Vanguard recently announced that they are selling their individual 401(k), multiple-participant SEP, and SIMPLE IRA plan business to Ascensus (press release). They’ve already updated their small business retirement plan page. One-person SEP IRAs will stay at Vanguard.

Ascensus will provide custodial and trustee services, recordkeeping, client servicing, transaction processing, tax reporting, and other services, and plan participants will retain access to a diverse lineup of Vanguard mutual funds via the Ascensus platform.

This will affect a lot of small business owners who previously chose to open a Traditional Pre-Tax and/or Roth Solo 401k plan directly with Vanguard. The new stated fee schedule includes a $20 annual fee per Vanguard fund per account holder in the Individual(k) plan and a $20 annual fee per participant for custodial services. I believe the previous fee schedule was just the $20 annual fee per Vanguard fund per account holder, but it was waived if at least one participant had at least $50,000 in qualifying Vanguard assets.

I also find this move interesting in the context of the Vanguard company as a whole. This same week, Fidelity continued moving gradually towards being an “all-in-one” financial marketplace, recently adding a high-yield sweep option to their full-featured Cash Management Account. (I will note though, Fidelity does directly not offer a Roth Solo 401k option!) Fidelity is competing directly with the fintechs like Robinhood and SoFi that also want to be everything finance.

Meanwhile, Vanguard already shut down their own Cash Management option, VanguardAdvantage, in 2019. They made their Admiral Shares mutual funds more expensive than their ETF equivalents (they were initially the same expense ratio), which removed a major incentive to use a Vanguard brokerage account (as most other brokers won’t let you trade Vanguard Admiral mutual funds). There isn’t much reason to hold Vanguard ETFs inside a Vanguard brokerage account now that everyone has commission-free trades, and Vanguard seems perfectly fine with that. Now, they are no longer going to service their past Solo 401(k) clients, whether they wanted to stay with Vanguard or not.

Vanguard definitely seems to be narrowing their focus towards offering investment products like ETFs and mutual funds and simple investment advice. They appear happy to move away from anything that requires high-touch customer interaction like phone calls and paperwork. (I would note that my more recent customer service interactions with Vanguard have been more positive with lower hold times.) This is not necessarily a bad thing, especially if it leaves more resources for their other customers, but definitely a different direction than others.

Deep in my accumulation stage, I drastically underestimated how much retirees hate spending down their nest eggs. I have since struggled to convince my parents to spend their money, while also working longer than I planned (albeit not crazy hours) for likely similar underlying reasons. Watching your hard-earned nest egg shrink is hard.

Check out these findings from the Blackrock whitepaper titled To spend or not to spend? [pdf]:

This was not what we expected to find: on average across all wealth levels, most current retirees still had 80% of their pre-retirement savings after almost two decades of retirement according to research conducted jointly with the Employee Benefit Research Institute (EBRI). One-third even grew their assets over the course of retirement.

Why is this? Here are my takeaways:

• The majority of retirees favor financial security over maximizing spending.
• Spending is hampered by a deep-seated fear that they may experience a critical financial or medical shock or otherwise outlive their money.
• Recent retirees report higher anxiety and pessimism than those retired for 10+ years. Fear of major investment loss is more concerning to recent retirees. They feel more comfortable with spending as they reach further into retirement.
• Only 1 in 4 retirees feels they will have to spend down principal at all to fund their desired lifestyle.
• Retirees with pension income are the least likely to spend down their assets. (Not really surprising.)
• Retired women report higher levels of financial worry and are more risk-averse than retired men. (Also quite justifiable due longer lifespan and less assets on average.)
• Blackrock believes that due to the decline in pensions and longer lifespans, the “strong retirement asset retention seen in this last generation of retirees will not likely be repeated for much longer”.

I was still surprised to see that 1 out of 3 managed to end up with more money after 17 years. If I’m honest with myself, this is probably going to be me. I don’t necessarily think that’s a good thing, but I guess I have some company.

The 25th edition of the UBS Global Investment Returns Yearbook is available for free download in a 56-page PDF Summary Edition version on the UBS website. (Credit Suisse took over the publication of this yearbook in 2009, and UBS was voluntold to acquire Credit Suisse in 2023.) Hat tip to Abnormal Returns. This publication provides a nice “big picture” overview of the long-term performance of global financial assets:

With the depth and breadth of the financial database that underpins it, the UBS Global Investment Returns Yearbook is widely recognized as the unrivalled authority on long-term investment returns. We present a historical record of the real returns from equities, bonds, cash and currencies for 35 markets, spanning developed and emerging markets and stretching back to 1900.

