Jeff Ptak: The Simple Secret to Becoming a Better Investor

SPEAKER_1 (0:00)

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Christine Benz (0:27)

Hi, it's Christine. Before we begin, we want to know what you think about The Long View podcast. Please click the survey link in the show notes to provide your feedback. It will help guide the future of the podcast. Thank you. And now on with the show.

Hi Long View listeners. We're taking a week off from new episodes. We hope you'll enjoy this conversation with our colleague Jeff Ptak, which aired last month. We'll be back with a new episode next week. Thanks for listening.

SPEAKER_3 (0:54)

Please stay tuned for important disclosure information at the conclusion of this episode.

Amy Arnott (1:00)

Hi and welcome to The Long View. I'm Amy Arnott, Portfolio Strategist for Morningstar.

Christine Benz (1:05)

And I'm Christine Benz, Director of Personal Finance and Retirement Planning for Morningstar.

Amy Arnott (1:10)

Our guest on the podcast today is Jeff Ptak. He's a longtime Morningstar employee and currently serves as Managing Director for Morningstar Research Services. He originally joined Morningstar back in 2002 as a Senior Mutual Fund Analyst. Jeff was one of the original two co-hosts of this podcast and regularly posts his thoughts on morningstar.com, Substack, X and LinkedIn.

So Christine, you know, it's always great to catch up with Jeff because his research sifts through so much data to come up with really insightful takeaways. And one of the highlights from the podcast today was when he was talking about how such a small number of stocks tend to generate a disproportionate amount of the market returns and what that means for diversified, actively managed funds. So we'll hear a bit more about that later in the podcast.

Christine Benz (2:12)

Amy, I loved the conversation too. And one of the things I appreciate most about Jeff's work is his focus on investor outcomes. So in the conversation, I loved the discussion of what target date funds get right for investors, as well as what a couple of them, what some of them may be missing. So I thought that was a great part of the discussion as well.

Amy Arnott (2:34)

I agree. All right. So let's take a listen.

Jeff, welcome to The Long View.

Jeffrey Ptak (2:43)

Oh, thanks so much for having me.

Amy Arnott (2:44)

Well, it's always great to talk to you.

So Jeff, you head up Morningstar's annual Mind the Gap research on investor returns. And the most recent edition is actually hot off the presses today as we're taping this episode. What would you say is the biggest takeaway from this year's report?

Jeffrey Ptak (3:03)

Sure thing. Yeah. So we did put out the latest edition of Mind the Gap, this morning as we speak. And I would say there's a few takeaways. Some of them are recurring. They're sort of familiar themes that we've sounded, but they're important nonetheless.

The first is I would say simpler strategies tended to exhibit smaller gaps, that is, investors earned more of their funds total returns than did more complex strategies. And we can give some examples of what's simple versus complex. Another theme that emerges is stand-alone options, things like multi-asset funds, target date funds. Investors appear to have greater success using those than they did building blocks.

And then lastly, and this is something that's shown itself quite vividly in previous studies, it's true of this year, is they struggle with more volatile funds. They push their buttons and we see wider gaps between investors' dollar-weighted returns and total returns in more volatile funds than we do in less volatile funds. In terms of what trips people up, I would say the single biggest thing is probably extrapolating. They'll see a fund perform in a particular way and they'll project that into the future and in the process they might wrong-foot themselves because perhaps performance will mean revert up or down and that's the sort of thing that can give rise to gaps between one's dollar-weighted returns and the funds' total returns.

Christine Benz (4:29)

So Jeff, can you expound on that simple versus more complex point and also I'd love to hear your take on what is going on with the all-in-one funds that they do tend to result in better investor outcomes, that investors tend to stay the course a bit better in them.