(PUB) Investing 2016

U.S., smaller companies can be faster growers, and hence are a good com- ponent in a growth-oriented portfolio. When International Explorer is in a relative performance funk, this fund could be just the ticket to finding high growth rates beyond our shores. But right now I’m not pounding the table for either fund. n over the following year. Additionally, during these times, stock losses hap- pened with less frequency. As I said, the current shape of the yield curve por- tends a strong, not weak, period ahead for the stock market. Of course, there are many factors that combine to determine how stocks (and bonds) will fare over the months to come. But the yield curve is not signaling a recession today. Again, it isn’t until the yield curve inverts that we should expect to see below-average stock market returns and above-average chances for loss sometime in the future. From Brexit to terrorism, there’s no shortage of scary headlines for inves- tors to focus on. But the yield curve’s recent flattening shouldn’t be one of them. As I said, it’s a bullish, rather than a bearish, indicator. n

provided some strong competition for International Explorer, which had Vanguard’s foreign small-cap arena to itself for years. Tracking the FTSE Global Small-Cap ex-U.S. index, World ex-U.S. SmallCap Index holds more than 3,300 stocks, with nearly half its assets in companies in Japan, Canada, the U.K. and Taiwan. As is true in the > light on this scare-mongering tactic) and I crunched the numbers. For each month since 500 Index’s inception, we calculated the spread of the 10-year and 2-year Treasury yield and the return of 500 Index over the next 12 months. We then divided those months into one of three buckets based on the spread in Treasury yields: spreads less than 0% (an inverted yield curve), spreads of 0% to 1%, and spreads greater than 1%. Finally, we calculated an average return for 500 Index over the ensuing 12 months for each bucket. As you can see in the summary table on page 7, when the 10-year to 2-year Treasury spread has been between 0% and 1%, as it is today, 500 Index expe- rienced its strongest returns on average WRONG FROM PAGE 7 >

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DO-IT-NOW ACTION RECOMMENDATIONS 4 A slimmed-down International Growth looks even more attractive than it already was. Stick with this fund to gain exposure to foreign markets. (See pages 1 and 4) 4 Capital Value is going back to its roots with David Palmer as its sole manager, but I wouldn’t rush to buy the fund. (See page 4) 4 Talking heads will tell you that volatility is off the charts and a recession is around the next corner. But a look at market history tells a different tale. Stick to the facts, and your long-term investment plan. (See pages 5 and 6)

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

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