(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 Special Distributions......................................................... 3 More Options for Income................................................. 5 “Best Of” Lists................................................................. 5 More of a Return of, Rather Than a Return onYour Money...6 Funds Focus: Variable Annuities........................................ 7 Performance Review.................................................... 8-11 Do-It-Now Action Recommendations............................. 16 APR I L 2016

Meme Change THE COMMON “WISDOM” OF 2016 has been that the economy is headed for recession, the bull market in stocks is ready for a tumble, oil will remain under $30 per barrel, wages are stagnant, the dollar will stay strong and the Fed will be making multiple inter- est-rate hikes before Christmas. At least, those were the memes before mid-February. Since then, many pundits have reversed course, as stocks have rebounded to within 3.5% of their all-time highs, oil has pushed into the $40 range, gold has bounced, and our slow-growth, not no-growth econ- omy has continued to move ahead. One area of the market that hasn’t sprung back is health care. Not only are Health Care and Health Care ETF off 8.8% and 6.9%, respectively, for the year, but Capital Opportunity , with its heavy allocation to the sector, is down 3.2%. I smell opportunity. Re-read last month’s issue for a deeper dive into the health care sector, and keep in mind that we’ve seen this movie before. Just think back to the early worries about Obamacare. From January 2009 through February 2011, Health Care rose 34.3%. Not bad, you think. But Total Stock Market gained 59.5% over the same period. I can still remember the questions about why I was such a fan—didn’t I know that Obamacare was going to strip profits and ruin the industry? Think again. From February 2011 through the end of 2015, Health Care gained 154.2%, more than double the 66.7% return from Total Stock Market. Maybe this is another of those periods? Health Care’s been trailing since August. Its relative performance could get worse before it gets better—but it will get better. If you’ve got some spare cash, that’s where I’d invest it. Or take a more

AVERAGEVANGUARD INVESTOR* March: 5.1% YTD: 1.0%

-6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0%

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*See the footnotes on page 2.

DOW JONES INDUSTRIALS March Close: 17685.09

15900 16400 16900 17400 17900 18400

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STANDARD & POOR’S 500 March Close: 2059.74

1850 1900 1950 2000 2050 2100 2150

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NASDAQ COMPOSITE March Close: 4869.85

4300 4550 4800 5050 5300

SEE MEME PAGE 3 >

EXPENSES When Costs Go Up, Not Down

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3-MO.TREASURY BILLYIELD March Close: 0.19%

YOU’VE PROBABLY NOTICED that Vanguard has been working pretty hard of late to promote the fact that the expense ratios on many of its funds have been going down. Low costs are Vanguard’s calling card. But what if I told you that a lot of Vanguard funds saw their expense ratios go up, rather than down, over the past six months? Unfortunately, expense ratios, like perfor- mance figures, can be manipulated, as they depend on the time periods you look at. With the release of their December 2015 annual reports, fully 52 Vanguard funds (counting separate Investor, Admiral, ETF and Institutional share classes) saw their expenses rise rather than fall over the past six months. The largest increase was a 33% jump in the expense ratio for Intermediate-Term Bond Index ’s Institutional Plus shares.

0.00% 0.08% 0.16% 0.24% 0.32%

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10-YR.TREASURY NOTE YIELD March Close: 1.79%

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

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SEE COSTS PAGE 4

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A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 26, NO. 4 The Independent Adviser for Vanguard Investors and FFSA are completely independent of The Vanguard Group, Inc.