(PUB) Investing 2015

S P E C I A L E X P A N D E D 1 6 - P A G E I S S U E

Model Portfolios................................................................ 2 2014 Report Card.............................................................. 5 2014 Year in Review.......................................................... 6 Performance Review.................................................... 8-11 A Collective Shudder. ..................................................... 12 Contribute Sooner, Retire Earlier.................................... 14 Buy at the Worst, Sell at the Best.................................. 15 Dan’s Do-It-Now Action Recommendations.................... 16 JANUARY 2015

Red Scare WHETHER IT WAS THE NORTH KOREAN HACK of Sony Pictures, the rebuilding of bridges with Cuba, or Russia’s plunging ruble and rising rhetoric, not to mention large losses in the oil markets, red was the color of the month. Plus, early on, it appeared that despite a stellar 2014, the U.S. stock market might actually end the year on a negative note. After hitting a high on the fifth, the S&P 500 index dropped 4.9% in seven days— hardly a panic, but definitely a reversal of fortunes. Fed Chair Janet Yellen came to the rescue, though, and her early holiday present of a commitment to keep interest rates low well into 2015 spurred some of the strongest buying Wall Street has seen in years. When all was said and done, Total Stock Market lost a fraction for the month and was up 12.4% for the year. Total Bond Market gained 5.8% for 2014, and with foreign stocks under pressure from slowing economies and a strengthening dollar, Total International Stock lost 4.2%. It was an active month for Vanguard on many fronts. You may recall that in the Nov. 26 Hotline , Jeff mentioned a seeming contradiction in Vanguard’s website announcement of its new Ultra-Short-Term Bond fund, noting that while Vanguard took pains to say it isn’t a money market substitute, the informational article it posted on its website initially led off by saying that investors who’d like to “earn a better return than the near-zero yield of a money market fund without losing the ability to access your money” as with a cer- tificate of deposit, should consider Ultra-Short-Term Bond. To me that sounded a lot like they were making a case for it as a money-fund substitute.

AVERAGEVANGUARD INVESTOR* December: -0.5% YTD: 8.0%

-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0%

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*See the footnotes on page 2.

DOW JONES INDUSTRIALS December Close: 17823.07

15600 16275 16950 17625 18300

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STANDARD & POOR’S 500 December Close: 2058.90

1750 1850 1950 2050 2150

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NASDAQ COMPOSITE December Close: 4736.05

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3900 4150 4400 4650 4900

OUTLOOK 2015 Past Isn’t Always Prologue

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HUMANS: LET’S FACE IT, WE ARE NOT PERFECT. The economic textbooks and theory pretend that we are flawlessly rational, information-crunching robots that are out to max- imize our own personal wellbeing at every turn. But in reality, we are emotional. And we are often unable to keep up with the fire hose of information that comes our way through newspapers, radio, television and the Internet. A growing and highly entertaining collec- tion of books have captured the myriad biases we all have (to varying degrees) that cause us to make regrettable decisions. (For the curious, Dan Ariely’s Predictably Irrational , Daniel Kahneman’s Thinking, Fast and Slow and Robert Cialdini’s Influence are just a few of mine and Jeff’s favorites.) The bias that I believe investors can be most prone to, and which we’ll all need to be most conscious of as we enter 2015, is “recency bias”—the tendency to extrapolate the

3-MO.TREASURY BILLYIELD December Close: 0.04%

0.00% 0.02% 0.04% 0.06% 0.08%

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10-YR.TREASURY NOTE YIELD December Close: 2.17%

2.0% 2.3% 2.6% 2.9% 3.2%

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SEE OUTLOOK PAGE 4

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A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 25, NO. 1 The Independent Adviser for Vanguard Investors and FFSA are completely independent of The Vanguard Group, Inc.