(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

Funds Focus: Foreign/Global............................................. 1 Model Portfolios................................................................ 2 Maybe Two Heads Aren’t Better Than One....................... 4 Are Stocks More Volatile?................................................. 5 Distorting MidCap Growth’s Gains.................................... 6 Recessions and Bonds—Bears Have It Wrong................. 6 Performance Review.................................................... 8-11 Dan’s Do-It-Now Action Recommendations.................... 16 AUGUST 2016

No Dividend Growth WITH JUST TWO DAYS LEFT in the month, Vanguard slammed the doors shut on Dividend Growth , a fund that you and I have owned since December 2007, when I recommended putting it into all three of the original Model Portfolios . The decision to give Don Kilbride some of our money (and more, as we added to it down the road) was a good one, as he earned us a 97.5% return from the time we bought in through the day Vanguard closed the fund. That was 8.5% better than its index cousin, Dividend Appreciation Index (which I now recommend as an alternative), and 11.9% better than the return from 500 Index . I’m disappointed that new investors won’t have access to Don’s excellence, but I’m also glad that Vanguard didn’t assign additional managers to sop up the recent flood of cash pouring in. I’m hopeful this is yet another sign, along with the firing of sev- eral managers from multimanaged funds over the past few months (see page 4), that Vanguard has finally lost some of its infatuation with the multimanager strategy that has crippled funds like Explorer , Morgan Growth and Windsor II , to name a few. Despite a coup in Turkey, terror attacks overseas and at home, and two contentious political conventions, July was a stellar month for U.S. stocks, as the Dow, S&P 500, S&P MidCap 400 and S&P SmallCap 600 indexes all hit record highs. As the month closed, these various indices had generated returns of 2.8% to 5.0% and were at or less than 1% below their records. Almost two dozen of Vanguard’s equity funds hit record highs during July and almost a dozen, including Growth Index and PRIMECAP , stood at highs as the month ended.

AVERAGEVANGUARD INVESTOR* July: 2.9% YTD: 6.4%

-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 July Close: 18432.24

15700 16300 16900 17500 18100 18700

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STANDARD & POOR’S 500 July Close: 2173.60

1820 1900 1980 2060 2140 2220

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NASDAQ COMPOSITE July Close: 5162.13

4300 4550 4800 5050 5300

SEE DIVIDEND PAGE 3 >

FUNDS FOCUS > FOREIGN/GLOBAL Casting a Wary Eye Overseas

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3-MO.TREASURY BILLYIELD July Close: 0.24%

HOW QUICKLY THINGS CAN CHANGE in just 31 days. When Dan and I wrote to you last month, traders and investors were grappling with the implications of the Brexit vote, and markets were on a stomach-churning rollercoaster ride. In the past month, I can’t say we have gained all that much clarity on the long-run implications of the pending U.K. exit from the E.U., but as the world didn’t immediately fall apart following the vote, markets around the globe found stable ground: Total Stock Market gained 4.0% in July, while European Index returned 3.8%, Pacific Index gained 5.4% and Emerging Markets Stock Index advanced 4.7%. Still, many investors remain concerned about their foreign stock holdings. I understand their reservations; although, as I wrote last month, I believe that holding some overseas

0.00% 0.08% 0.16% 0.24% 0.32%

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10-YR.TREASURY NOTE YIELD July Close: 1.46%

1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4%

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SEE FOCUS PAGE 12

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A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 26, NO. 8 The Independent Adviser for Vanguard Investors and FFSA are completely independent of The Vanguard Group, Inc.