MONEY financial advice

How Vanguard Founder Jack Bogle Invests His Grandchildren’s Money

Ahead of Father's Day, Bogle also talks about the investment advice he gives—or doesn't give—his children.

Just a few days before Father’s Day 2015, MONEY assistant managing editor Pat Regnier interviewed John C. “Jack” Bogle, the founder and former CEO of Vanguard, the world’s largest mutual fund company. The elder statesman of the mutual fund industry—and a pioneer in index investing—talked about the investing advice he gives his children, one of whom runs a hedge fund, along with how he invests, and doesn’t invest, on behalf of his grandchildren. Look for an in-depth interview with Bogle in an upcoming issue of MONEY.

Read next: Where are Most of the World’s Millionaires?

MONEY retirement savings

Women Are Better Retirement Savers Than Men, but Still Have a Lot Less Money

woman's coin purse and men's billfold
iStock; Getty Images

It's all about the difference in wages.

Income inequality doesn’t end when you quit working. A report out Tuesday finds that women lag far behind men in retirement savings, even though women save at higher rates and take fewer risks with their investments.

According to Vanguard’s How America Saves report, women are more likely than men to be in a 401(k) plan: 73% of women vs. 66% of men. The difference is even larger at higher income levels. Last year, 81% of women earning $50,000 to $75,000 a year participated in their 401(k) vs. 62% of men. Among people earning $75,000 to $100,000, 86% of women put away money in a 401(k) vs. 70% of men.

Women also save at higher rates than men: Women put away 7% to 16% more of their income than men. And women are less likely to engage in risky investment behavior, such as frequent trading.

Despite those good habits, women are significantly behind men in the amount they have put away. Men have average account balances that are 50% higher than women’s. The average account balance for a man last year: $123, 262, compared with $79,572 for women.

“Women are better savers, but the difference in account balances comes down to the difference in wages,” says Jean Young, senior research analyst at the Vanguard Center for Retirement Research and the lead author on the report. “It’s not surprising. Women typically earn less than men do.”

Still, Young says, the Vanguard report revealed a lot of positive trends among retirement savers.

Among the findings:

  • More people are enrolled in 401(k)s. One-third of companies have auto-enrollment programs that automatically put new employees into 401(k)s unless they choose to opt out. That’s up from 5% a decade ago. Among large companies, 60% have auto enrollment. More companies are doing this not just for new hires but about 50% of plans with auto enrollment are also “sweeping” existing employees into plans during open enrollment, with a choice to opt out. Auto-enrollment has been criticized for enrolling people at very conservative deferral rates, typically 3%. That’s changing slowly: 70% of companies that have auto enrollment also automatically increase contributions annually, typically 1% a year. And, while 49% of plans default people to a 3% deferral rate, 39% default to 4% or more vs. 28% in 2010.
  • More retirement savers are leaving it to professionals. Thanks to the rise in target date funds and automatic enrollment (which typically defaults people to target date funds), 45% of people in Vanguard plans have professionally managed accounts vs. 25% in 2009. The number of people in such accounts is expected to surpass 50% this year, and that’s a good thing, says Young. According to Vanguard, people in professional managed accounts have more diversified portfolios than those who make their own investment decisions.“A professional helps you find the appropriate asset allocation, rebalance, and adjust the portfolio to your life stage,” says Young.
  • The bull market continues to deliver. The median total one-year return for people in Vanguard 401(k) plans was 7.2% in 2014. Over the past five years, 401(k) participants returns averaged 9.9% a year.
  • Few people max out. Only 10% of 401(k) participants saved the maximum $17,500 allowed in 2014. But the number rises with higher earners: One-third of people who earn $100,000 or more a year max out.
  • Savers are doing better than you think. Most financial planners recommend putting away 12% to 15% of annual income to save enough for a comfortable retirement. While the average 401(k) deferral rate is just 6.9%, combined with employer contributions, it’s 10.4%, close to that mark.

