Tim Buckley, Chairman and CEO at Vanguard, which is the world’s second-largest asset manager and ETF provider after BlackRock, joined CNBC’s ‘The Exchange’ to share his insights on the current state of the stock and bond markets and the behavior of investors amidst rising interest rates.
Vanguard AUM (as of 31 December 2022)
Speaking from Vanguard’s headquarters in Pennsylvania, Buckley offered guidance to investors who are navigating a period of economic uncertainty and market volatility. He also explained why his firm, which is the second largest ETF provider, is not interested in Bitcoin.
Buckley’s core message to investors was to “stay the course,” a principle that may seem mundane but has proven successful across various market environments. He noted that the current temptation for investors is cash, given that we live in a world where the ten-year outlook for U.S. stocks is around 5% per year, and bonds are also looking at around 5%. With cash yields slightly over 5%, investors might wonder why not just move to cash. However, Buckley warned of the income risk associated with such a move, emphasizing that if the Federal Reserve cuts rates, those in cash might miss out on gains from bonds and stocks.
He reiterated the importance of the fundamental principles of investing, which have not changed despite the market’s ups and downs. Buckley highlighted the need for equities in an investment portfolio for growth, as they provide the “wind in your sails,” allowing investors to benefit from the earnings growth of companies. Attempting to time the market is a mistake, according to Buckley.
Addressing the traditional 60/40 split between stocks and bonds, Buckley affirmed that the fundamentals of investing remain the same. Investors need the steady income stream from bonds and the growth potential from equities. Vanguard’s approach has always been about understanding one’s risk profile and staying invested for the long term. This philosophy has been consistent at Vanguard, and Buckley noted that their investors tend to adhere to this strategy, with very few making significant changes to their portfolios, even in tumultuous times.
Responding to a question about the potential for a Bitcoin or cryptocurrency ETF, Buckley stated that Vanguard would not be pursuing a Bitcoin ETF, just as they do not use gold as an asset class for their clients. Vanguard focuses on asset classes that belong to a long-term portfolio, and they do not consider Bitcoin to be one of those.
He said:
“Tyler, we won’t be pursuing a Bitcoin ETF, just like we don’t use gold as an asset class for our clients … We just look at asset classes, what belongs in a long-term portfolio, what has intrinsic value, has cash flows to it, and those are the asset classes we steer people towards. And so we don’t go towards Bitcoin or gold or those kinds of stable assets.“
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