(PUB) Investing 2015

the first five days of January 2014, the Dow fell 0.7% and the S&P 500 fell 0.6%. For the entire month of January, the Dow dropped 5.3% and the S&P 500 index fell 3.6%. Pretty ominous, if you ask me. What’s happened since? Well, the Dow gained 7.5% for the year, and was up 13.5% from Feb. through Dec. The S&P 500 was up 11.4% and 15.5% over the same periods. So much for great market indicators. By the way, if anyone tells you that 2015 is going to be a great year because years ending in 5 are bullish, ask them how large their sample is—10 years ending in 5 over the last century doesn’t mean much. I think there are plenty of reasons to believe we can continue to mint gains in 2015, but it isn’t because the year ends in 5, or because January is an up month (if it is). As you’ll read through- out this issue, my best advice for the coming year is to stick with a well- thought out plan, as you and I have now for 24 years running. By the way, I’ll have a full run- down on the annual Hot Hands trad- ing strategy and its record in the next issue. However, for those following the strategy, the 2015 Hot Hands fund is PRIMECAP Core . It’s closed to new investors, but you can still buy PRIMECAP Odyssey Stock (POSKX) to mimic the Vanguard option. After a terrific run in 2013, last year’s Hot Hands choice, Explorer , definitely didn’t cut it for 2014, as small-caps— and small-cap growth stocks in par- ticular—lagged. The fund gained just 3.9%, compared to returns of 13.5% for 500 Index and 12.4% for Total Stock Market. I’ll have more to say on that next month. n

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2014 Scoreboard

Well, I don’t know if Vanguard rethought it after we posted the Hotline , but they changed the article to a much more docile, and less “money-market alternative” description, simply say- ing the new fund would help investors diversify the duration of their port- folios. I can’t imagine a whole lot of Vanguard’s investors think in terms of diversifying their duration, but I do think they probably would understand earning a higher yield than a money market. On another note, Vanguard lowered the minimum on Market Neutral to $0. Yes, that’s right, $0. But there’s a catch: You have to be an institution or work with a financial adviser to qualify because, as Vanguard puts it, “given the distinctive characteristics of the fund … [it’s] not appropriate for retail investors broadly.” So, assuming Market Neutral is appropriate for someone, how is it that it’s only amassed a piddling $282 million in total assets? Remember, this was a fund available to sophisticated investors willing to pony up at least a quarter of a million dollars. They must be savvy, right? Vanguard adopted Market Neutral in November 2007 when it had almost no assets. Building it up to $282 million would be a big success for some com- panies. But over the seven years through November 2014, the fund gained a total 0.7% return. No, not an annualized 0.7%, but a cumulative return of 0.7%. Vanguard’s lowest-return retail money fund, Admiral Treasury Money Market , gained 2.8% over the same period. Even the struggling Money Market Annuity is up 2.5% over the

End 2014 Change 2014

Dow Jones Ind. Avg.

17823.07 2058.90 4736.05 17450.77 6566.09 9805.55 23605.04 50007.41 $1,184.10 1204.7

7.5% 11.4% 13.4% 3.5% 7.1% -2.7% 2.7% 1.3% -2.9% -1.5% -45.9% -30.8%

S&P 500 NASDAQ

Russell 2000 Tokyo London Frankfurt Hong Kong Sao Paulo Gold (oz.)

Oil (bbl)

$53.27 $2.93

Nat. Gas (MMBtu)

3-mo. T-bill 10-yr. T-bond 30-yr. T-bond

0.04% down 3 bp 2.17% down 86 bp 2.75% down 121 bp

Fed funds

0%–0.25% no change

Euro

$1.2104

-12.0%

last seven years. Only a handful of foreign equity funds, including Total International Stock, down 4.2%, and Energy , up 0.4%, have done worse. Why the “zero down” sale on Market Neutral? Vanguard says it wants to “make the fund more accessible to a wider range of sophisticated investors.” Good luck with that. Now that the new year is here, the “January Barometer” will soon be in heavy rotation. It has many adherents, which is really too bad because it scored a three-peat of failure last year. Why three? Well, the January Barometer has three definitions depending on who you ask. The first is that January’s stock market performance predicts the market’s performance for the year. The second is that January’s performance predicts the performance of the stock market over the following 11 months of the year. And the third is that the first five trading days in January tell you how the year is going to turn out. You may or may not remember that during

Daniel P. Wiener - Senior Editor Jeffrey D. DeMaso - Editor/Research Director Seth H. Kennedy - Assistant Editor Amy Long - Vice President and Publisher Billy Currano - Senior Managing Editor David Clarfield - Assistant Managing Editor Rachel Johnsen - Editorial Assistant Louisa Dorado - Marketing Director Mary Southard - Marketing Director John Hall Design Group - Design and Production Fund Family Shareholder Association Member, Newsletter Publishers Association Daniel P. Wiener - Chairman James H. Lowell - President (www.FidelityInvestor.com)

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The Independent Adviser for Vanguard Investors • January 2015 • 3

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