That doesn’t mean that most people are all set for retirement. Vanguard reports little change in account balances: The average 401(k) balance is $102,682, while the median is $29,603. The typical working household nearing retirement with a 401(k) and an IRA has a median $111,000 combined, which would yield less than $400 a month in retirement, according to a recent report by the Boston College’s Center for Retirement Research. But those who have access to a 401(k) and contribute regularly are in much better shape, regardless of whether you are a man or a woman.

MONEY financial advice

CEO of World’s Largest Mutual Fund Shares His Best Financial Advice

The CEO of the world's largest mutual fund company shares the best financial advice he ever got and reveals his biggest money mistake.

MONEY fiduciary

If Humans Can’t Offer Unbiased Financial Advice to the Middle Class, These Robots Will

Wall Street says it can't be a "fiduciary" to everyone who wants financial advice. But the new breed of "robo advisers" is happy to take the job.

Fast-growing internet-based investment services known as robo-advisers have already begun to upend many aspects of the investment business. Here’s one more: Potentially reshaping the long-standing debate in Washington over whether financial advisers need to act in their clients’ best interests.

If you work with a financial adviser you may assume he or she is legally obligated to give you unbiased advice. In fact, that’s not necessarily the case. Many advisers—the ones who are technically called brokers—in fact face a much less stringent legal and ethical standard: They’re required only to offer investments that are “suitable” for you based on factors like age and risk tolerance. That leaves room for brokers to steer clients to suitable but costly products that deliver them high commissions.

The issue is especially troubling, say many investor advocates, because research shows that most consumers don’t understand they may be getting conflicted advice. And the White House recently claimed that over-priced advice was reducing investment returns by 1% annually, ultimately costing savers $17 billion a year.

Now the Labor Department has issued a proposal that, among other things, would expand the so-called fiduciary standard to advice on one of financial advisers’ biggest market segments, Individual Retirement Accounts. A 90-day comment period ends this summer.

Seems like an easy call, right? Not so fast. Wall Street lobbyists contend that forcing all advisers to put clients first would actually hurt investors. Their argument? Because advisers who currently adhere to stricter fiduciary standards tend to work with wealthier clients, forcing all advisers to adopt it would drive those who serve less wealthy savers out of the business. In other words, according to the National Association of Insurance and Financial Advisors and the U.S. Chamber of Commerce, a fiduciary standard would mean middle-class investors could end up without access to any advice at all.

(Why, you might ask, would anyone in Washington listen to business rather than consumer groups about what’s best for consumers? Well, that is another story.)

What’s interesting about robo-advisers, which rely on the Internet to deliver automated advice, is that they have potential to change the dynamic. Robo-advisers have been filling this gap, offering investors so-called fiduciary advice with little or no investment minimums at all. For instance, Wealthfront, one of the leading robo-advisers, has a minimum account size of just $5,000. It’s free for the first $10,000 invested and charges just 0.25% on amounts over that. Arch-rival Betterment has no account minimum at all and charges just 0.35% on accounts up to $10,000 when investors agree to direct deposit up to $100 a month.

Of course, these services mostly focus on investing—clients can expect little in the way of individual attention or holistic financial planning. But the truth is that flesh-and-blood advisers seldom deliver much of those things to clients without a lot of assets. What’s more, the dynamic is starting to change. Earlier this month, fund giant Vanguard launched Personal Advisor Services that will offer individual financial planning over the phone and Internet for investors with as little as $50,000. The fee is 0.3%.

The financial services industry says robo-advisers shouldn’t change the argument. Juli McNeely, president of the National Association of Insurance and Financial Advisors, argues that relying on robo-advisers to fill the advice gap would still deprive investors of the human touch. “It all boils down to the relationship,” she says. “It provides clients with a lot of comfort.”

But robo-adviser’s growth suggests a different story. Wealthfront and Betterment, with $2.3 billion and $2.1 billion under management, respectively, are still small but have seen assets more than double in the past year.

And Vanguard’s service, meanwhile, which had been in a pilot program for two years before it’s recent launch, already has $17 billion under management.

Vanguard chief executive William McNabb told me last week that, although Vanguard had reservations about the specific legal details of past proposals, his company supports a fiduciary standard in principle. Small investors, he says, are precisely the niche that robo-advisers are “looking to fill.”

