Animal Spirits Podcast - Talk Your Book: What Makes an Index Fund Work

Episode Date: January 9, 2023

On today's show, we are joined by Rodney Comegys, Head of Vanguards Equity Investment Group to discuss how indexing works, what makes Vanguard so special, active investing vs passive investing, and much more! Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. ​​ (Wealthcast Media, an affiliate of Ritholtz Wealth Management, received compensation from the sponsor of this advertisement. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information.) Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnick and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's wealth management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain positions in the securities discussed in this podcast. On today's show, we had somebody who was responsible for running quite a bit of money in the multiple trillions. I think that's the first for us.

Yes, a trillion dollar portfolio manager. No big deal. Not to brag. We had on Rodney Hammondge's. We had Roddy Kamichies. He is the head of Vanguard's equity investment group, which is responsible for overseeing all of the index funds that they manage. I know people think that indexing is boring. I think in this case, boring is beautiful. You don't really have to go far to see the case for it these days. And I think maybe the biggest thing, if we're using 2022 as an example of some of the wrong stuff that can happen in the markets, just knowing what you own and why you own it is maybe one of the most simple parts of being an index fund. You don't have to worry about key man risk or someone messing up or committing fraud or any of the weird stuff that happened.

Or an asset liability mismatch. Yeah. An index fund is so straightforward. And it's not like an index fund is special. It's just, it's low cost. It doesn't turn over very often. It's tax efficient. You can create an actively managed fund that does those things, but it's just very hard to stick with that type of strategy. We spoke with Ronnie about some of the benefits behaviorally of index investing in some of the myths about a push around the market. One of the dumbest arguments is what happens when everyone goes to sell. I think that's like the whole point is because index funds don't guarantee returns. What they do guarantee is whatever the market offers, whether that's up 3% for the next 10 years or down 3% or 4 or whatever it is.

You know exactly what you're getting. There's no mystery. So this idea that everybody is going to somehow suddenly try and rush to the exits is patently absurd, especially considering that I don't know how many people automate their investing, but it is in the tens of millions, if I had to guess. And considering everything that was thrown at the markets last year, in index fund, if you had a total stock market U.S. or international index fund, did about as well as he could expect in that type of environment.

It could have been a lot worse. Could have been a little better. It definitely could have been worse. And maybe it will get worse. We'll see. But what will not change is the implementation, the methodology, the execution, and all of that that you get with the provider like Vanguard. So here is our conversation with Rodney Combegis.

We are joined today by Rodney Comigees. Rodney is the global head of Vanguard's equity investment group. Rodney, welcome to the show. Thanks, guys. Glad to join you today. Happy New Year. You too. I don't want to stereotype anyone at Vanguard, but of all the interviews I've heard, it seems like a lot of people work there for a very long time.

It seems like most people are either lifers or they stay there for a while. Maybe you can start with your background, how you got there and how long you've worked there for. Sure. I've been working Vanguard since 1999. I joined Vanguard after finishing at Harvard Business School. I did have a career prior to going to business. school where I was a Navy submarine officer for six years where I served. I grew up in Delaware and my family didn't have the means to afford the University of Pennsylvania. So the Navy

Rotsie Scholarship helped to pay the large tuition bills for the university and got me started. And I had a great experience in the Navy learning how to lead and deal with complex things. So you're responsible for running the Vanguard Equity Investment Group. What exactly does that mean? I have a team of individuals under me that do three things. One is it's 50 portfolio manager traders who run our nearly $5 trillion worth of equity index funds and ETFs. I also have responsibility for our global capital markets function that helps with the liquidity and the health of our ETFs as they're trading in the secondary market. And then third, I have the securities lending function, which helps to add additional revenue to the funds by loaning out our

securities. I think maybe one of the misconceptions about index funds is that they run themselves and $5 trillion not to brag. That's a big number. I can't imagine that there's not a ton of work that goes out of the background. So can you talk about some of those misconceptions and what it actually means to run an index fund? Running an index fund is really about precision, accuracy in the market itself. So every day we have to make sure that every dollar that our investors send us are put to work in the market to track the index. That's the only way you get zero tracking error, which is the way that index funds are often judged, is by making sure all the money's put to work on a daily basis. The complexity, though, is that the funds themselves, you have to trade all that.

