(PUB) Investing 2015

If a manager is sitting on cash, then it’s pretty easy to use that money to do some buying. But more likely, if a manager sees a great opportunity in the market, he or she may “upgrade” the portfolio, selling an existing hold- ing that is less attractive than the one spied during a volatile market, when the stock babies are being thrown out with the market water. Finally, I try to remember that sharp market declines have been a prelude to gains. Since the second half of 1983, which is as far back as my daily pric- ing data on 500 Index goes, there have been 54 days when the fund fell 3.5% or more in a single trading session (it fell 3.9% on August 24). The average return over the ensuing 12 months: 21.7%. Take a Bow You may have missed it, but trad- ing finally began in August for both Alternative Strategies and Tax- Exempt Bond Index . The former isn’t something you can invest in directly, unless you are a client of Vanguard’s Institutional Advisory Services, but it will be found in Managed Payout . The latter is the long-awaited muni-bond index fund that Vanguard began seed- ing with assets before releasing it to the public. You can find out more about the muni fund on page 14. While PrimeMoneyMarket ’s yield first moved off 0.01% in June, it contin- ues to climb, hitting 5 basis points, or 0.05%, in late August. Federal Money Market has also come off the mat and has reported a 0.02% yield since last Tuesday. A Fed rate hike would likely breathe some more life into money market yields—something I think all of us would cheer. n

beginning of the current one, the Dow had risen about 53% and the S&P 500 had risen 75%. Giving back less than 10% as of month’s end seems like a pretty good trade for four years’ worth of investing. Some of our favorite funds, like Health Care , PRIMECAP Core and Selected Value , were all down less than Total Stock Market ’s 6.0% loss for the month, while International Growth lagged Total International Stock by just 1.0%. Though the abso- lute returns for the year are nothing to write home about, with Model Portfolio losses ranging from 1.0% to 1.8% for the year to date, they remain well ahead of the benchmark market index funds. Market declines, whether they are slow and drawn out or as fast and furi- ous as August’s, can be trying times for investors. But those temporary market setbacks only become permanent losses if you deviate from your long-term plan and sell to cash. Here are a few ideas that help me stay the course, if not buy more, when markets are stumbling. First, I accept that market correc- tions and bear markets are going to happen, so I prepare for them ahead of time. In part, this means having enough spending money set aside that I’m not reliant on the market for my day-to-day needs. But I also try to prepare emo- tionally. Remember when I asked back in May if you were ready to see the Dow at 16460? Well, the Dow closed at 16459.75 on August 21 and slightly above that at August’s end. Second, I know market corrections create opportunity for the top-notch managers picking stocks for you and me. How do the portfolio managers take advantage of these opportunities?

CHINA FROM PAGE 1 >

month in our Hotlines , and in our com- ments to the press, the focus on China is over-done. Our exports to China account for less than 1% of U.S. GDP, so the trade impact of a weaker yuan isn’t a big one for us. Yes, it has an effect on some of our exporters who may lose market share in other parts of the globe, but here at home, where we trade in dollars, the economy is strong: GDP was marked up to a 3.7% growth rate in Q2 from the preliminary estimate of 2.3%; the housing market is picking up again; consumers are spend- ing; incomes are on a slow-growth trajectory; job growth is strong; and interest rates remain low and accom- modative. Ah, yes, interest rates. That’s the other topic that has the pundits in a lather. Whether the Federal Reserve decides to hike the fed funds rate from 0.25% to 0.50% or so in September or December, or even holds off until 2016, doesn’t really matter despite the dire predictions of an interest-rate con- flagration. Rates remain low and will continue to remain low whether they go up 25 basis points or even 100. The takeaway from a Fed rate hike should be that policymakers feel there is suffi- cient evidence of sustainable growth in the U.S. economy to support it. Period. And, by the way, higher rates will also begin to re-arm the Fed to fight any future bouts of economic weakness. The worriers made quite a lot over the fact that the stock market fell almost 15% (something that I have warned could happen at any time), but no one seemed to register that between the last correction in 2011 and the

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The Independent Adviser for Vanguard Investors • September 2015 • 3

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