(PUB) Investing 2016

year, you or they can add money for 2016 as well. Remember, the longer you or your children wait, the smaller your potential compounded earnings. Of course, with income comes taxes, and your children will need to begin filing their own tax returns. And, as I mentioned earlier, con- tributions to a Roth IRA are not made pre-tax, as they would be on a tradi- tional IRA. Also, be aware that if you do help your child by contributing on their behalf, the total amount put into the IRA cannot exceed their total earnings in any given tax year. (This will be more of a concern for the youngest investors.) In any case, helping to put your teen- age child or grandchild on the road to a more comfortable retirement may truly be one of the best gifts you can make, and it will be one that keeps on giving year after year. n

together, its one saving grace is that low, low minimum. My preference, however, would be to go directly to one of the PRIMECAP Odyssey funds, where the IRA minimums are also just $1,000 (POAGX, my favorite for kids, is now closed, so go for POGRX). Or, if you have a personal represen- tative at Vanguard, see if they’ll waive the minimum on Dividend Growth for your child or grandchild. Obviously you won’t be making regular contributions to the IRA, since its deposits are contin- gent on the child’s income stream, but if Vanguard’s smart, your request will be seen as a way to grab a potential long- term client at an early age. Finally, don’t procrastinate. If your child or grandchild (or young friend) earned some income last year, you have until April 15 to fund an IRA for 2015, and then if they earn some money this

Let them have their hard-earned money, but open a Roth IRA in your child or grandchild’s name and add the money yourself. Remember, the child may earn $1,000, but with taxes taken out, they will not bring it all home. That doesn’t keep you from putting a full $1,000 into a Roth for them. Maybe you can’t afford to add the full amount. Consider making a deal with your teen to match a portion of their earnings that they add to the Roth as well. If the teen contributes $250, maybe you’ll contribute $500. Grandparents, obviously, can get into this act. Finally, there’s the issue of the many $3,000 minimums at Vanguard. First off, you could start the youngster in a STAR account for just $1,000. While I’m not a huge fan of STAR because of the amalgam of funds it cobbles DON KILBRIDE just celebrated 10 years on Dividend Growth . Shareholders ought to throw him a party. The 51-year-old Wellington Management partner has generated stellar returns, beating the stock market while taking on less risk, and he’s consistently out- performed his index bogey. Who says active management doesn’t work? Since taking the helm of Dividend Growth in February 2006, Kilbride has steered the fund through both bull and bear markets. I always like to see how a manager performs over a full market cycle, and Kilbride has had a good one during which to demonstrate his skills. Take a look at the relative performance chart comparing Dividend Growth to 500 Index in the middle column. You can see that the slowly rising line early in his 10-year tenure turned into a huge spurt of outperformance during the financial crisis, when Dividend Growth outperformed 500 Index by a full 13 percentage points over the 16 months from November 2007 through February 2009. In a period when stocks were los-

ACTIVE MANAGEMENT Dividend Growth’s Decade

Dividend Growth Under Kilbride

Kilbride Against the Index

0.95 1.00 1.05 1.10 1.15 1.20 1.25 1.30

1.25

Rising line = Dividend Growth outperforms 500 Index

Rising line = Dividend Growth outperforms Dividend Appreciation Index

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a toss-up; Kilbride might outperform, or he might underperform. But as the full 10 years comes into focus, you can see he’s more than earned his shareholders’ respect with a gain from January 2006 through January 2016 of 122.9% versus 500 Index’s 85.3% return—a 44% beat! Of course, Kilbride isn’t buying the largest 500 stocks in the U.S. market and weighting them according to their market capitalization. He’s selective- ly choosing companies where he >

ing money big-time, dropping 38.0% versus 51.0%might not seem like a win, but it meant that Kilbride had to gener- ate a 61.3% return to recover his losses, while investors in 500 Index needed to more than double their money, gaining 104.1% to get even. Also notice that in the immediate aftermath of the market bottom, when stocks soared, 500 Index outpaced Dividend Growth for a period of about two years. Over short time spans, it was

The Independent Adviser for Vanguard Investors • March 2016 • 15

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