So if $100 million of new money arrives, you have to allocate it to the funds and go out in the marketplace and trade that. And how much money is coming in on a daily basis? Let's just use like the S&P 500 as an example. I don't actually have Michael the daily flows of it. We can certainly get that. It's important, but we're talking hundreds of billions of dollars a year have been arriving at Vanguard and cash flow into our index fund franchise, and we have to put that money to work each and every day for our shareholders. I read his last book for John Bogle called Stay the Course, and he talked about that very first index fund, and he said when they tried to replicate the S&P 500, it was too cumbersome from a cost basis to buy all 500 stocks. I think he said

they did 280 or something like that and just tried to get the biggest ones and then a representative subset of the other ones. Maybe you could talk about how much things have changed. And you mentioned things like securities lending and how that works and how much of a machine it has to be these days just to compete with the other huge fund firms that are doing the same thing. Yeah, back in 1975, when we launched our first index fund, the 500 fund, the costs of trading in the United States were very expensive. And honestly, they didn't get as much capital. Mr. Bogle didn't raise as much money as he had hoped to. And so they did what would have been called stratified sampling, where they basically, as you described it, Ben, accurately, they went out and bought the biggest

names they could, and they replicated where they could, and they had optimization risk or tracking our risk around the edges of that. Today, the world has changed so much. One, our funds are much larger, but to the cost of implementation or lower. So with low commissioning charges and low implementation charges, we generally run a full replication fund, where we're going to buy all 500 and one names in the S&P 500, and we're going to replicate those down to one basis point. And so to do that, you're absolutely right. We've had to put a lot of technology into place.

And the technology basically ensures that if you think about what an index fund is, it's a target. What should you own? The targets the index. And then what the fund is is what you do own. And each day, a number of things can change. One is your cash flow. So new cash flow comes into the fund.

You have to put it to work at 4 o'clock every day. at the market close in order to match the index performance. That's one thing that you could do. Second thing is maybe there's an index reconstitution or a rebalance. Some names are coming out of the 500 and ones are being added. We have to carefully track and anticipate that, have the data right, and then we have to go trade that in order to put it into place in the portfolio. Indexing has come under fire. Maybe that's an exaggeration, but there have been some critics saying that index fund flows are distorting the market. Before I get to the specific, specifics. Why don't you just address the question about that? And then I'll have a follow-up.

I think it's a complete myth that indexing has had an impact on the market itself, except for the positive side of what it's done for investors in index funds. Index funds, investors have gotten the entire U.S. and world stock market and bond market at a very low cost, and that's really helped with their returns over time. Indexing really makes up a small portion of the price discovery. Less than 5% of daily trading volume has anything to do with indexing. and therefore, I would say in general, it's had nothing but a positive. In fact, for investors keeping more in their pocket for returns. So that less than 5% number, I think is the Kudagra. It's hard to argue with that bit of it. But one of the areas that people will point to are

like some of the smaller parts of the market. So for example, Vornado Realty Trust is the smallest member of the S&P 500 with a market cap of less than $4 billion. I would imagine that Vanguard, I shares and the others index providers show up in the top 10 of most of these companies, certainly the smaller ones. When you're talking about names of that size that might be less frequently traded than like Apple, for example, is there a risk of index funds pushing around the prices of the smaller companies? You have to think about it in two ways, Michael. One is anytime a name is being added to an index, there's the potential for short-term demand. And you do, and there's a number of academic studies that would say, hey, as a stock is added

to an index and there's demand, there's a price dislocation. That price dislocation would be temporary. In other words, as we purchase into a security, the security goes up, and then it reverts down to its original price over time. That is a well-documented effect. We at Vanguard have 50 professional traders and index portfolio managers who try to mitigate that. We use a lot of techniques in order to try to make that price impact as small as possible. The second aspect, though, what you would say is, hey, price discovery after you own it, once it's in the index, We're not buying and trading it each day other than incremental cash flow that comes in. There are lots of people in the market, though, that are determining the price of the security.

