(PUB) Investing 2016

Are you prepared for the headaches and tax implications of making multiple trades per year? While Vanguard allows you to make trades online, you still open yourself up to having to review those trades, track all of the changes to make sure there weren’t any errors (on your part or Vanguard’s) and fill out extra lines on your tax return for every capital gain realized. This seems like a lot of extra hassle for a modest reduction in risk and a likely reduction in total return. So is rebalancing necessary? Even though the media and Vanguard may have you think so, when you look at the evidence, the benefit is all about risk, and there is little benefit when it comes to the portfolio’s returns, particularly after factoring costs and taxes. My recommendation would be to make strategic rather than regular or systematic trades over the course of several years, as Dan and I try to do in the Model Portfolios . I have to quote JackBogle once again. As he has concluded, “Rebalancing is a personal choice, not a choice that statis- tics can validate.” Eloquently put, something Dan’s been saying for a very long time, and something that Vanguard itself should take to heart. n

outperforming month after month, you’re probably not going to want to sell it to invest the proceeds in a fund that’s been losing you money. But the stan- dard theory of rebalancing requires that you do exactly that, and not just once, but over and over and over. As former Vanguard Chairman Jack Brennan once said, “If you are going to rebalance, you have to be absolutely clinical, or you are better off not doing it.” Amen to that. Of course you could take the more laid-back route and rarely rebalance— if at all—so long as you have a toler- ance for the increased volatility that is part of an un-rebalanced portfolio. And when you figure the tax bill on fre- quent trades, your freewheeling strat- egy could come out substantially ahead. As the data shows, going with the flow isn’t that bad of an idea. CheckingYourTarget Several more things to consider: If you do choose to rebalance on a set schedule, is your target allocation still appropriate—do you still have the same investment goals as when you first started using a rebalancing approach? Just because you picked a certain allo- cation at one point doesn’t mean that it suits your purposes now. >

The Ultimate Fund Guide

WITHOUT TURNING ON A COMPUTER, without even looking up a telephone number, you can have at your fingertips all the data on your favorite Vanguard funds—with the new FFSA 2016 Independent Guide to the Vanguard Funds . This year, we have more data than ever, including our proprietary risk and return statistics like rolling returns and Maximum Cumulative Loss (MCL), plus our take on new funds Vanguard plans to launch, such as Core Bond, Emerging Markets Bond, International Dividend Appreciation Index and International High Dividend Yield Index . Even with our huge computer files and access to fund managers, my co-editor Jeff DeMaso and I still find ourselves thumbing through the annual guide to find that quick MCL statistic, fund correlation, or even a total return figure for 2006. My 2016 Guide is a great resource for me, and for you. Call Customer Service at 800/211-7641 for all the details on how to sign up for the guide.

DO-IT-NOW ACTION RECOMMENDATIONS 4 Our 2016 Hot Hands fund, International Explorer , has been on a roll. If you are follow- ing the strategy, buy it. Jeff and I are weighing our options but are sticking with longtime holding International Growth for now. (See page 1) 4 I applaud Vanguard for trimming the manager ranks at Explorer and Morgan Growth , but there are still too many chefs stirring those pots for my money. (See page 7) 4 If you rebalance, follow your strategy to the letter. Despite what Vanguard and the press may have you believe, rebalancing isn’t a requirement for investment success. (See page 12)

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

www.adviseronline.com