if you are in the withdrawal phase, the risk of greater drawdowns during market collapses. 100% equity not recommended at all for those in withdrawal phase who must keep sufficient safe assets to satisfy all spending needs for many years. If your goal is to maximize long term returns in the accumulation phase, rather than give yourself a smoother less volatile ride and you have the stomach and financial circumstances for it (iron stomach against volatility, rock solid high paying job or high liquid asset base) 100% stocks has worked over very long time frames in the past and is likely to outperform a stock/bond mix in the future. If you're not in that very small group, bonds or large allocation to emergency safe assets is an essential ingredient to allow you to sleep at night.

The real question is how well do you know yourself? How sure are you that you won't need the money for 15 years or won't panic during market collapses?
How well can you control your emotions during difficult times? Once again, if your answers to Vanguard's questionnaire are true, 100% equity is fine. If you find out during a deep bear market that your answers were theoretical, not real time during crisis, you may be in a lot of trouble.

Garland Whizzer

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by nisiprius » Thu Nov 17, 2016 2:40 pm

celia wrote:A while ago I read an article that discussed a variety of tools like this that were meant to help the user determine an appropriate Asset Allocation. I think it concluded that the resulting recommendations weren't meant to be strictly followed. Rather the questions were meant to make you think about things that might impact your choice.

After all, two people who entered the exact same choices might need different Asset Allocations due to their personality, other facts in their lives, spouses who think like them (or not).
That's a cop-out. Now, Vanguard has carefully salted and peppered their presentation with "mays" and "considers," but look at the main thrust. The link to the page is called "Get a Recommendation," not "Get some guidance on some things you could think about." And the page itself says

Image
Get your mutual fund recommendation....
Tell us how long you're planning to invest and how much risk you're willing to take.
In return, you'll get a complete, custom portfolio recommendation.
It doesn't say "Get a recommendation, but don't follow it."

The boilerplate you need to click through and accept does have some interesting wording. It says that it "suggests" an asset allocation and "recommends" a portfolio that embodies that asset allocation. So, it's a "recommendation" for a way to implement a "suggestion."
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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by CFM300 » Thu Nov 17, 2016 3:55 pm

garlandwhizzer wrote:I am not surprised by Vanguard's recommendation and, if you answered the questions honestly, I agree with a 100% stock allocation.
...
The price you pay is greater volatility during the accumulation phase
...
If your goal is to maximize long term returns in the accumulation phase, rather than give yourself a smoother less volatile ride and you have the stomach and financial circumstances for it (iron stomach against volatility, rock solid high paying job or high liquid asset base) 100% stocks has worked over very long time frames in the past and is likely to outperform a stock/bond mix in the future.
But my answers clearly indicated that I wanted reduced volatility and that my income was only "somewhat stable."

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by jebmke » Thu Nov 17, 2016 4:15 pm

garlandwhizzer wrote:The real question is how well do you know yourself? How sure are you that you won't need the money for 15 years or won't panic during market collapses?
How well can you control your emotions during difficult times?
One of the things I did a few years ago when I was using a similar VG questionnaire was to ask someone close to me to answer the questions with the answers they think I would give. Sometimes others know you better than you know yourself. When I did this, the recommendations came back more conservative. I ended up tilting somewhere in between and have not regretted it.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by ERMD » Fri Nov 18, 2016 10:10 pm

i'm not sure what the big deal is:

(from Vanguard portfolio allocation models)
80% stocks
Historical Risk/Return (1926–2015)
Average annual return 9.5%
Best year (1933) 45.4%
Worst year (1931) –34.9%
Years with a loss 23 of 90

100% stocks
Historical Risk/Return (1926–2015)
Average annual return 10.1%
Best year (1933) 54.2%
Worst year (1931) –43.1%
Years with a loss 25 of 90

does a 35% loss really help you "sleep at night" better than a 43% loss? do 23 losing years sound that much better than 25 losing years? lately i've been thinking the only meaningful overall asset allocation divisions are 100% stocks/50% stocks/0% stocks.
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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by dbr » Sat Nov 19, 2016 10:27 am

ERMD wrote:
does a 35% loss really help you "sleep at night" better than a 43% loss? do 23 losing years sound that much better than 25 losing years? lately i've been thinking the only meaningful overall asset allocation divisions are 100% stocks/50% stocks/0% stocks.
That is so true. Personally I have said that the only meaningful allocations are 75%, 50%, and 25% because I think the extremes are too severe. But the point is valid either way.

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by nedsaid » Sat Nov 19, 2016 10:30 am

It is my belief that Investor Questionnaires tend to put an investor in riskier investments than what he or she really wants. I did a similar survey at my favorite mutual fund company and it recommended an aggressive portfolio for me rather than the moderate portfolio that I really wanted. Take the survey and then invest 10% to 20% less in stocks than what is recommended. It seems like a good rule of thumb.

I don't believe that a survey is a sufficient basis to determine asset allocation. It takes some actual experience with real investments to determine how much risk an investor can stomach. The surveys are useful but not definitive.
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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by Gort » Sat Nov 19, 2016 1:19 pm

dbr wrote:
ERMD wrote:
does a 35% loss really help you "sleep at night" better than a 43% loss? do 23 losing years sound that much better than 25 losing years? lately i've been thinking the only meaningful overall asset allocation divisions are 100% stocks/50% stocks/0% stocks.
That is so true. Personally I have said that the only meaningful allocations are 75%, 50%, and 25% because I think the extremes are too severe. But the point is valid either way.
+1
I wish Vanguard would offer a 50/50 LifeStrategy fund. I think that would be very popular. They could even consolidate their four current LifeStrategy funds into three: 75/25, 50/50, 25/75 which would make it easier for investors to choose from. That would also be one less fund for Vanguard to maintain which I'm sure would make them happy! They could name the funds LifeStrategy Aggressive Growth, LifeStrategy Balanced Growth, and LifeStrategy Conservative Growth (or LifeStrategy Income).

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Re: Vanguard Investor Questionnaire recommends 100% stocks!

Post by arcticpineapplecorp. » Sat Nov 19, 2016 4:40 pm

sport wrote:I find the questionnaire woefully inadequate. It does not ask how much money you have invested. It does not ask how much you need for living expenses. It does not ask if you need to withdraw from your portfolio, or will need to do so in the future, or how much that withdrawal will be. DW and I are retired. Pensions and SS meet almost all of our needs. We have no need to take a lot of risk with our investments. Yet, the questionnaire suggests 60% stock. I am quite happy with 35% stock. It is much more important to me to preserve our assets than it is to grow them. We only wish that interest rates were more normal so that we could get a decent return from all those bonds. Even so, our portfolio has done very well for us.
I don't mean to hijack this thread which I find interesting especially considering the discrepancy between two evaluative tools at the same site (Vanguard) yielding two different results.

But I'd like to respond to the part in red above. I may have this wrong but I believe the reason interest rates have been so low is because inflation has been so low. Remember when interest rates were double digits in the 80s? That's because so too was inflation and the Fed was trying to choke off runaway inflation, which Former Fed Chief Paul Volcker did because he kept raising interest rates. So, I'd be careful what you wish for regarding higher interest rates, for that means higher inflation is present.

And I believe the last part "Even so, our portfolio has done very well for us" says it all--it's about total return, not just how low or high interest rates might be.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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