(PUB) Investing 2016

single overall loss since its May 1984 inception. In late December, the fund was 75.9% below its May 2008 high. Is that what you’d call a store of value? Barring a catastrophe of global propor- tions, I maintain my mantra that the best investment you can make in gold is to hang some around the neck of someone you love. Global Conundrum I’ve always been a proponent of keeping a chunk of your portfolio over- seas, but as with our domestic stock allocations, I think you need to be picky

about both who you’re trusting to invest your money in far-flung markets and how much you’re willing to give them. In 2016, investors traveling into for- eign stock markets are going to be buffeted by continuing questions about China’s growth prospects and the level of trust that we can have in their report- ing of such. And between China and the global oil economy, the growth of many emerging market economies will hang in the balance. I wouldn’t be one to jump into a fund like Emerging Markets Stock Index or, for that mat- ter, any of the region-specific foreign

OUTLOOK FROM PAGE 7 >

isn’t), but also that, having been beat- en down, it is now ripe for recovery. Where have I heard that before? I don’t know if you remember the predictions that the current decade would be a golden one for metals, with gold mov- ing to $5,000 per ounce. Well, we’re now six years in, and we’re right about where we started. Precious Metals & Mining may have shot up 76.5% in 2009, but it wasn’t enough to recover the prior year’s 56.0% loss, and the fund has gone on to notch its largest

LOOKING BACK

2015 Scorecard A BIT MORE VOLATILITY, smaller gains and a focus on active manage- ment all were good calls for 2015. I didn’t have lots of bad ones, but even when I was right, you couldn’t always take it to the bank—though active managers saved the day overseas. As I do every year at this time, I look back and give an honest appraisal of just how close my thinking was or how wide of the mark I ranged when I wrote to you one year ago. You may not agree with all of my grades, and I am sure to have made some other boneheaded comments over the course of the year that you’ll hold me accountable for, but usually I own up to them pretty quickly. As I’ve said before, we can always hope that the light will finally shine through on the myriad financial advisers, writers, pundits and glory-chasers who make wild and wacky predictions all year long. I still seem to be one of the few who actually fesses up on an annual basis. Last year, I gave myself two thumbs-up and one up-and-down rating for my 2014 predictions and comments. I looked a little better for 2015. “The bias that…we’ll all need to be most conscious of as we enter 2015, is ‘recency bias’—the tendency to extrapolate the recent past into the near-term future…If stocks went up, they’ll continue to go up. If interest rates went down, they’ll continue to go down.” After a year in which Total Stock Market returned 12.4% and Total Bond Market returned 5.8%, I’d say 2015’s returns of 0.3% from both index funds prove the point that a good year doesn’t necessarily lead to another one—all other things equal. While I was right to warn about recency bias, I’ll take a ding for my next one.

index, well, I was wrong. You have to look at total returns, like the 1.2% gained by 500 Index , to see any improvement. By the way, volatility was also up in the bond market. Over the course of the year, the 10-year Treasury’s yield moved up or down 2% or more from its prior-day close 109 times, which is more than all the days this occurred in 2014 and 2013 combined. “It’s only a question of when, not if, we’ll get a 10% correction or more in U.S. stocks.” For me, this was a no-brainer, though I think a lot of investors had become so complacent about market setbacks that they probably didn’t put too much stock in my warning. Too bad. If you were prepared, then you didn’t panic when markets tumbled in August and September. At its worst, the Dow was off 14.4% from its May high, while the S&P 500 index was down 12.4%. “Much-improved balance sheets mean there is plenty of ammunition to continue spending, which in turn will move the economy forward.” You need only look at the sales of cars and light trucks to know that the consumer was in a better frame of mind for spending (and on sounder financial footing) in 2015 than in years past. Automobile sales exceeded $1 trillion through November and will almost certainly set a new record when December’s sales are tallied up. “It’s important to let an active portfolio manager make decisions about where to invest and what to invest in overseas.” Amen to that. My choice (and one I’ve stuck with for many years), International Growth , lost 0.7% during 2015, while Total International Stock Index fell 4.4%. In fact, a quick glance at Vanguard’s foreign offerings shows that the active managers at Emerging Markets Select Stock beat out Vanguard’s EM index fund, International Explorer outpaced World ex-U.S. SmallCap Index, and both Global Minimum Volatility and Global Equity earned more than Total World Stock Index . Not a bad call.

“I’m expecting a bumpier ride in 2015, but I still think U.S. stocks can gain ground during the year.”

Okay, the ride was bumpier, for sure. The Dow saw 9 daily moves of 2% or more in 2015 versus just two in

2014, three in 2013 and four in 2012. S&P volatility, as measured by the VIX, averaged 16.7 versus 14.2 in both 2014 and 2013. But with price losses of 2.2% for the Dow index and 0.7% for the S&P 500

12 • Fund Family Shareholder Association

www.adviseronline.com