(PUB) Investing 2015

dictate. Vanguard, which announced it will be adding these volatile A-shares to Emerging Markets Index within the year, may get lucky with its tim- ing—or not. For more on this, please turn to page 12. For all these worldly events, there was one that struck all of us at June’s end. You may have missed it, but the last day of the month was one second longer than usual this year. Apparently the planet is slowing down, and we must add a second every few years. Historically, these “leap seconds” have occurred outside of trading hours, but on June 30, a second was added at 8 p.m. EST prior to Asian markets open- ing for trading. Like the Y2K worries in 1999, you shouldn’t give it a second thought. What all of these distracting head- lines overshadowed was the improving U.S. economy. Yes, the final data on Q1 GDP showed the economy contracting at a 0.2% rate, but that was such old news that the markets ignored it. More meaningfully, the housing market has found its footing and is bouncing back from a snow-filled winter. Sales are up, prices are rising, and there are signs that consumers are starting to spend their growing paychecks. Despite the improving economic situation, the Federal Reserve pushed a rate hike off until the Fall. Whether the Fed raises interest rates in September or in December isn’t going to be that big of a deal. Short-term rates of 0.50% or 0.75%, or even 1.00%, are still incred- ibly accommodative and would’ve been almost unthinkable before the credit crisis hit in 2008. For a dive into the nitty gritty of bonds, start with the story on page 1. n

DEFAULT FROM PAGE 1 >

Shanghai Has Been Here Before

ago. S&P’s broadest Greek stock index holds fewer than 40 stocks with a total market capitalization of less than 20 billion euros, compared to 10 trillion euros for the entire European market. Greece’s GDP is the size of the Detroit metro area, while eurozone GDP is about the size of our own. And the bulk of Greece’s debt is held by the IMF and other global entities, not private banks. Greek stocks represent just 0.1% of the assets in European Stock Index , up 4.9% this year. The question is, what lesson will other peripheral countries like Spain and Portugal take away from Greece’s experience? Will Greece inspire more anti-austerity calls to leave the EU and the euro? Or will Greece’s ultra- depressed economy motivate others to get their debt acts together? Closer to home, Puerto Rico finally did what bond experts have been have been expecting: threatened to default on its bonds. With a population of only 3.6 million, the commonwealth’s debt stands at $72 billion—more than every state except California and New York. You won’t find much Puerto Rico expo- sure in Vanguard’s tax-exempt funds— only 1.0% of High-Yield Tax-Exempt ’s bonds are from the beleaguered island. Chinese Fireworks According to records dating to the 7th century, China is credited with hav- ing invented fireworks, and there were plenty on display as the skyrocketing Shanghai and Shenzhen markets hit an apex in mid-June and began a speedy return to earth. In Shanghai, the market peaked (though still well below its 2007

7000

6000

5000

4000

3000

2000

1000

0

6/00

6/01

6/02

6/03

6/04

6/05

6/06

6/07

6/08

6/09

6/10

6/11

6/12

6/13

6/14

6/15

record high) in mid-June, having risen 59.7% for the year and 151.8% over the preceding 12 months. The People’s Bank of China, also known as Big Mama , may have catalyzed the buying with easy-money policies that gave bro- kers the option of offering margin loans to one and all. But what Big Mama gives, she can also take away, and a bit of tightening turned buying into selling. By month’s end, the Shanghai market had fallen 17.2% in 11 trading days. Interest in mainland China stocks has been stirred by their rapid ascent, but like all bursting bubbles, there may be more air to escape before the sell- ing is over. The last time Shanghai’s market exploded higher in 2007, it rose 502.3% in a little over four years before plunging 72.0% in just 13 months. Our portfolios do not currently have expo- sure to the mainland China market, but many U.S. investors have been itching to get a toe in. You and I should contin- ue to let our active managers determine where values lie, precisely because market sentiment can sometimes run further than prudent analysis would

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)

The Independent Adviser for Vanguard Investors (ISSN 1093-4200) is published monthly for members of the Fund Family Shareholder Association by InvestorPlace Media, LLC, 9201 Corporate Blvd., Rockville MD 20850. A one-year membership is $229 (foreign, add $18). POSTMASTER: Send address changes to The Independent Adviser for Vanguard Investors /Fund Family Shareholder Association, c/o InvestorPlace Media, LLC, 700 Indian Springs Drive, Lancaster, PA 17601. The FFSA is an independent organization dedicated to providing investors with intelligent and objective advice about the Vanguard family of mutual funds and services. If you have questions regarding your membership, call 800/211-7641 (service@adviseronline.com). While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can the publication be considered liable for the future investment performance of any securities or strategies discussed. The newsletter, hotline and associated publications provide information of general interest and are not intended to provide individualized investment advice for any subscriber or specific portfolio. Subscribers are urged to review the full disclaimer and securities holdings disclosure policy associated with this publication at www.adviseronline.com/disclosure-disclaimer. html or call 800-219-8592 to receive a copy via mail. Vanguard and The Vanguard Group are service marks of The Vanguard Group, Inc. FFSA and InvestorPlace Media, LLC are not affiliated in any way with The Vanguard Group and receive no compensation from The Vanguard Group, Inc. Copyright 2015 by Fund Family Shareholder Association. Reproduction in whole or in part is prohibited except by written permission of FFSA.

The Independent Adviser for Vanguard Investors • July 2015 • 3

FOR CUSTOMER SERVICE, PLEASE CALL 800-211-7641