 

 

 

 

 

MONEY ETFs

Humdrum ETFs Are Overtaking Racy Hedge Funds

Tortoise and the hare
Milo Winter—Blue Lantern Studio/Corbis

It's part of a gradual change in culture on Wall Street that's encouraging low costs and long-term thinking.

It’s like the investment world’s version of the race between the tortoise and the hare. And the hare is losing its lead.

Hedge funds, investment pools known for their exotic investment strategies and rich fees, have long been considered one of the raciest investments Wall Street has to offer, with $2.94 trillion invested globally as of the first quarter, according to researcher Hedge Fund Research.

Despite their mystique and popularity, though, hedge funds are about to be eclipsed by a far cheaper and less exclusive investment vehicle: exchange-traded funds.

According to ETF researcher ETFGI, exchange-traded funds — index funds that have become favorites of financial planners and mom and pop investors — have climbed to more than $2.93 trillion. ETFs could eclipse hedge funds as early as this summer, according to co-founder Debbie Fuhr.

In some ways the milestone is one that few people outside the money management business might notice or care about. But even if you don’t pay much attention to the pecking order on Wall Street, there’s reason to take notice.

The fact that ETFs have caught up with hedge funds reflects broader trends toward lower costs and a focus on long-term passive investing, both of which benefit small investors.

Exchange-traded funds, which first appeared in the 1990s and hit the $1 trillion mark following the financial crisis, have gained fans in large part because their ultra-low cost and hands-off investing style.

While there are many varieties of ETFs, the basic premise is built on the notion that investors get ahead not by picking individual stocks and securities but by simply owning big parts of the market.

Index mutual funds have been around for a long time. (Mutual funds control $30 trillion in assets globally, dwarfing both ETFs and hedge funds). But ETFs allow investors to trade funds like stocks, and they can be more tax efficient than mutual funds. Both ETFs and traditional index funds are known for ultra-low fees, sometimes less than 0.1% of assets invested. That means investors keep more of what they earn, and pay less to Wall Street.

Hedge funds by contrast exist for elaborate investment strategies. They are investment pools that in some ways resemble mutual funds, but they can’t call themselves that because they aren’t willing to follow SEC rules designed to protect less sophisticated investors.

Because of their special legal status, hedge funds aren’t allowed to accept investors with less than than $1 million in net worth, hence the air of wealth and exclusivity.

But hedge fund managers also enjoy a lot more freedom in how they invest, for instance, sometimes requiring shareholders to lock up money for months at a time or taking big positions in complex derivatives.

Hedge funds aren’t necessarily designed to be risky — they get their name from a strategy designed to offset not magnify market swings. But hedge fund investors do expect managers to deliver something the market cannot. Otherwise why pay the high fees? Hedge funds typically charge “two and twenty.” That is 2% of the amount invested each year, plus 20% of any gains above some benchmark. No that is not a typo.

Of course, hedge funds’ rich fees wouldn’t be a problem if they delivered rich investment returns. The industry has long relied on some fabulously successful examples to make its case. But critics have also suspected that, like the active mutual fund industry in its 1990s’ heyday, this could be a case of survivorship bias, with a few rags-to-riches stories distracting from more common stories of mediocre performance.

Hedge funds’ performance in recent years seems to be bearing that out. (By contrast ETFs, whose returns are typically tied to the stock market, have benefited from one of the longest bull markets in history.)

Why should you care if a bunch of rich guys blow their money chasing ephemeral investment returns? One reason, is you might be among them, even if you don’t know it. Pension funds are among the biggest hedge fund investors.

The good news: They too are embracing indexing, if not specifically through ETFs. Calpers, the giant California pension fund, said last year that it was dumping hedge funds, while also indexing more of its stock holdings.

Unlike ETFs, hedge funds — because they need to justify their rich fees — often suffer from short-term focus. In recent years, one popular strategy has been so-called “activist investing,” where a hedge fund buys a big stake in an underperforming company and demands changes.