And honestly, if it's fundamentals are poor, there's people in the active market trading fundamental investors that are really going to determine the price on a permanent basis. And so I think there are two different effects there. Ultimately, the right prices of security. There's lots of stocks that have been indexes that have gone bankrupt and out of business. We don't keep them in business by holding them. the fundamental economics of the company eventually come through as the market discovers and puts the right price on it. Otherwise, you'd sit there with price at the same level every day.

You wouldn't have dispersion within an index fund. In fact, I'm guessing the name you're talking about. At one point, it was a higher price stock that's gone down in price. Otherwise, it wouldn't be the smallest member of $500. I don't know the security because we don't pay attention to it, but I will bet if I take a look at my Bloomberg terminal that at one point, it had a much higher price. Absolutely. The one thing that people said in recent years is, well, the technology, stocks now make up, depending on what you look at and how you group these, 20 to 30 percent of the S&P 500 or the total stock market index fund. And the fact that those stocks are so big must mean that people have to buy and then they have to buy them in greater proportion. And that's

propping these stocks up, which I thought 2022 was a great myth-busting thing for that too, because a lot of those stocks had the biggest downfall in 2022. And the market actually outperformed so many of them. Ben, you just reinforced what I would have said, which is ultimately the fundamental price in the economics the company will come through. We did not prop the prices up of the technology stocks in the run-up through 2020 and 21, nor do we determine the price as they went down in 2022. The fundamental investors who decided that it was time to sell Amazon, that it was time to reprice Tesla, those type of things. It is true we were buying along the way as cash flow was coming in. We've still had positive cash flow, so we've still been buying those securities.

And so ultimately, I think it's a great testament of the fact that we're not the ones discovering price in the market. I am of the mind, as are you, it sounds like that. The markets are discovering prices just fine. It doesn't take billions of buyers and sellers to match. I think you probably need, I don't know if it's a couple of dozen, to set a fair price. But there's still certainly a lot of participants that are setting prices on a daily basis. This is probably unknown, but is there a level at which index funds do get too big where

they would start pushing the prices around? So we're just talking about price discovery and index size. I don't think there is a point because the minute the price is wrong, there will be someone actively entering the market and determining a different price. You need a buyer and a seller to determine the price. And if someone thinks the stock's overvalued, they will put a short on the position and therefore they will try to attempt to determine price. Theoretically, the only point would be if every asset is an index asset that gets to a difficult

all mental space to think about, but that's not possible in a market where there's demand that can be driven by other things. I don't think every investor is going to be an index investor. We're index proponents, so if it sounds like I'm being harsh, I'm only trying to give you some softballs. That's okay. By the way, I can do the other side. I'm actually, as much as I am an index guy, I believe in active management. And there are times in which the market has the price incorrect for whatever the reasons. And if you have a great active manager, which Vanguard has a number of them are stable, they should have a shot of outperforming provided they keep their cost reasonably to destroy their alpha.

Does the equity investment group manage active strategies as well? We do not manage any active strategies. We're a straight index shop, all index funds and ETFs, and I do have the target date funds. But it is worth noting, I think what does Vanguard manage it? Over a trillion dollars in active funds, something like that, which a lot of people would be surprised by. Yeah, that's actually one of the things we have over a trillion dollars of active equity and fixed income funds that are all trying to outperform and provide alpha for the shareholder

and do better than the index products we have. Vanguard had the first mover advantage here by being one of the first to the, especially the retail side of index funds. It took a while. Obviously, gained some steam in the 90s and 2000s, but I think 2008 was a pivot point where indexing just really took off. And I think, if anything, every bare market in the futures is going to continue to push more and more people to indexing funds.