The late Jack Bogle was often credit with the saying: “Don’t look for the needle in the haystack. Just buy the haystack.”

If you look at the entire haystack of individual companies, over time there are a lot of losers and a few big winners. If you buy the entire investable US stock market, or the entire investable world stock market, you can be sure that you own all the eventual winners. Even if you bought the S&P 500 index in the 80s or 90s, you would eventually own Apple, Google, Nvidia, and so on. For example, who knows who the final winner in the AI battle will be?

I recommend scrolling through the Yearbook Summary just to look at the cool charts with data from 1900. Check out how different the US stock market looked in 1900 vs 2024:

I think about international diversification in a similar way. Inside a recent WSJ article (gift article) about Japan’s Nikkei stock index reaching its previous high from 1989, there was an updated chart of the historical breakdown of global stock market value between the US and the rest of the world. Upon closer inspection, I realized that the chart is based on one from the UBS Yearbook.

The US made up only about 15% of the world’s market cap in 1900, had a recent low of about 40% in 2010, but after the recent run is now over 60%. What will happen in the future? If you think US stocks will outperform the rest of the world over the next decade or longer, you are then betting that this 60% number will continue to increase. And it might! It’s been as high as about 70% in the past.

As for me, I simply don’t know. I’ll hopefully have 40+ more years being invested in the stock market, and the haystack will continue to change. I choose to maintain diversification and “own the haystack” when it comes to both individual US companies and global countries. I prefer to know I’ll own the needles and have less worry, even at the cost of potentially somewhat lower returns.

The academic paper Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice by Anarkulova, Cederburg and O’Doherty had a conclusion that caught my eye. From the abstract:

We challenge two central tenets of lifecycle investing: (i) investors should diversify across stocks and bonds and (ii) the young should hold more stocks than the old. An even mix of 50% domestic stocks and 50% international stocks held throughout one’s lifetime vastly outperforms age-based, stock-bond strategies in building wealth, supporting retirement consumption, preserving capital, and generating bequests.

Now, the actual paper was not written for non-academics and there was very slim pickins’ in the “easy-to-understand graphic that summarizes our results” department, but I’ll try my best. They studied 8 different portfolios, summarized below. (They also picked the names.)

• TDF. Follows the asset allocation of the most popular target-date funds, which use a glide path that starts at 90% equities but reduces equity percentage over time.
• Balanced. 60% US stocks, 40% bonds.
• Balanced/I. 30% US stocks, 30% International stocks, 40% bonds.
• Age. (120-Age)% US stocks, (Age-20)% bonds.
• Age/I. (60-Age/2)% US stocks, (60-Age/2)% International stocks, (Age-20)% bonds.
• Bills. Invests only in Treasury bills.
• Stocks. 100% US stocks.
• Stocks/I. 50% US stocks, 50% International stocks.

In the chart below, the authors show the equivalent savings rate that would have been required to reach the same level of “expected utility of retirement consumption” (retirement income provided + leftover money at death) throughout the entire lifecycle of a 10% savings rate during the working years and then spending it down at a 4% withdrawal rate in retirement.

Let’s look at the highlighted pink box. This is the line for the best performing portfolio of 50% US stocks, 50% International stocks (“Stocks/I”). In order to have gotten the same amount of retirement income + bequest as a 10% savings rate with Stocks/I, you would have had to save 14.1% with a TDF, 16.9% with the Balanced portfolio, and so on. Note that staying in cash “bills”, you would need to ratchet up to 47% savings rate!

In another chart, we see that 50% US stocks, 50% International stocks (“Stocks/I”) also creates the highest income replacement rate in retirement, based on a 10% savings rate. This is true on average (50% percentile) and even in the worst-case scenarios (5th percentile), as long as you stayed with the plan. The drawdowns would have been temporarily more severe over certain periods of time, however.

My takeaways are:

• You might consider a 100% stock portfolio with international exposure, if you really have the stomach for it. I’d probably recommend waiting until after you have survived a 50% crash first. Optimally, your portfolio would grow so much that by retirement, you may not even need a 4% withdrawal rate.
• All of the other portfolios that contains some bonds (TDF, Balanced, Balanced/I, Age, Age/I) had very similar results over the entire lifecycle of accumulation and spending down. They still did pretty well.
• Everyone should definitely own a good chunk of stocks, as trying to accumulate enough money with just safe “cash” in the form of Treasury bills or bank accounts is going to require in the neighborhood of five times the savings rate.