(PUB) Investing 2015

The obstacles are bigger overseas than they are in the U.S., and mar- ket performance has reflected this. As I mentioned, stocks in the U.S., where the picture is clearer and positive, have outpaced foreign stocks by a wide mar- gin—in 2014, 500 Index returned 17.7% more than Total International Stock. But taking a longer-term view, you can see that outperformance and under- performance are cyclical. The first chart on page 13 shows the relative perfor- mance of Total Stock Market com- pared to Total International Stock since >

go without saying that after six years of gains, you can’t buy U.S. stocks as cheaply today as you could in 2009. Broadly speaking, there are better val- ues to be found in foreign markets. In addition, the dollar’s strength has made buying foreign stocks an even better deal, and when the currency winds shift, which they always do, those purchases will look even better in our portfolios. In sum, it won’t take that much to go right for investors to begin taking a more positive view on overseas stocks.

the foreign fund’s April 1996 inception. When the line is rising, U.S. stocks are outperforming, and when it is falling, foreign stocks are outperforming. During the 1990s, U.S. stocks led the way, but they conceded market leadership in the 2000s to foreign stocks. The pendulum has swung back toward U.S. stocks again over the past seven years or so, but this won’t last forever. This performance gap also creates a divergence in valuations, and today, U.S. stocks are more expensive than stocks in, say, Europe or Asia. It should

LOOKING BACK 2014 Year in Review

rates could rise six months after tapering ends, sparking a short-lived sell- off…Candy Crush Saga-maker King Digital goes public and the stock cra- ters, showing not all IPOs are moon shots…Hot, hot biotech stocks cool dramatically as the sector drops more than 10%…TOP FUND: Telecom Services Index , 5.1%, WORST: Precious Metals & Mining , -3.1%. APRIL: Tax-Managed International is merged into Developed Markets Index…A Russian bond sale is cancelled after demand disap- pears, while S&P lowers Russia’s debt rating to one notch above junk… High-frequency trading comes to the fore with the end-of-March release of a new book claiming the markets are “rigged”…Biotech continues to cool, with Health Care losing 1.9%…Vanguard begins rolling out a new, low-cost Personal Advisor Service , or PAS, beyond its 2013 beta launch, a possible competitor to robo-adviser programs now gaining popularity (in the press, if not in the market)…TOP FUND: Energy , 5.4%, WORST: Russell 2000 Growth ETF , -5.4%. MAY: Following April’s move, Vanguard folds Tax-Managed Growth & Income into 500 Index , reducing the Tax-Managed family to just three options…The S&P 500 posts several records along with Germany’s DAX, and on the final day of the month, the Dow also hits a new all-time high…Also at May’s end, a revised GDP report shows the economy con- tracted by 1.0% during the first quarter as exports were hit and inven- tory-building slowed…That said, several economic indicators, including some housing numbers, suggest the economy is already mending after a debilitating winter…TOP FUND: Emerging Markets Select Stock , 4.3%, WORST: Precious Metals & Mining , -1.6%. JUNE: Vanguard adds yet an eighth management team, Arrowpoint Partners, to Explorer ’s agglomeration…The BEA says first-quarter GDP contracted by 2.9% (though the number will be revised to -2.1% in the coming weeks)…Oil prices hit a peak near the end of the month, and Emerging Markets Stock Index also rebounds…The Vanguard Partnership Plan dividend for 2013 is announced, and at $146.52, it marks a 12.0% increase, matching the 2012 gain, though asset growth was up dramatically more… Emerging Markets Select Stock marks a three-year birthday with active management on top with a total 8.8%

IN A YEAR MARKED BY MORE RECORD-SETTING stock market highs, Vanguard kept shareholders on their toes with fund closures, fund merg- ers, manager hirings and firings, and a redesigned website with plenty of bugs that still need to be ironed out. The world was awash in violence; oil prices cratered; interest rates defied the common wisdom; and while the U.S. economy sped up, China and other global economies slowed down. It was, to say the least, a busy year. Here’s how I kept track of it. JANUARY: The original three Managed Payout funds are merged into one new Managed Payout option, and prior track records are purged…Vanguard enlists relative web newbie HelloWallet to help 401(k) participants manage their financial affairs and, hopefully, invest more in their Vanguard accounts…Janet Yellen is confirmed as the new chairman of the Federal Reserve…The U.S. Treasury issues $15 billion in floating-rate notes, the first new type of government debt in 17 years… President Obama launches the myRA, a retirement savings vehicle for those without 401(k) plans…TOP FUND: Extended Duration Treasury ETF , 9.7%. WORST: Emerging Markets Stock Index , -7.3%. FEBRUARY: Specious warnings that 2014 could be setting up for a repeat of the 1929 market crash blanket the Internet… Growth Equity is merged into U.S. Growth , erasing an embarrassing performance history for Vanguard…Facebook drops $19 billion on texting service WhatsApp…As the month ends, five-year performance numbers come through without February 2009 (the last down month of the bear market) in the calculation, and returns soar…Bitcoin exchange Mt. Gox collapses and millions are lost…TOP FUND: Precious Metals & Mining , 10.2%, WORST: Telecom Services Index , -0.7%. MARCH: Having moved troops into Crimea around the end of February, Russia forces a resolution, supposedly approved by more than 95% of the populace, to secede from Ukraine, catalyzing worries about another Cold War…Vanguard fires Armstrong Shaw from Windsor II and adds Pzena Investment Management to Selected Value …Janet Yellen’s first press conference as Fed chair is marked by a comment that

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