Now that more people are in the space and it's more competitive, what should investors expect? I'm not asking you to give us any Vanguard secrets, but will we see some huge players in this space offer free funds or offer almost a rebate through things like securities lending? Is that where we're heading? So I think there's a couple of things here. One is it is a very competitive market space and people have been entering it to compete. However, there's only a few fund companies that have the scale that we do and the expertise that we do. If you think about what my team has, we have a global team, crew members here in Pennsylvania and Arizona to invest in the U.S. and the America's market. I have a full-time trading and portfolio team in Australia covering the Asian markets, and they have a

team in London covering the U.K. By doing so, we can do the four things that I think make a great index fund work. One is we can have a low tracking error and keep it tight to the index itself. to we can think about market impact and trying to reduce those short-term intacks that Michael and I talked about when his stock is added to index. We can think about taxes and ultimately where we can

we want to add value through something like securities lending. That is a scaled operation and we have to do it a low enough cost to cover our costs and Vanguard's built that way to do so. So people can always have a loss leader that they put out

in the marketplace, but it's not a great way to run a long-term sustainable business. And we're here to run all of our funds at cost and really do well for all of our products, not a one-off type approach. So I'm certain Ben, you'll see people come into the market and chase the size of assets we have. I think we're well set up for the longest term success in that regard. One of the best things in my opinion about index funds is it gives people a philosophy that they can hang tight to and stick through during good times and more importantly

during bad times, which we're experiencing right now. Can you talk about the behavior of Vanguard investors and what the fund flows are like, whether the market's up down or sideways? Yeah, we're very fortunate at Vanguard. Our investors have a very long-term horizon, and we're very transparent about what we're going to deliver. We're going to deliver the market returns. And unfortunately, in 2022, that meant a loss of 20% in the S&P 500 funds, but you know what you're going to get in that regard. We're not promising more than the market itself. I think our investors have accepted that. And we've told people is equity returns are for the long run, not for their short run. And therefore, you've got to tune out the noise of what happens in any one given year. And you have to really think about the long term. When we do forecasts my peers in our economics team, we're always talking 10 years out. So today we're saying, hey, 4.7% to 6.7% in the next 10 years. We have no idea what's going to happen in 2023 or 2024 for an given year. We're really about thinking about the long-term performance when you buy into equities,

and you better be willing to think about short-term volatility in any given year. This is something Michael and I have been throwing back and forth to each other for a number of years now, this idea that forever people looked at mom-and-pop retail investors as the sucker at the table. They're the ones who are always selling with the lows and buying at the highs. I would argue that I think investors as a whole, or at least a large group of them, have become better behaved as investors. And I think a place like Vanguard is. a big reason for that. Do you see that or do you think that there are just groups of investors are always well-behaved and they kind of flock to a place like Vanguard? I think there's a group

of investors that are short-term speculators that are really trying to day trade and outperform the market. When I went to business school at Harvard, I thought maybe that would be me. I thought about being a portfolio manager. And when I got there, I realized there's some really smart people who go to work for hedge funds and active management shops that are trying to outperform. And really, somebody who's on a part-time basis, it's really hard to compete with those folks. And so I do think there's a second group of investors. In fact, the largest group, and a lot of them do find Vanguard, which is this is a place for long-term equity investments.

