Andy Reed, head of behavioral economics research at Vanguard, has spent more than two decades exploring the gap between how people think they make financial decisions and how they actually make them. He recently joined Morningstar’s The Long View podcast to discuss why investors so often stray from rational decision-making, and how forces like inertia, defaults, and early money experiences quietly shape savings habits, investment choices, and long-term outcomes. Drawing on psychology, aging research, and investor data, Reed explains how seemingly small design choices can steer portfolios for years.
Reed covers a wide range of behavioral and investor psychology themes in the interview, including:
- Tracing behavioral roots: Vanguard’s ties to behavioral economics go back to Jack Bogle’s early interest in the psychology of investing. That foundation later informed initiatives like the 2002 Save More Tomorrow program to bring behavioral insights to retirement-saving design.
- Reducing rollover cash: Rollover IRA assets often stay uninvested because investors misunderstand the process, delay making choices, or assume IRAs work like 401(k)s with automatic investing. Reed recommends using clear default investment options to help prevent years of lost growth potential.
- Shifting from saving to spending: Deep-seated saver behavior can make retirees hesitant to withdraw from their portfolios. Steady, reliable income streams, including annuity-based solutions, can help make spending feel more secure.
- Finding the right balance: Separating assets by purpose can support mental accounting, but too many buckets can create complexity and overwhelm. Reed emphasizes the importance of keeping structures simple and consolidating when needed.
- Building early money habits: Early conversations and experiences around money strongly influence financial behavior later in life. Reed encourages parents to start young, keep concepts simple, and maintain a positive tone to help children feel confident engaging with money.
Notes:
- All investing is subject to risk, including the possible loss of principal.
- Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target-date funds is not guaranteed at any time, including on or after the target date.