While the stock market often rewards those moves in the short-term, many investors worry moves like cutting costs and skimping on research ultimately make those businesses weaker, hurting long-term investors. It’s no surprise then that one of activist investing’s most outspoken critics is BlackRock Inc. As the largest ETF provider, BlackRock represents the interests of millions of small investors.

And finally, there are those fees. The surging popularity of low-cost investments such as ETFs will inevitably focus more attention on fees, putting pressure on active investment managers — and even hedge funds themselves — to slash prices. And in the the end, that benefits everybody.

MONEY 401(k)s

Terrible Advice I Hope Young People Ignore

incorrect road signs
Sarina Finkelstein (photo illustration)—John W. Banagan/Getty Images (1)

Please, invest in a 401(k).

I like James Altucher. He’s a sharp writer and a smart thinker. It’s just those kinds of people — people who know what they’re talking about — who deserve to be called out when they say something silly.

Altucher did a video with Business Insider this week pleading with young workers not to save in a 401(k).

It is — and I’m being gracious here — one of the most misguided attempts at financial advice I’ve ever witnessed. It deserves a rebuttal.

Altucher begins the video:

“I’m going to be totally blunt. Are you guys in 401(k)s? OK, you’re in 401(k)s. I honestly think you should take your money out of 401(k)s.”

Why? His rant begins:

“This is what is actually happening in a 401(k): You have no idea what’s happening to your money.”

Everyone who has a 401(k) can see exactly what’s happening with their money. You can see exactly what funds you’re investing in, and what individual securities those funds invest in. These disclosure requirements are legal obligations of the fund sponsor and the managers investing the money.

You might choose not to look, but the information is there. An investor’s ignorance shouldn’t be confused with an advisor’s scam.

Altucher lobs another complaint:

“And, by the way, if you want that money back before age 65, which is 45 years from now, you have to pay a huge penalty.”

You can take money out of a 401(k) without penalty starting at age 59-and-a-half. You can also roll 401(k) money into an IRA and use it for a down payment on a first home or for tuitionwithout penalty.

A lot of companies also offer Roth 401(k) options, where you may be able to withdraw principal at any time without taxes or penalty.

According to the Census Bureau, 91.2% of Americans currently of working-age will turn 65 in less than 45 years.

Another gripe:

“They’re doing whatever they want with your money. They’re investing wherever they want.”

There are no 401(k)s where someone does “whatever they want with your money.”

All 401(k)s are heavily regulated by the Department of Labor and have to abide by strict investment standards under the Employee Retirement Income Security Act of 1974.

Part of those rules require that you, the worker, have control over how your money is invested. Here’s how the Department of Labor puts it (emphasis mine):

There must be at least three different investment options so that employees can diversify investments within an investment category, such as through a mutual fund,and diversify among the investment alternatives offered. In addition, participants must be given sufficient information to make informed decisions about the options offered under the plan. Participants also must be allowed to give investment instructions at least once a quarter, and perhaps more often if the investment option is volatile.

A lot of companies still offer subpar investment choices, but check out this article on how to lobby your employer for a better 401(k). Someone at your company has a legal duty to provide choices that are in your best interest.

“They’re paying themselves salaries.”

It’s true: Mutual fund managers earn a salary.

You know who else takes a salary from the stuff you buy?

Plumbers, accountants, electricians, doctors, nurses, construction workers, shoe salesman, car mechanics, pilots, dentists, receptionists, gas station attendants, TV anchors, the guy behind the counter at the coffee shop, the lady who scans your groceries, me, and — at some point in his life — probably James Altucher.

Look, a lot of fund managers are overpaid. It’s an injustice. But skipping a 401(k), the employer match, and decades of tax-deferred returns because they draw a salary is madness. The employer match, in many cases, offers a risk-free and immediate 100% return on any money contributed to a 401(k). A mutual fund manager’s salary likely eats up a fraction of 1% annually.

