(PUB) Investing 2015

S P E C I A L E X P A N D E D 1 6 - P A G E I S S U E

Model Portfolios................................................................ 2 Yield’s Gravitational Pull.................................................... 4 “Dive, Dive, Dive…”......................................................... 5 Gains Approaching............................................................ 6 Performance Review.................................................... 8-11 Rise of the Machines, and of Errors............................... 12 The Five-Year Report on U.S. Growth............................. 13 Dan’s Do-It-Now Action Recommendations.................... 16 DECEMBER 2015

Sunrise Over Paris “A walk about Paris will provide lessons in history, beauty, and in the point of life.” —Thomas Jefferson OUR SECOND VICE PRESIDENT and third President was a complicated and contro- versial statesman, but his observations on Paris seem apt given the terrorist attacks that wracked the city on November 13—particularly his sentiment that Paris will teach us about life. Indeed. The terrorist attack in Paris was tragic, and if you feel as though these dramatic and dangerous events are happening more frequently, well, they are. Days like that chaotic Friday take their emotional toll on us, both as humans and as investors. As investors, we need to look to history to resist the initial emotional response to do something. The table on page 3 lists a number of what have been thought of as earth- shattering events that have impacted our lives and portfolios, ranging from domestic to foreign affairs and from manmade difficulties to acts of nature. (I published a more detailed table in the October 2014 issue.) We looked at 40 such events dating to the explosion of the U.S.S. Maine in 1898 and found that, on average, the Dow gained 9.5% (not including dividends) one year after these incidents—better than the Dow’s long-term compound growth rate of 5.1%. With family in Paris, I was deeply concerned about the danger so close to my uncle, aunt, cousin and his wife and child. Thankfully, all are safe, and my 90-plus-year-old

AVERAGEVANGUARD INVESTOR* November: 0.1% YTD: 1.0%

-5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

NOSAJ JMAMF JD

*See the footnotes on page 2.

DOW JONES INDUSTRIALS November Close: 17719.92

16000 16600 17200 17800 18400

N OSA J JMAM F JD

STANDARD & POOR’S 500 November Close: 2080.41

1900 1950 2000 2050 2100 2150 2200

N OSA J JMAM F JD

NASDAQ COMPOSITE November Close: 5108.67

SEE PARIS PAGE 3 >

4400 4650 4900 5150 5400

MOMENTUM October Hot Hands

N OSA J JMAM F JD

MOMENTUM IS A POWERFUL FORCE that can be transferred from one moving object to the next with impressive results. Consider a hard-hit cue ball smacking into its target, stopping in its place as the ball it strikes goes from zero to 20 in the blink of an eye. Well, momentum also works in the stock market. Stock market momentum is not as consistent as a well-hit pool ball, but it definitely has its proponents, as well as some time-tested strategies that take advantage of it. My longstanding calendar-year Hot Hands strategy and its offshoot, the October Hot Hands strategy, are two of them. As with any investment strategy, you have to take the long view. Year-to-year perfor- mance can vary greatly, and that’s been illustrated in spades with October Hot Hands . That said, long-term performance generated by investing with the winners over 12-month

3-MO.TREASURY BILLYIELD November Close: 0.17%

0.00% 0.03% 0.06% 0.09% 0.12% 0.15% 0.18%

N OSA J JMAM F JD

10-YR.TREASURY NOTE YIELD November Close: 2.22%

1.6% 1.9% 2.2% 2.5% 2.8%

N OSA J JMAM F JD

SEE HANDS PAGE 15

>

A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 25, NO. 12 The Independent Adviser for Vanguard Investors and FFSA are completely independent of The Vanguard Group, Inc.