(PUB) Investing 2015

collapse that many headlines would lead you to believe is fast approaching. What really hurt bond investors in the 1970s was inflation. Over that five- year stretch at the end of the 1970s when Long-Term Investment-Grade grew at a 1.7% rate, inflation was run- ning at a 10.4% pace. In real terms, this was a particularly fierce bear market for bonds. But where we stand today is starkly different from where we were in the 1970s. Back then, in response to inflation’s fierce advance, the Fed was aggressively raising interest rates from under 5% to nearly 20% to try to tame it. Today, just reaching the Fed’s goal of 2% inflation is tough, and the Fed is trying to figure out how to lift rates from near-zero without derailing economic growth. In order to see rates rise as dra- matically as they did 40 years ago, our economy and inflation are going to have to shift into a much, much higher gear. InvestingToday for Rising Rates As I’ve said over and again, it is not time to ditch your bond fund. While you may not be comfortable seeing losses in your bond funds over the short term, rising rates will ultimately reward investors who stay the course with greater levels of income. Plus, growth and capital apprecia- >

tion aren’t the real reason to own bonds in the first place. Bonds should pro- vide income and stability to diversified portfolios. A 2% yield may not look attractive with stocks generating 10% gains, but in a falling stock market, even 2% looks awfully comforting. And as we saw earlier, bonds, particu- larly Treasurys and investment-grade corporate bonds, have done a worthy job offsetting falling stock prices and have helped to manage the risk in one’s overall portfolio. That, in a nutshell, is why investors own bonds. This isn’t to imply that you should necessarily hang on to your long maturity bonds if you’ve got them. As you can see in my Model Portfolios , I recommend holding bond funds that focus on bonds with short and intermediate maturities. Despite the current low-yield envi- ronment, and the media’s infatuation with rising interest rates, if you are investing to generate income or looking to manage your portfolio’s risk, bonds remain a critical piece of that strategy. Next month, after you’ve had some time to digest what we’ve covered over the past two months, I’ll apply all this thinking to Vanguard’s funds and show you more specifically where I think the best values lie, and why. By then, you’ll be a bond market pro. n

Online Resources

Many of you regularly access our website and its members-only features. For those who haven’t logged in lately, here’s a brief reminder of what you can do online at www. AdviserOnline.com. n STAY ON TOP OF RECENT EVENTS with news articles. n SEARCH THE WEBSITE to find archived articles and answers to your questions. n GET THE LATEST ISSUE the minute it is published online in both HTML and PDF format. n ACCESS YEARS’ WORTH OF ARCHIVES f or issues, Hotlines and news articles. n USE THE ADVISERONLINE FORUM to share and discuss investment ideas with other members of the FFSA community. n CHECK THE CUSTOMER SERVICE PAGE for help with your subscriber account. And that’s just the beginning. These features will make it easier and more enjoyable for you to get all of the advice and information you are looking for. Visit www.AdviserOnline.com now to get the most from your subscription.

DAN’S DO-IT-NOW ACTION RECOMMENDATIONS 4 The headlines are loud and messy outside of U.S. borders, but don’t shy away from foreign stocks. In fact, this is a good time to add to International Growth . (See page 1) 4 Rising interest rates are good, not bad. The extra income they bring to your portfolio makes up for price declines. (See page 12) 4 Jack Bogle comes on strong about disclosure, and it’s not a leap to say he thinks Vanguard’s is sorely lacking. (See page 7)

Daniel P. Wiener is America’s leading expert on the Vanguard family of funds. He is founder of the Fund Family Shareholder Association and chairman and chief executive officer of Adviser Investments, LLC, a Newton, Massachusetts, investment advisory firm (800-492-6868). As editor of The Independent Adviser for Vanguard

Jeffrey D. DeMaso, Editor/Director of Research, works directly with Dan Wiener researching and writing the multiple-award winning Independent Adviser for Vanguard Investors newsletter. He also leads the analyst team for Adviser Investments, LLC. Jeff gradu- ated magna cum laude from Tufts University

Investors , he is a five-time recipient of the Newsletter Publishers Foundation’s Editorial Excellence Award. He also edits the annual Independent Guide to the Vanguard Funds. Mr. Wiener is often quoted in the nation’s leading financial publications.

with a B.A. in economics, holds the Chartered Financial Analyst designation and is a member of the CFA Institute and the Boston Security Analysts Society.

16 • Fund Family Shareholder Association

www.adviseronline.com