Plus, fees have come way down in recent years. Here’s a report by the Investment Company Institute:

The expense ratios that 401(k) plan participants incur for investing in mutual funds have declined substantially since 2000. In 2000, 401(k) plan participants incurred an average expense ratio of 0.77 percent for investing in equity funds. By 2013, that figure had fallen to 0.58 percent, a 25 percent decline.

What does Altucher say to do with your money instead of saving in a 401(k)?

“Hold on to your money. Put your money in your bank account.”

Haha, OK. I shouldn’t invest in a 401(k) because mutual fund managers take a salary. I’m sure the bankers where I have my checking account work for free?

His biggest beef is that people just don’t make money in 401(k)s:

“The average 401(k) — they won’t really tell you this — probably returns, like, one-half percent per year.”

There’s a reason they “won’t really tell you” that: It’s nonsense.

According to a study of 401(k) investors by Vanguard, “Five-year [2008-2013] participant total returns averaged 12.7% per year.”

The average return from 2002 to 2007 was 9.5% per year.

Even from 2004 to 2009, which is one of the worst five-year periods the market has ever produced, the average 401(k) investor in Vanguard’s study earned 2.8% annually.

This is Vanguard, the low-cost provider. But even if you subtract another percentage point from these returns to account for higher-fee providers, you won’t get anywhere close to half a percent per year.

There’s actually a good reason to think investors will do better in a 401(k) than in other investments.

The rules designed to make it difficult for people to take money out of a 401(k) until they’re retired create good behavior, where investors leave their investments alone without jumping in and out of the market at the worst possible times. Automatic payroll deductions also help keep long-term investing on track.

Take this stat from Vanguard:

Despite the ongoing market volatility of 2009, only 13% of participants made one or more portfolio trades or exchanges during the year, down from 16% in 2008. As in prior years, most participants did not trade.

The majority of 401(k) investors dollar-cost average every month and never touch their investments again. That is fantastic. If you could recreate this behavior across the entire investment world, everyone would be rich.

Altucher has another problem with tax deferment:

“You don’t really make money in a 401(k). It’s just tax-deferred. When you’re in your 20s, what does tax-deferred really mean?”

What does it really mean? About a million freakin’ dollars.

Save $10,000 a year in a 401(k) — half from you and half from your employer — and in 45 years (Altucher’s preferred timeframe, here), the difference between taxable and tax-deferred at an 8% annual return is massive:

You can play around with the assumptions as you’d like with this calculator.

Here’s his final takeaway:

“What you should do in your 20s and 30s is invest in yourself. Building out multiple sources of income, investing in getting greater skills, and so on.”

Great advice! But you can do all of that and still invest in a 401(k). And virtually everyone should.

** James, are you reading this? Let’s do a video together and duke this out in person! My email is mhousel@fool.com **

For more on this topic:

MONEY mutual funds

The Easy Way Even Newbies Beat 86% of Professional Money Managers This Year

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Hiroshi Watanab/Getty Images

And there's an easy way to be on the winning side.

Mutual funds generally fall into one of two camps: On the one hand, there are actively managed portfolios that are run by stock pickers who attempt to beat the broad market through skill and strategy. Then there are passive funds, which are low-cost portfolios that simply mimic a market benchmark like the S&P 500 by owning all the stocks in that index.

The question for individual investor is, which one to go with.

On Thursday, yet more evidence surfaced demonstrating just how hard it is for actively-managed funds to win.

S&P Dow Jones Indices releases a report every six months which keeps track of how well actively-managed funds in various categories perform against their particular benchmark. The “U.S. S&P Indices Versus Active Funds (SPIVA) Scorecard” came out yesterday and told a familiar tale: active fund managers struggled mightily.

Last year only 14% of managers running funds that invest in large U.S. companies beat their benchmark. That means 86% of professionals who get paid to beat the market lost out to novices who simply put their money in a fund that owned all the stocks in the market.

It’s further proof that the genius you invest your money with isn’t that smart — or isn’t smart enough.

It’s not that professional stock pickers don’t have skills. The problem is, actively managed funds come with higher fees than index funds, often charging 1% or more of assets annually. And those fees come straight out of your total returns.

