A telescope with a dollar sign on it (Image: Shutterstock) (Image: Shutterstock)

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A new report from Vanguard on the changes in household wealth that investors suffered in the first quarter could provide advisors a template on how to respond to clients’ concerns about recent portfolio losses.

The report, based on the Vanguard portfolios of 3.7 million retail clients and 2.8 million defined contribution participants, shows big gaps between wealth losses in the first quarter compared to losses for the full year ended March 31, 2020, and gains over the three years ended March 31.

During the first quarter, 86% of Vanguard retail households and 92% of households of Vanguard defined contribution plan participants saw huge wealth declines, but the results over the three-year period were nearly opposite.

Seventy-six percent of Vanguard retail households and 89% of DC plan households experienced gains in wealth over the longer period.

The losses and gains in each period not surprisingly were closely correlated to the percentage of equities held in portfolios. In general, investors with larger equity allocations suffered bigger losses during the first quarter and one-year period ended March 31, 2020 and those with larger equity allocations experienced bigger gains over three years.

For example, retail investors with 26% to 50% equity exposure lost 8% in the first quarter of 2020 and 1% for the full year ended March 31, 2020, but gained 11% in wealth over the three years ended March 31.

In comparison those with 76% to 99% equity exposure lost 18% in the first quarter and 7% for one year, but gained 14% over three years.

Millennials and Gen Xers tended to experience bigger losses and bigger gains than baby boomers and even older investors over all three periods primarily because they had larger allocations to equities.

Investors with balanced portfolios fared best during the first quarter, experiencing a 14% decline in wealth versus almost 20% losses posted by the S&P 500.

“These figures suggest that investors should take a long view in thinking about market shocks and portfolio wealth,” the report notes. 

A longer term analysis can also “provide the psychological peace of mind necessary to avoid overreacting to short-term market decline, including those associated with the current pandemic,” according to the report.

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