(PUB) Investing 2015

up contributions, talk to your company’s Human Resources or employee benefits department about your in-house retire- ment account and make sure that they’ll accommodate you. While employers are not required to allow the catch-up contributions, most should be with the program by now. Regardless of your age or income level, you should strongly consid- er making your 2015 contributions now, rather than later. And if you still haven’t done all you can for 2014, do that first. Retirement accounts are great long-term savings and invest- ment vehicles, and regular contribu- tions, when properly invested in, say, one of my Model Portfolios , will really add up over time. n particular, is an eclectic investor with nerves of steel who is willing to tread where others fear in search of values. Sometimes that works wonders. Note the fund’s whopping outperformance between late 2008 and late 2009—a run that forced Vanguard to close the fund as money began to flow in by the bucketload. Capital Value gained 81.5% in 2009 alone. Palmer’s style is a bit more sedate but still oriented to finding undervalued companies that may be a bit unloved. Unfortunately, there are many times when the fund’s go-anywhere mandate doesn’t pay off for shareholders. So, depending on when you want to start your measure of Capital Value’s performance, you can find periods of tremendous relative gains, and oth- ers that aren’t so hot. Vanguard, for instance, uses a rolling, three-year peri- od to determine whether a manager’s performance deserves a bonus, or a give-back. Beginning three years after Palmer came aboard, the two managers have, together, been dinged a lot more money than they’ve earned in bonuses. When you look at rolling three-year periods beginning in December 2012, >

higher for other retirement plans (see the table on page 14). If you are over 50 or are turning 50 in 2015, take advantage of the option. And if you didn’t do so in 2014, you still have until April 15, 2015, to make the most of this fantastic feature. (In 2014, the limit was the same, $5,500 plus an additional $1,000 catch-up.) In fact, if you don’t think you’ll have the full amount available to contribute for 2015 right away, make sure you take advantage of the maximum 2014 contri- bution limit first, before adding money for 2015. This way you won’t lose the option should a sudden spot of finan- cial fortune give you additional money which can then be contributed to your tax-deferred account later in the year. If you’re newly eligible for the catch-

maximum to my own 401(k) as well as my IRA (which I converted to a Roth in 2010) every year. In fact, when I can, I add my 401(k) money early in the year on the assumption that markets rise more often than they fall, hence my desire to buy early, and at the lowest possible price. Playing Catch-Up As if the opportunity to save your hard-earned dollars for retirement, tax- deferred, wasn’t good enough news, the fact that folks like me, age 50 and older, can save additional dollars is an added bonus. For those of us past the half-century mark, we can once again contribute an extra $1,000 to our IRAs in 2015, for a total of $6,500, and the numbers are even AFTER A DECADE fraught with man- ager turnover and miscues, it appears that, in at least one respect, Capital Value is on a steady course. December marks five years since David Palmer was added to this go-anywhere con- trarian fund as a co-manager with Peter Higgins. Though both work for Wellington Management, they maintain separate sub-portfolios and even work from different offices—Palmer down the road from Vanguard HQ in Radnor, PA, and Higgins in Boston. Yet, while the manager musical chairs have stopped, so has the fund’s relative outperformance. Take a look at the chart to the right. In it I’ve compared Capital Value’s performance to its benchmark, the Russell 3000 Value index, as well as Total Stock Market . You can see that from the time Peter Higgins was brought in to replace former manager David Fassnacht in June 2008, the fund has definitely put up better numbers than the index and the index fund. Yet, because Capital Value’s volatility proved too great for Vanguard’s executive branch, they brought in David Palmer in December 2009 to calm things down a bit.

CONTRARIANISM Buy at the Worst, Sell at the Best

Capital Value vs. the Indexes

rising line = fund outperforms

0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2

▼ Palmer added as co-manager

Freeman retires, Fassnacht takes over

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Fassnacht out, Higgins takes over

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Capital Value vs. Russell 3000 Value Capital Value vs. Total Stock Market

0.4

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And that’s when performance, or rath- er outperformance, began to dissipate. The fund outperformed for a while, then underperformed for a while longer, then outperformed again. But early in 2014, the tide turned once more, and at the end of 2014, the fund’s five-year annualized gain of 13.9% was sub-par compared to the 15.6% return for Total Stock Market or, say, the 16.5% return for U.S. Value , another value-oriented fund. Now, in fairness, Capital Value doesn’t really have a good Vanguard fund to compare it with given its deep- value orientation. Peter Higgins, in

The Independent Adviser for Vanguard Investors • January 2015 • 15

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