(PUB) Investing 2016

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 Oil and Stocks in Sync—Not!............................................ 5 A Cold, Not Life-Threatening............................................. 6 Performance Review.................................................... 8-11 Making an Early Retirement........................................... 12 Distributions to Come..................................................... 13 Dividend Growth’s Decade.............................................. 15 Do-It-Now Action Recommendations............................. 16 MARCH 2016

Dislocation Strategy AFTER JANUARY’S DECLINE, February continued to grind investors down—for a while anyways. By month’s end, the Dow squeaked out a 0.3% gain, while the S&P index dropped 0.4%. Total Stock Market Index , which had been down as much as 11.3% for the year, ended the month off 5.7%, cutting that loss in half. Now, here’s a question: Did you take advantage of the opportunities afforded by this manic market? Did you trim from some of your best performers and add to the laggards? If you’re like most investors, you didn’t, because, well, it’s hard to sell your winners and buy your losers. But trades like that are exactly what long-term investors do when the markets hand them a gimme. For instance, just two weeks into the month, Capital Opportunity was down 15.6% on the year. By comparison, Dividend Growth had fallen just 6.6%. From February 11, when the aforementioned funds were scraping bottom, through the end of the month, Capital Opportunity rebounded 8.6%, while Dividend Growth gained 4.3%. Having trimmed some of the latter to buy some of the former (or just plowing more money into the bigger loser) may turn out to have been a great move. I spoke about just this situation with Barron’s last week. While the article is behind a paywall, you can see my video interview here: http://bit.ly/1ncQ5qg. Personally, I was adding significantly to my PRIMECAP Management-run funds, which accomplishes the same thing. And I think that move is going to pay off. The issue, of course, as Jeff so neatly explained last month in his rebalancing discussion, is that investors often don’t do what’s best for their long-term financial health, because they

AVERAGEVANGUARD INVESTOR* February: -0.2% YTD: -3.7%

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

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*See the footnotes on page 2.

DOW JONES INDUSTRIALS February Close: 16516.50

15900 16400 16900 17400 17900 18400

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STANDARD & POOR’S 500 February Close: 1932.23

1850 1900 1950 2000 2050 2100 2150

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NASDAQ COMPOSITE February Close: 4557.95

4300 4550 4800 5050 5300

SEE DISLOCATION PAGE 3 >

HIGH YIELD High Yield: Opportunity or Trap?

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3-MO.TREASURY BILLYIELD February Close: 0.31%

GIVEN THE LETTERS I’ve read lately, I’m not at all surprised that some investors have begun to believe that a holding in junk bonds, like those owned by High-Yield Corporate , is a fool’s errand. The junk bond market is under pressure as a host of smaller energy companies (like those in the shale industry) are teetering on the brink of default. In particular, FFSA members have asked whether we should continue to hold onto High- Yield Corporate in our Conservative Growth Model Portfolio and Income Model Portfolio . Jeff and I posted some data on high yield to our members-only website at the start of February. Now, we want to update that data further. First, to reiterate, our view hasn’t changed. The answer to the question of whether we should continue to hold and even buy more of High-Yield Corporate is yes.

0.00% 0.08% 0.16% 0.24% 0.32%

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10-YR.TREASURY NOTE YIELD February Close: 1.74%

1.6% 1.8% 2.0% 2.2% 2.4% 2.6%

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SEE HIGHYIELD PAGE 4

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A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 26, NO. 3 The Independent Adviser for Vanguard Investors and FFSA are completely independent of The Vanguard Group, Inc.