Vanguard Program Highlights $500 Billion Investor Behavior Gap

A new "Paid Program" series by Vanguard and WSJ Custom Content is shedding light on the persistent disparity between economic advice and actual investor behavior, with Vanguard research indicating that investors could have accumulated approximately $500 billion less over a decade due to this "behavior gap." The series, titled "Better Vantage by Vanguard," aims to equip investors with strategies to bridge this divide.

The program, a collaboration between Vanguard and Custom Content from WSJ, features Vanguard's Global Chief Economist Joe Davis and WSJ Custom Programming Editorial Director Christine Kashkari. It explores critical investing topics, offering data-driven insights to support investors, advisors, and institutions in achieving long-term financial outcomes. Custom Content from WSJ is a unit of The Wall Street Journal Advertising Department, and the news organization was not involved in its creation.

Vanguard has long identified this "behavior gap" as a significant shortfall in returns investors realize compared to market returns, often stemming from inconsistent asset allocations. Michael DiJoseph, CFA, of Vanguard’s Investment Advisory Research Center, noted a positive shift, stating, "We've certainly seen a change in investor behavior," with relative stability in U.S. investors' allocations since 2014.

To address these behavioral challenges, Vanguard developed the "ACE" framework: Attentiveness, Commitment, and Empathy. This framework guides the design of digital experiences and advice to nudge investors toward better decisions. "By embedding ACE into our platforms, we’re not just making investing easier. We’re helping more people achieve better financial outcomes,” said Xiao Xu, Ph.D., Vanguard investment strategy analyst.

The firm's research estimates that if the 1.55-percentage-point annual return gap from 2000-2012 had continued, investors would have forfeited hundreds of billions. However, more consistent allocations from 2013-2023 helped preserve wealth, suggesting progress in investor behavior, partly attributed to industry-wide shifts in advice delivery and fund structures, such as fee-based advice and the popularity of target-date funds.