Individual investors are turning to the strategy that made Jack Bogle, founder of Vanguard, famous. Adopting the title of 'Bogleheads', investors are finding that the 'lazy' approach is proving successful in a period of higher interest rates. Marco Iachini, Vanda Research's senior vice president, noted that retail investors are taking advantage of the new higher rate environment, which has been given the name 'T-Bill and chill'.
Boring investing is gaining traction again. Now that the meme-stock rally is in the past and interest rates are on the rise, individual investors are going back to the strategy popularized by Jack Bogle, the founder of Vanguard. It calls for low-cost, passive investments that grow over time. People who follow this strategy have named themselves "Bogleheads" and refer to it as "lazy" investing. They are positioned well for the present market. DataTrek reports that 8 days made up all of the gains for the S&P 500 this year. Since higher rates have taken a toll on tech and growth stocks, which were favored by retail traders during the pandemic, GameStop, the original meme trade, is now around 85% lower than its all-time high. Dan Griffin, a Boglehead from Florida, has commented that his "tortoise" investing style is the right way to generate long-term wealth. He believes the current market conditions validate his method and says that although the hare sometimes wins, the tortoise typically finishes ahead. Christine Benz, a director of personal finance and retirement planning for Morningstar, believes people are looking for higher yields right now to find value, which is another principle of the Boglehead philosophy. She states that followers of this strategy are investing for the long run, putting money in the account and not touching it for decades. She views Bogleheads' philosophy as conflicting with the idea of being highly plugged into one's portfolio and monitoring investments, which was the premise of the meme stock trend.
Once associated with day trading, Robinhood is shifting towards providing higher yields and longer-term investing. The company launched retirement accounts this year and is offering a 3% cash back, aiming to make up for lower trading fees. In an interview with CNBC, CEO Vlad Tenev noted that investors have been moving toward cash, money market funds and bond ETFs. Furthermore, he mentioned that "Robinhood" is being discussed in traditional passive investing forums like the Bogleheads Reddit group. Tenev elaborated that people are using Robinhood to create long-term portfolios, leveraging its cost-effective platform and tools. Retail investors have been taking advantage of rising interest rates by investing in Bond ETFs. According to Vanda Research, the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) was the third most-bought name last week, witnessing the largest single-day net inflow since the firm started measuring it almost a decade ago. Younger investors, such as millennials, have a higher exposure to fixed income compared to their older counterparts. As per Schwab Asset Management's survey, millennials have 45% of their portfolios allocated to fixed income, compared to 37% for Generation X. The survey further showed that 51% of millennials plan to invest in bond ETFs in 2021, compared to 40% of baby boomers. Although it's not a meme stock, investing in fixed income is still risky. This year, the iShares 20+ Year Treasury Bond ETF (TLT) has seen $19.8 billion in assets, according to BlackRock. As bond yields move inversely to prices, if interest rates increase, funds like TLT will suffer. In fact, this has already been the case in 2020, as TLT has dropped about 50% from its record high. However, if yields fall, bond funds should outperform.
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