What this means is that even if your fund manager is talented enough to beat the market, he or she would have to consistently beat the market by at least one to two percentage points — depending on how much the fund charges.

A similar rate of futility appeared even if you extend the investing horizon to five or ten years. If you look at all U.S. stock funds, 77% of them lost out to their index.

International funds fared no differently. Only 21% of global active managers enjoyed above-index returns over ten years. Active managers also fell short in most fixed-income categories, for instance 92% underperformed in high-yield bonds.

One area where active managers have outperformed over the past one, three, five, and 10 years is in investment-grade intermediate-term bonds.

MONEY has warned investors against indexing the entire U.S. bond market because so much of such fixed-income indexes are made up of government-related debt, which happens to be very expensive right now.

So where should you put your money?

Look to MONEY’s recommended list of 50 mutual and exchange-traded funds. With a few of our “building block” funds you can cover achieve broad diversification in domestic and foreign stocks and bonds.

To be fair, our list also includes several actively managed funds, which can help you customize your portfolio by tilting toward certain factors that tend to outperform over time, such as value stocks.

Still, the bulk of your portfolio belongs in low-cost index funds.

MONEY Currency

How the Cheap Euro Is Hurting Your Investments

150312_INV_WeakEuroInvest
Dieter Spannknebel—Getty Images

The plunging euro may be good for U.S. consumers. But it has all but wiped out returns of foreign stock mutual funds.

A weak euro could make it cheaper to take that long-planned trip to Paris. Just don’t sell your foreign-stock mutual funds to pay for it.

On Wednesday, the euro hit a 12-year low against the dollar—it’s getting close to $1-to-€1 parity (so figuring the exchange rate on that trip will be easier too.) The currency is tanking thanks in part to a weak European economy, as well as the European Central Bank’s efforts to stimulate growth with looser monetary policy.

Unless you are frequent currency trader, these exchange-rate ups and down may feel pretty remote from your portfolio. But they’re not. If you hold a foreign-stock mutual fund in your 401(k) or IRA, you will have significant exposure to European stocks. And since those stocks are denominated in euros, their value to a typical American investor has taken a hit.

Consider: Over the past year, the MSCI All-Cap World EX-USA index is up 14.6% in local currency terms through Feb. 28. But according to Morningstar, the average foreign stock mutual fund—with roughly half its assets in Europe —has pretty much sucked wind, falling 0.06%.

What gives?

Just as the falling dollar makes European hotel rooms and airplane tickets relatively cheaper when their euro-based prices are translated into dollars, foreign stocks get knocked down in dollar terms too. When a U.S. mutual fund calculates its value at the end of the day, it converts the euro price of European stock back into dollars. So if the euro is falling fast enough, you can see loss in dollars even if the stock is climbing on the local stock exchange.

The same effect holds for bonds, or any other asset traded in another currency.

To be sure, it is possible for canny fund managers to use financial instruments, such as futures contracts, to “hedge” away currency fluctuations. Some do exactly that. Pimco, for instance, offers both hedged version of its foreign bond fund (up 10.8% over the past 12 months) and an unhedged version (down 5.7%).

Does hedging make sense? With foreign stock funds, the answer is generally no—which is why comparatively few funds do it. It drives up cost, and over the long run currency fluctuations tend to be less important than the economic fundamentals driving stock returns. The Euro’s recent plunge may be dramatic, but it’s also relatively unusual.

It’s slightly more common with bond funds. Vanguard, for instance, hedges the returns of its flagship foreign bond index fund, but not its flagship foreign stock fund. The reason it has given for hedging bonds: Since the underlying returns of bonds are usually fairly steady, currency fluctuations can an have outsized impact on your final return.

Of course, whatever the investing strategy you pick, the thing to remember about short-term currency moves is that they are just that, short-term. Think of it this way: When the dollar starts to weaken again, those foreign stocks will look like winners. In the end, holding some funds whose stocks are valued in foreign currencies provides extra diversification, helping smooth the overall return of your portfolio in the long run.

Now, if you can just find another way to fund that trip to Paris.

