(PUB) Investing 2015

Growth in my Model Portfolios , so I guess you know my druthers.

While the fund may be off-limits to financial advisers and institutions, indi- vidual investors can still open accounts and add money here. But Vanguard is trying to control cash flows into the fund, so I guess that’s why they don’t “select” their best funds for the Select Funds list, but rather the funds they want investors to buy, for whatever reason suits. You need only look at the chart to the left, which shows how Wellington’s managers have run circles around Balanced Index, generating returns since the index fund’s inception that are about 35% better. (By the way, that dramatic dip and recovery you see in the chart around the year 2000 is the impact of the technology bubble pushing the index fund ahead of the active fund, then >

Wellington vs. Balanced Index

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Rising line = Wellington outperforming

Balanced Index and Wellesley Income Here’s a weird combination of bal- anced Select Funds . Either you can go with the 60/40 indexed variety of balanced fund, or you can go the more conservative, 40/60 active-management path with Wellesley Income . It’s really not an either/or in my book, but rather a question of how you’d like to see your balanced assets allocat- ed. Wellesley Income is a fantastic fund for those who’d like a little more yield and a little less risk in their portfolios. As for Balanced Index , I find it strange that Vanguard hasn’t also put Wellington onto its Select Funds list.

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money going with the active option. Now, you might wonder which of these funds is the preferred fund, and one issue is that there’s been a sea change in the manage- ment of International Value over the past few years, as two of the longer- tenured management teams were fired and assets were reallocated among three groups. Since then, the two funds have about matched one another, and both have outperformed the index fund. So, how to choose? Well, among Vanguard’s directors, two have more than $100,000 each in International Growth , and two directors just put money into International Value, although at lesser amounts. 2014 was the first year that any of the current board members invested in International Value. Do you think they see something here? On the other hand, not a single port- folio manager at either fund has a dollar invested alongside shareholders. Now, given that International Growth’s man- agers live overseas, you can give them a pass, since it’s much easier owning assets in your own country than in another one, and they may not even be allowed to invest in this U.S. fund. But what of International Value’s managers, most of whom live here? They don’t get a pass, and fail the “eat our cooking” test. I’ve owned International Growth for a long time, and despite the man- ager round robin amongst the team at Schroder Investment Management, I’m not overly concerned, since Baillie Gifford has gradually taken on fully half of the fund’s assets, while the Schroder piece has shrunk to about one-third. You find International

DISTRIBUTIONS TO COME

Lots of Funds, Lots of Distributions

JUNE IS A BIG DISTRIBUTION MONTH, as funds and ETFs that pay out semiannually or quar- terly will take interest and dividends earned in the first half of the year and, after expenses, dis- tribute them to shareholders. With so many funds distributing, you’ll need to watch the calendar and listen to our Hotlines as Vanguard begins releasing actual distribution dates. Remember that for tax reasons, you don’t want to “buy a distribution,” so if you’re planning an investment in a taxable account, please hold off until after the “record date,” which is the date ownership is determined for distribution purposes. (If you’re investing in a tax-deferred account, you don’t need to worry about this.) The funds or ETFs that are scheduled to distribute are listed below. Note that there is a strong likelihood Short-Term Inflation-Protected Securities Index will not make a quarterly distribution. It hasn’t done so since inception, only eking out tiny year-end payouts, and with inflation subdued, short-term Treasury yields in the basement, and the fund’s yield underwater, there’s probably not much for the fund to actually pass on to shareholders. Distributors: 500 Index, Balanced Index, Consumer Discretionary Index, Consumer Staples Index, Convertible Securities, Developed Markets Index, Dividend Appreciation Index, Dividend Growth, Emerging Markets Stock Index, Energy Index, Equity Income, European Stock Index, Extended Duration Treasury, Extended Market Index, Financials Index, Global ex-U.S. Real Estate Index, Growth and Income, Growth Index, Health Care Index, High Dividend Yield Index, Industrials Index, Inflation-Protected Securities, Information Technology Index, LargeCap Index, LifeStrategy Conservative Growth, LifeStrategy Growth, LifeStrategy Income, LifeStrategy Moderate Growth, Materials Index, MegaCap Growth Index, MegaCap Index, MegaCap Value Index, MidCap Growth Index, MidCap Index, MidCap Value Index, Pacific Stock Index, REIT Index, Russell 1000 Growth Index, Russell 1000 Index, Russell 1000 Value Index, Russell 2000 Growth Index, Russell 2000 Index, Russell 2000 Value Index, Russell 3000 Index, S&P 500 Value Index, S&P MidCap 400 Index, S&P SmallCap 600 Value Index, Short-Term Inflation-Protected Securities Index, SmallCap Growth Index, SmallCap Index, SmallCap Value Index, Social Index, STAR, Target Retirement Income, Tax-Managed Balanced, Tax-Managed Capital Appreciation, Tax-Managed SmallCap, Telecommunication Services Index, Total International Stock Index, Total Stock Market Index, Total World Stock Index, Utilities Index, Value Index, Wellesley Income, Wellington, Windsor II, Windsor, World ex-U.S. Index.

The Independent Adviser for Vanguard Investors • June 2015 • 15

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