And therefore, when you ask about behavior, Ben, our investors stay with us. We saw net positive inflows in the last year. We see even on down days in March of 2020, investors, some would obviously sell, but a low point, which we'd be disappointed by, but 99% of our investors did nothing. They sat in their hands and they waited and they invested the next month for their retirement and the next month for their children's college education. They don't have that short-term behavioral aspect to it that we tend to see and talk about a lot when you watch the NBC and other media outlets. When we look at fund flows, we think like, where is this money coming from? Now, a lot of it

is coming from income, automatic deposits. A lot of it is coming from from from people taking money out of actively managed funds. How do you think about fund flows and the sustainability of them long term? We have people in our teams always looking and trying to understand more our investors' behaviors. Some of it is there's payrolls that turn into 401K flows. There's the annual IRA investments.

But there is a lot of money that's been parked in cash through, really all the way back to 2008, people who were scared in the market and went to cash. And a lot of those people re-entered the market, some of which were scared again in 2020 and some of which would have been disappointed by the returns of 2022. But I think when you look at an investment landscape

and you think today, hey, the S&P is probably closer to fair value than it was a year ago. And you're really thinking about why do you invest in the stock market? It's for the equity risk premium and it's for the long run. And you really are today thinking about,

hey, 10 years from now, I could have 5% to 7% more money. Equities is a good place to invest. bonds will give you some return, but it's closer to the 10-year coupon, which today's even still less than equity is a premium. And cash, especially in an inflationary environment, is going to lose buying power over time. So again, I think this is a reason to say, hey, equities for the long run and investing is still probably the best place to be. You mentioned the fixed income index funds that you do as well. Are those a little harder to run than equity funds are because bonds don't

trade nearly as much of stocks and there might not be as much liquidity. Hey, so Ben, I don't run the fixed income index funds. One of my colleagues does that, Jeff Parrish and his team with Josh Barrettman who do it. I'd say it's a running point of tension or humor as to which one's more difficult. You're absolutely correct. Ah, so you guys could play like the basketball game, like equity group versus a fixed income group to settle it or something. We actually do it at once a year. We do out and have some fun playing golf. Okay. The bond team versus the equity team. There are aspects of both. I have a lot of respect for what the bond team does. You're absolutely correct. They have to go in and sample the bonds and they have to neutralize their risk. They can't do full replication, which we do. I always say

that's a little more straightforward. If you match duration, you match credit quality and you spread your credit risk around, you can eliminate that. But they're a lot less liquid asset versus us when we trade. Our complexity is often in the trading aspect when you go to the market. Here in the U.S. you have lots of places to source liquidity, whether it be on the exchanges, whether it be through dark pools or other venues, we have to think about where is the best place to buy a security at the lowest price or sell of security at the highest price. It's even more complex when you go overseas and think about buying and selling securities in Korea, in Japan, in South Africa, in different parts of Europe. So it's really that expertise of buying and selling across the world

that I think makes our complexity go up. So they're just, two different things with two different skill sets. But overall, I think bonds are still boring. We talk a lot about the S&B 500 index. Are there some indexes that are more difficult or more complicated to manage than others? Yeah, I mean, of the ones we run. So we run all market cap-weighted indexes, Michael. There's additional complexity if you're running, say a price-weighted index or an equal-weighted index. We don't do those because they cause a lot of turnover. In the case of market-cap-weighted indexes, really the level of difficulty is the moving complexity. The moving complexity the international indexes are the most complex.

If you think about just, we're sitting here in the first week of January, and every country has its own holiday schedule around the first year. So when money comes into the fund, we have to think about what markets are open, where are we going to put the money into some type of a replication vehicle, a future or something else until it opens up. And then there's the different liquidity profiles in certain countries, such as trading the Philippines or the complexity of trading India, who just moved to a T1 structure in the last few weeks.

So there's a lot of complexity on international, plus you've got to deal with currency. And so those are the more complex type vehicles to run. We can't predict the future as well as anyone else. But a lot of people these days are saying, well, we had this really long bull market for 10 plus years, and now is the hard part. Maybe inflation's higher and rates are higher,

and that's going to make stock market investing higher. And a lot of people in the industry say, this is when active management can shine. Maybe you can talk about how the case of indexing works even in an environment where people think returns might be more muted. Because from my line of thinking, just because markets aren't going to give you a high return doesn't make it any easier to outperform. Ben, you said what I would say. The basic case for indexings are pretty straightforward. Every investor together produces a market return.