MONEY Markets

What the Greek Crisis Means for Your Money

Global markets seem safe enough for now, but a so-called “Grexit” could have unpredictable effects.

As government officials in Greece and the rest of the European Union continue to haggle over the terms of its bailout agreement, you may be wondering: Does this have anything to do with me?

If you are investing in a retirement account like a 401(k) or an IRA, the answer is likely “yes.” About a third of holdings in a fairly typical target-date mutual fund, like Vanguard Target Retirement 2035, are in foreign stocks. Funds like this, which hold a mix of stocks and bonds, are popular choices in 401(k)s.

Of those foreign stocks, only a small number are Greek companies. Vanguard Total International Stock (which the 2035 fund holds), for example, has only about 0.1% of assets in Greek companies. But about 20% of the foreign holdings in a typical target date fund are in euro-member countries, and if Greece leaves the euro, that could affect the whole continent.

What’s the worst that could happen? For one, investors and citizens in some troubled economies like Spain and Italy could start pulling their euros out of banks. Also, borrowing costs could go up, and that could hurt economic growth and weigh down stock prices. And if fear of European instability drives investors to seek out safe assets like U.S. Treasuries, then bond yields and interest rates could keep staying at their unusually low levels.

There are some market watchers who see a potential upside to the conflict over Greece, however.

“If you believe the euro is an average of its currencies, it could actually rise if Greece leaves,” says BMO Private Bank chief investment officer Jack Ablin. A higher euro would make European stocks more valuable in dollar terms.

Additionally, he says, if Athens is thrown into pandemonium, then it’s actually less likely other countries will want to follow Greece out of the currency union.

The Greek situation will also have an impact on the bond market. If fear of European instability drives investors to seek out safe assets like U.S. Treasuries, then many bond funds will do well, and yields and interest rates would stay at their unusually low levels.

Perhaps the most insidious thing right now, says Ablin, is uncertainty. Again, a Greek exit from the euro would be unprecedented, and that makes the effect unpredictable—and potentially very scary for the global market. So investors would be wise to keep in mind the possibility of “black swans,” a term coined by statistician Nassim Taleb to describe market events that seem unimaginable (like black swans used to be) until they actually occur.

Read next: What the Turmoil in Greece Means for Your Money

MONEY stocks

How I Plan for the Stock Market Freakout…I Mean Selloff

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Mike Segar—REUTERS A trader works on the floor of the New York Stock Exchange (NYSE).

Advising people not to dump their stocks in downturn is easy. Actually persuading them not to do so is harder.

I got an email from Nate, a client, linking to a story about the stock market’s climb. “Is it time to sell?” he asked me. “The stock market is way up.”

Hmmmm.

If I just tell Nate, “Don’t sell now,” I think I might be missing something.

At a recent conference, Vanguard senior investment analyst Colleen Jaconetti presented research quantifying the value advisers can bring to their clients. According to Vanguard’s research, advisers can boost clients’ annual returns three percentage points — 300 basis points in financial planner jargon. So instead of earning, say, 10% if you invest by yourself, you’d earn 13% working with an adviser.

That got my attention.

Jaconetti got more granular about these 300 basis points. Turns out, much of what I do for clients — determining optimal asset allocations, maximizing tax efficiency, rebalancing portfolios — accounts for about 1.5%, or 150 basis points.

The other 150 basis points, or 1.5%, comes from what Jaconetti called “behavioral coaching.” When she introduced the topic, I sat back in my seat and mentally strapped myself in for a good ride. One hundred fifty basis points, I told myself — this is going to be advanced. Bring it on!

Then she detailed “behavioral coaching.” I’m going to paraphrase here:

“Don’t sell low.”

Don’t sell low? Really? The biggest cliché in the world of finance? That’s worth 150 basis points?

But it isn’t just saying, “Don’t sell low.”

It’s actually that I have the potential to earn my 150 basis points if I can get Nate to avoid selling low. That means I need to change his behavior. Wow. Didn’t I give up trying to change other people’s behavior January 1?

