(PUB) Investing 2016

making your 2016 contributions now, rather than later. But, if you still haven’t done all you can for 2015, do that first, before the opportunity to contribute ends on April 15, 2016. Retirement accounts are great long-term savings and investment vehicles, and regular contributions, when properly invested in, say, one of my Model Portfolios , will really add up over time. n

up contributions, talk to your company’s Human Resources or employee benefits department about your in-house retire- ment account and make sure that they’ll accommodate you. While employers are not required to allow the catch-up contributions, most should be with the program by now. Regardless of your age or income level, you should strongly consider

even higher for other retirement plans (see the table on page 13). If you are over 50 or are turning 50 this year, take advantage of the option. And if you didn’t do so in 2015, you still have until April 15, 2016, to make the most of this fantastic feature. (In 2015, the limit was the same, $5,500 plus an additional $1,000 catch-up.) If you’re newly eligible for the catch-

QUOTABLE Morgan’s Multiple Manager Mess

PRIMECAP , generated a 9.0% return over the same 10 years, or nearly a full percentage point ahead of the index, which, as we know, is unencumbered by expenses. As for multimanagers reducing volatility, I can tell you that over the full decade, Morgan Growth’s volatil- ity relative to the S&P 500 was about 1.09, while that of, say, Growth Index was 1.03, and PRIMECAP’s was 1.02. Plus, while some investors might be interested in this Greek alphabet soup of risk statistics, Morgan Growth’s maximum drawdown, or loss, of 50.3% during the financial crisis was greater than Growth Index’s 47.2% decline and PRIMECAP’s 44.3% drop. I stand by my research and my long perspective on multimanaged funds: Most of the time, they don’t improve performance, and they also don’t reduce risk. Over a 10-year period, if a hodge- podge of managers really were able to reduce risk, it would stand to reason that even a bit of sub-par performance would win the long-term race, since recoveries from smaller drawdowns would give the active managers a fighting chance. That isn’t the case at Morgan Growth.

McNabb miss the point on Morgan Growth, he also, in my view, misled shareholders in Growth & Income , another fund that recently issued its own annual report. McNabb tells share- holders, “The fund’s three advisors have seen success over time,” and goes on to say that Growth & Income’s 10-year return of 6.16% was close to that of its S&P 500 Index benchmark (up 6.80%) and also ahead of peers. And he adds that the fund has “outdis- tanced” the S&P 500 in each of the last five years. I found just one problem with this: Not one of the teams running Growth & Income today was on board 10 years ago. In fact, they weren’t even on board five years ago. All three management teams joined Growth & Income when the fund was overhauled in 2011, so they’ve only been running the fund for four years. McNabb’s ghostwriter should have checked Vanguard’s web- site, or my annual Independent Guide to the Vanguard Funds . To write that “[w]e expect this mul- timanager approach will continue to provide competitive returns over the long term” is to ignore the facts. Once again, the attempts to cast a positive spin on multimanagement get in the way of the truth. n

I’MALWAYSAMUSED by the ways that Vanguard justifies the often poor per- formance of its multimanaged funds. The latest comes from Bill McNabb’s chairman’s letter in Morgan Growth ’s 2015 annual report. In the course of three paragraphs, Morgan Growth shareholders are told that the fund’s multimanager strategy “provides diver- sification, which can mute some of the volatility associated with the stocks of fast-growing companies.” Then shareholders are told that the fund lagged its benchmark (the Russell 3000 Growth index) by more than 0.5% per annum over the past decade. That’s followed by a note that the past six years have been good ones, because the fund was up in each of its last six fiscal years, and that the fund’s “multi-manager advi- sory team deserves credit for delivering these solid long-term results.” Technically, McNabb (or the person who penned this letter for him) is correct. Morgan Growth did underperform its benchmark by 0.64% per annum, 7.41% to 8.05%. And yes, it did report gains in each of its last six fiscal years. What’s left unsaid is that the fund also lagged its benchmark over that six-year period. And that ignores the fact that an investment in another growth fund with a single management team at the helm,

And in a Postscript Not only did Vanguard Chairman

A Decade of Underperformance

Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 10 Years 8.2% 21.2% -23.7% -4.3% 12.8% 0.7% 27.2% 20.7% 16.8% 4.8% 7.4% 6.1% 19.3% -20.6% -2.2% 12.8% 3.4% 29.3% 20.3% 17.9% 3.2% 8.1% 6.1% 19.2% -19.0% -3.8% 12.6% 2.7% 31.1% 18.5% 19.1% 1.8% 7.9%

Morgan Growth

Russell 3000 Growth Index

Growth Index

Note: Table shows 12-month returns through dates listed; 10 Years column shows 10-year annualized return through 9/30/15.

The Independent Adviser for Vanguard Investors • January 2016 • 15

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