Report : Investment | September 25, 2024

Advice accounts for differences in saving and spending behaviors

Is financial advice valuable for a participant who’s abided by the mantra “Live below your means” and amassed a sizable nest egg? How about for one who’s done the opposite and, at mid-career, has accumulated less than they’d like in their retirement account? You might think that advice isn’t useful for a participant who has already saved enough or for one who hasn’t—because, in their case, it’s too late for it to make a difference. But in a new paper, Vanguard investment analysts demonstrate the value that advice can add for participants whose spending and saving behaviors differ from baseline assumptions for self-directed (target-date fund) participants.
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For participants who are well on track, an advice provider can help them evaluate risk-taking and see possibilities beyond simply maintaining their pre-retirement lifestyle. And for participants who are off track, an advice provider can help them increase their chance of achieving an acceptable retirement outcome.

This paper is the second in our series on advice and self-directed paths for defined contribution participants. The first paper, Target-Date Strategies and Advice: Behavioral and Portfolio Considerations, highlights the benefit of target-date funds for do-it-yourself investors and the value of advice for participants created through portfolio personalization and/or behavioral coaching. The series continues our exploration of Vanguard’s advice and self-directed decision framework—key factors that participants should consider when evaluating these two options and weighing how to best chart their path toward  financial wellness.

Notes:

  • All investing is subject to risk, including the possible loss of the money you invest
  • Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target-date funds is not guaranteed at any time, including on or after the target date.
  • Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.