Inspired by Nate and the fact that the stock market is high (or maybe it’s low; the problem is we don’t know), I decided to think like a client might think and do a deeper dive into the research. Why not sell now? Why do people sell low? How can I influence, if not change, client behavior? I’ve got nothing to lose and clients have 1.5% to gain.

One interesting thing I learned in my research: Not everybody sells. In another study, Vanguard reported that 27% of IRA account holders made at least one exchange during the 2008-2012 downturn. In other words, 73% of people didn’t sell.

Current research on investing behavior, called neuroeconomics, includes reams of studies on over-confidence, the recency effect, loss aversion, herding instincts, and other biases that cause people to sell low when they know better.

Also available are easy-to-understand primers explaining why it’s such a bad idea to get out of the market.

The question remains, “How do I influence Nate’s behavior?” The financial research ends before that gets answered.

Coincidentally, I recently had a tennis accident that landed me in the emergency room. While outwardly I was calm, cracking lame jokes, inwardly I was freaked out.

Despite my appearance, the medical professionals assumed I was in high anxiety mode, treating me appropriately. The emergency room personnel had specific protocols. Quoting research and approaching panicked people with logic weren’t among them.

They answered my questions with simple sentences and gave me some handouts to look at later.

Selling low is an anxiety issue. And anxiety about the stock market runs on a continuum:

Anxiety Level Low Medium High
Client behavior Don’t notice the market Mindfully monitor it. “Stop the pain. I have to sell.”

That brought me to a plan, which I’m implementing now, to earn the 150 basis points for behavioral coaching.

During normal times, when clients are in the first two boxes, I make sure to reiterate the basics of low-drama investment strategy.

When I get a call from clients in high anxiety mode, however, I follow a protocol I’ve adapted from the World Health Organization’s recommendations for emergency personnel. Seriously. Here’s what to do:

  • Listen, show empathy, and be calm;
  • Take the situation seriously and assess the degree of risk.
  • Ask if the client has done this before. How’d it work out?
  • Explore other possibilities. If clients wants to sell at a bad time because they need cash, help them think through alternatives.
  • Ask clients about the plan. If they sell now, when are they going to get back in? Where are they going to invest the proceeds?
  • Buy time. If appropriate, make non-binding agreements that they won’t sell until a specific date.
  • Identify people in clients’ lives they can enlist for support.

What not to do:

  • Ignore the situation.
  • Say that everything will be all right.
  • Challenge the person to go ahead.
  • Make the problem appear trivial.
  • Give false assurances.

Time for some back-testing. How would this have worked in 2008?

In 2008, Jane, who had recently retired, came to me because her portfolio went down 10%. The broader market was down 30-40%, so I doubt her old adviser was concerned about her. Jane, however, didn’t spend much and had no inspiring plans for her estate. She hated her portfolio going down 10%.

Jane didn’t belong in the market. She didn’t care about models showing CD-only portfolios are riskier. She sold her equity positions. She lost $200,000!

The protocol would have worked great because we could have worked through the questions to get to the root of the problem. Her risk tolerance clearly changed when she retired. She and her adviser hadn’t realized it before the downturn.

Then there was Uncle Larry.

Like a lot of relatives, although he may ask my opinion on financial matters, Larry has miraculously gotten along well without acting on much of it.

Larry is in his 80s and mainly invested in individual stocks. This maximizes his dividends, which he likes. The problem was that his dividends were cut. The foibles of a too-big-to-fail bank were waking him up at 3:00 a.m. Should he sell?

When he called, I suggested that Uncle Larry look at the stock market numbers less and turn off the news that was causing him anxiety. I reassured him that he wouldn’t miss anything important. We discussed taking some losses to help him with his tax situation.

Although he listened, I didn’t get the feeling this advice was for him. Actually, the emergency protocol would predict this; the protocol doesn’t include me giving advice!

Uncle Larry and I discussed his plan. He ended up staying in the market because he couldn’t come up with an alternative. He also thought, “If I had invested in a more traditional way, I’d probably have ended up at the same point that I am at now anyway. So this is okay.”

He’s now thrilled he didn’t sell and, at 87, is still 100% in individual stocks.

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