That return could be called the index. So by definition, you should be the average investor if you're the index investor and sitting to the 50th percentile. However, the second thing you've got to put in case is there's costs. And so all of a sudden, an index fund in average is a much lower cost. For us at Vanguard, they tend to be sometimes two, three, four basis points of cost versus an active fund that's maybe 100 basis points. So all of a sudden, where you're the midpoint, you shift to the right, to the positive side, and suddenly you're at the 80th percentile, or the 20th percentile, depending you look at it.

20 percent of the funds are going to be better, 80 percent worse, just on a cost of just a basis. The next part is, hey, just on a steady basis, we're always going to be in the same spot. Above average, year after year, an index fund is year after year. And therefore, unless someone is steadily on the outperformance side, we're going to do better. That's the basic case for indexing. I think I did that in a way that makes it easy to understand, but it's average, adjusted for cost, slightly above average, and it's always in the same spot. That's the advantage. And there's no reason to believe that formula won't work in a bull market or a bare market.

And the history has shown that it has worked exactly that way. The funny thing is, is that whole, let's say 80% is the number. Those numbers change over time. But let's say it is 80% over the long term, which it's been pretty close to that number. It's almost harder to get the people that you went to school at Harvard with to realize that than it is to get the mom and pop because those people think I'm smart. I went to the best schools. I got my CFA, whatever it is.

And they have a harder time thinking that you could be in the top quartile investing in index ones over the long term and really be one of the best. investors, but it's hard to accept that. You're correct. Again, I think the person, for whatever reason, whether they think they're smarter than the market, they should be better than average, whatever it is, does tend to try to take more of a risk. What we would say is active is really good. We believe all of our active funds, we wouldn't be offering them if we didn't think they were going to do better than their index. The very first thing you have to do is control for costs. So the more expensive the

products costs are, the harder it is even if the investor finds alpha to outperform. And so I think a low-cost, well-run, active fund can outperform, but it's challenging and difficult to do so. Could you talk about what other partners are involved on the back end in terms of implementing, executing? Is it all Vanguard all the way down? Or there are other vendors and partners that you guys work with? So the first most important, I would call it vendor is the index provider. The index provider itself really sets the target of what you're investing against. And there's a number of index providers out there. A lot of them well known. We've talked already about the S&P 500, run by standard and pores. We have Vanguard used the Center for Research and Securities Pricing, which is a part of the University

of Chicago called Crisp to run our index that we run against our total stock market and a lot of our size funds. We use Russell and the fixed income space. We use Bloomberg. Those folks are the ones that are setting the index every day, maintaining it, the target of what we're going against. One, it's generally very methodologically driven. In other words, a large-cap stock is defined a particular way, but on a periodic basis, a large-cap stock that does poorly becomes a small-cap stock, and you have to rebalance it. Some indexes are rebalanced annually like Russell 2000. Some indexes like crisp rebalance on a quarterly basis.

So that's one key partner. The second is we have to use brokers to do our execution, and we need them across the globe. We need experts on the ground in the countries I talked about in Japan or India to help us with execution. They're real important. and the final component is we have a custodian who really make sure that the mutual fund assets are there for investors when they date them. It's part of the 40 Act and a really important portion of running mutual funds in general. Those would be the big three I'd talk about. In terms of Ben mentioned that it seems like people are at Vanguard for a long time,

and it's certainly that way with the leadership group, from Vogel to McNabb to Buckley, did I miss anybody? You missed Jack Brennan. Jack Brennan, I'm sorry. That's okay. He was at our conference once or twice. When was Brennan? Was he between Bogle and McNabb, or between McNabb and Buckley? He was between Vogel and McNabb. Okay. Can you talk about the consistency and quality of leadership that has been in the helm over the years? This is an amazing place to work. I really have felt that since the day I interviewed here and arrived here. You have to start with the fact that no matter who's running the place, we're a mutually owned business that serves one purpose, which is to help our investors achieve their goals and dreams through investors.

