(PUB) Investing 2015

Corporate. That may sound like a lot, but at the end of 2008, after los- ing 21.3%, the fund still had just shy of $7 billion in assets. So that $100 million represented less than 1.5% of the fund’s assets even after the worst year since its 1978 inception. In other words, 98.5% of the fund’s assets did not go anywhere. Let’s take another example identi- fied in the Journal article: Short-Term Investment-Grade . Investors pulled $1.1 billion from this corporate bond fund as it experienced its worst decline on record—a loss of 4.7%—in 2008. Again, it sounds like a lot of money, but with nearly $18 billion in assets at the end of 2008, the fact is that about 94% of the fund’s assets stayed put. Investors were hardly stampeding for greener pastures. Looking at the six Vanguard funds on the list, you can see in the table that half of them actually took in new money in 2008, rather than losing it. And Short-Term Investment-Grade’s outflows were the worst of the lot. Liquidity Problems It’s worth remembering that many news articles of late, with the Journal ’s >

being only the most recent, seem to wax rather nostalgic for what could only be thought of as the “good old days,” when bond brokers and deal- ers supposedly provided great quan- tities of liquidity for those wishing to sell bonds. This notion of broker- dealer market support is a bit of a fallacy, because in times of crisis (and you need only look to the bond mar- ket lockup of 2008), all manner of high-quality corporate bonds virtually stopped trading. These “market mak- ers” were nowhere to be found. And yet, as noted, Vanguard’s investors stayed put and didn’t panic. Yes, investors do tend to move in herds, and many could stand to improve their behavior a bit. But investor behav- ior isn’t as bad as the press makes it out to be—at least not when it comes to Vanguard’s investors. And one final note. For all the sell- ing that’s being done, it’s worth remem- bering that there’s a buyer on the other side of every sale. Yes, the seller may be a more willing seller than the buyer is a willing purchaser, and hence prices go down. But that’s what makes mar- kets. It doesn’t, however, mean the end for your bond fund investments. n

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DAN’S DO-IT-NOW ACTION RECOMMENDATIONS 4 A muni bond fund like Intermediate-Term Tax-Exempt balances risk and returns while keeping your tax bill low. Just don’t forget your aim is to maximize after-tax returns. (See page 1) 4 Don Kilbride remains committed to his game plan at Dividend Growth . You should, too. (See page 4) 4 The media is ringing the alarm (again) about bonds, but as I’ve been saying all along, there is still an important role for bonds in your diversified portfolio. (See page 15)

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

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-

editor of The Independent Adviser for Vanguard 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.

ated magna cum laude from Tufts University 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

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