TREDYFFRIN >> Vanguard is expanding its research into what makes investors invest.
The mutual fund giant recently announced its has established the Center for Investor Research, or CIR, an enhancement of the company’s behavioral research and experimentation.
The new center will be initially dedicated to studying the behavior of individual investors. It will examine how investors make decisions through observational studies based on Vanguard’s administrative data and the growing pool of digital interactions. The center will also design experimental interventions — or “nudges” — that its says will improve investor outcomes.
“Ultimately, Vanguard’s mission is to propel better investor outcomes. The center will take a data-driven, scientific view of investor behavior, and transform this knowledge into practical application,” said Steve Utkus, principal and head of the Center for Investor Research. “Our research agenda will advance our understanding of the fundamental nature of investor decision-making and uncover strategies to improve the financial lives of our investors.”
The company said the CIR is an evolution of the Vanguard Center for Retirement Research, started in 2001 and known for its research assessing the developments in defined contribution, or DC, plan participants. The CIR will continue producing research such as How America Saves, Vanguard’s flagship DC publication, said Emily Farrell, a Vanguard spokeswoman.
“At the end of the day, behavior can drive investor success,” Farrell said.
For instance, Vanguard and other financial companies often advise investors not to react to the immediate news of the day, whether its negative or positive, and to not react to large market swings.
“The (CIR) will look at how the investors do or don’t apply those behaviors,” Farrell said. “How can we stop them from taking a wrong turn.”
As for the “nudges,” Farrell said the company has been doing that with success in its 401(k) offering by giving investors advice on their views of the best ways to save long term.
For instance, it reminds those investing to check to see if they’re receiving the maximum from their employers in matching 401(k) plans.
“We know that successful investors exhibit smart behavior — they keep costs low, diversify their portfolio, and refrain from trading,” said Vanguard CEO Bill McNabb. “Investor behavior is at the heart of successful outcomes, and the aim of our new center is to advance the case for better investor outcomes through research and experimental techniques in an increasingly digital world.”
Ninety percent of Vanguard’s investors interact with the company online; the other 10 percent do it by phone or through the firm’s personal advisor service, Farrell said.
The new CIR will have seven researchers and will be based at the Malvern area headquarters, Farrell said.
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