When we make profit or when we grow, we lower the cost for investors. And we've done that for the 40 years of our history over time. I think the best way to put it is, when we say we're going to do something, we do it in a clear and transparent way. In other words, what we offer for a fund is what you get in a fund. And so the leadership, those four CEOs have all stewarded that and make sure that we continue to drive towards making it a better place to invest. Sure, we've grown in complexity. We've added international products, but we're always trying to do the same thing, which is to help the individual investor achieve their hopes and dreams. What was it about the culture of the firm that caused you to go with them at first place? Because it sounds like with your

background, you could have been interviewing a bunch of other Wall Street firms as well. What caused you to buy in? I was fortunate enough in 99 when I graduated. There were lots of jobs available. It was the height of the dot-com era, and you could get a job doing anything. But I networked to Vanguard through one of the professors, Andre Parole. who was on the board who introduced me to two people, Jack Brennan and Tim Buckley. And one, I had read the case study, or we had done the case study in business school about Vanguard. Unique place when you run at cost versus at profit. So I came down here to visit.

And what I saw was people who were dedicated to the ambition of serving investors. But that was only one half of it. The second reason I fell in love with Vanguard was really about career development. Vanguard really believes in rotating people around. My first 10 years of Vanguard, when I came to Vanguard, when I came to Vanguard, Vanguardos because I was an operations expert and people leader. And so I ran call centers and operations groups and our six-digit department. About 13 years ago, I was asked to come over and help to globalize our risk management function. A gentleman named John Holliard had been running it in

the U.S. John was a former money market portfolio manager, and he was really starting up risk. And I came in and helped John globalize that. And in a long way, I fell in love with the day-to-day of indexing and was allowed to stay here and grow by knowledge over time. and eventually lead over time. The career opportunities, along with serving investors, is the reason I really like this place, Ben. Perfect. Rodney, anything we missed that you wanted to cover?

I really feel good about our products. When we offer something, I can tell my brother or sister-in-law that this is someplace so fast. They have to risk control. In other words, I don't want them investing equities if they need something to purchase in a year. So it has to be risk-adjusted. But every product that we offer, I think,

is one that is well positioned in its category and if well understood by the investor is one that you can feel good about someone purchasing. One thing that we didn't talk about, and we don't need to get into too much because it's sort of boring, but the Target Day Fund, which is near and dear to Ben's heart. Ben, was that the first security ever bought? Is that possible? My Target Day Fund, yes. I was never into day trading or my dad helped me set up an IRA right out of college, and the first thing I ever bought was a Target Day Fund. Ben was a dad when he was 21.

Oh, Ben, I'm jealous. Took me to get to business school, 27, 28 years old to discuss that was a better way to invest than a high-cost active fund. We talk about the leaps forward that index funds brought to retail, but something like a Target Date fund where you could just, in your retirement account, if you don't know what you're doing and don't know how to pick an asset allocation, how you can dial up and down the risk based on the year you choose, is a huge leap forward for investors.

Just think about the diversification. You get the entire U.S. stock market, the entire world market, and all of the bonds in one package that does some risk adjusting as you got earlier. It is a product that's both complex and what it offers for exposure, but simple in how it operates. Oh, where's the fun in that? Just kidding. Investing should not be fun, and it should be everything that Vanguard represents. So Rodney, we really appreciate you taking the time for coming on and spending the time with us.

Great. Thank you, guys. Okay, thanks to Rodney. Thanks, everyone at Vanguard and Vanguard's Equity Investment Group. Check out some of the links in our show notes for some of their research. Send us an email, Animal Spiritspot, at e-mail.com. Thank you.