Former Vanguard chief says asset allocation is key

The casual financial investor might not recognize Gus Sauter’s name. But it is a safe bet most people recognize the name of the $4.7 trillion family of funds he managed as a chief investment officer for 10 years — Vanguard.

Gus Sauter, former chief investment officer for the Vanguard Group, spoke with a group of Rochester investors Wednesday and offered his advice.
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The casual financial investor might not recognize Gus Sauter’s name.

But it is a safe bet most people recognize the name of the $4.7 trillion family of funds he managed as a chief investment officer for 10 years — Vanguard.

Most retirement plans include a few, if not more, Vanguard funds.

Sauter worked at Vanguard for 25 years, building its reputation and value. He served as its chief investment officer from 2002 to 2012.

Carlson Capital Management, a wealth management firm with deep local roots, brought Sauter to Rochester on Wednesday for a "fireside chat" with a large crowd of their clients and guests.


Carlson has offices in Rochester, Northfield, Hastings and Bloomington. Its team of 45 employees manages more than $2 billion in assets for 900 clients.

When introducing Sauter, CEO Greg Carlson credited Rochester’s Andy Chafoulias, of Titan Development & Investments, as being key to bringing an investment icon such as Sauter to the Med City.

"Gus has had an interesting perch from where he has shaped and observed the financial landscape," Carlson said during his introduction.

Carlson co-founder Jeff Carlson led the discussion by asking Sauter questions. Here are some of those questions and his responses:

The span of Sauter’s long career included turbulent times in the market, such as Black Monday in 1987, the bubble and the 2008-2009 financial crisis.

JC: When you put all of these things together, what have you learned from these experiences?

GS:The most important thing out of all these experiences is stay the course. That is incredibly important to achieve your financial goals.

I believe that the value an adviser provides to clients is making them realize there will be difficult times in investing. That’s part of investing.


JC: There’s a lot more turmoil going on in the world today, more than ever.

Where do you think markets will go from here, and what impact may this global uncertainty have on the markets as a whole?

GS:The interesting thing is that markets are not correlated with economic growth. I think a lot of people are surprised when you say something like that.

Two things really impact returns. It turns on other investments and your perception of risks.

If talks break off with North Korea, a lot of that is already being priced in the market.

JC: Comparing domestic indexing to international, what kind of allocation do you recommend?

GS:Some people believe that international investing is good because some of the economies are growing faster than the U.S.

Equity returns do not correlate with economic returns.


For the last five years, China has had very lousy returns, despite the fact that it grew 7 percent a year.

My view on international investment is that you do it for diversification. My view is it is fine to have a home country bias. The sweet spot is having roughly 30 to 40 pecent invested internationally.

JC: You owned a gold mine when you were in your 20s. What is your opinion on gold and commodities in an investment portfolio and what do you think of bitcoin?

GS:My view of gold is that it doesn’t produce a return. No dividends. No yields. The only money you make with gold is selling it to somebody for more than you paid for it.

Bitcoin is a really hot topic these days, particularly among millennials. Bitcoin is not a hot topic with me.

I think it is a disaster waiting to happen. Bitcoin is right up there with Tulip Mania. … There’s no "there" there.

(Bitcoin) doesn’t satisfy anything you look for in currency. Is it widely accepted? Is it stable? Is it something that will grow with the economy?

I am not a fan of bitcoin.

JC: Where do think investors make their biggest mistakes?

GS:The best thing you can do, and I think the best thing advisers do for their clients, is establishing your asset allocation.

So many people just dive right in and ask … what funds do I want and what stocks do I want to own?

That really doesn’t matter. This is really going to determine about 5 percent of your success. About 95 percent of your success will be determined by asset allocation.

It’s got to be something you can live with and sleep with at night, and yet it’s going to help you meet your retirement needs.

Related Topics: FINANCE
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