(PUB) Investing 2016

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peaks, down just 0.09% to 0.22%. Half of the 60 funds are within 2% of their all-time highs. The funds that still have the most catching up to do, despite a strong 2016, are Precious Metals & Mining , which is 57.4% below its high, Energy, 26.5% below, and Emerging Markets Stock Index , off 18.6% from its prior peak. Long-term shareholders may not be smiling, but at least they’ve cut their losses a bit. Precious Metals & Mining is up 80.0% this year (though it was up 102.6% in early August). Energy’s 26.2% return is just shy of its best gain for the year, a 28.0% rise hit in early September. Emerging Markets Stock Index, up 16.0%, is less than three percentage points below its 2016 peak, also hit in early September. As we move into October, you can expect to hear the fear mongers spewing silliness over the fact that the Chinese yuan has officially been recognized as a “reserve currency” by the IMF beginning on the first of the month. No, this is not going to destroy the dollar’s position as the single strongest global currency. But given the penchants of the worst pundits for finding reasons to sell stocks and buy gold or other esoterica, this is bound to become part of the popular meme for a week or two. Keep your wits about you and drown it out—it’s nonsense. Speaking of dollars and cents, yields on municipal money market funds have caught up to their taxable siblings. In mid-September, Tax-Exempt Money Market ’s yield went ahead of Prime Money Market ’s, and at the end of the month, the muni fund’s yield was 10

When it comes to our Model Portfolios , energy and financial stocks are not the primary sectors driving returns. Dividend Growth has only 3.1% in energy stocks and 15.3% in financial stocks. Capital Opportunity has even less, with just 0.6% in energy and 3.9% in financials. The health care sector is a bigger piece of the Model Portfolios , and—let’s not beat around the bush—it’s been a tough year. Health Care , down 3.2% so far in 2016, has been the worst-performing Vanguard fund. While that’s certainly frustrating, and I feel the pain right alongside you, I know there will inevitably be peri- ods when the fund underperforms—no strategy outperforms all the time. If you find yourself questioning a position in Health Care, you should flip directly to my interview with portfolio manager Jean Hynes on page 12. Now that the third quarter has come to an end, one feature that separates it from the first two quarters of the year is new highs. The Dow Jones Industrial Average and S&P 500 both hit all-time highs for the first time this year in mid-July, and those indexes went on to hit eight and nine subse- quent highs, respectively, after that date. At the end of the quarter, the indices were within 1.0% (the S&P) to 1.8% (the Dow) of those peaks. And it wasn’t just U.S. markets (includ- ing the NASDAQ Composite, by the way) making new highs, as markets in Mexico and Russia also set new apexes in the third quarter. Among Vanguard’s 60 stock funds with Investor shares, fully 25% are within 1% of their all-time highs, with all three PRIMECAP Management- run funds the closest to their prior

Vanguard’s stable, dropping 2.3%. And the Fed had nothing to do with it. Blame Wells Fargo, whose CEO, John Stumpf, was hauled before Congress to explain how thousands of employees had com- mitted fraud, opening millions of check- ing and credit card accounts without customers’ knowledge. Another culprit is Deutsche Bank, whose shares hit a record low as the German bank negoti- ated a multi-billion settlement with the U.S. Justice Department related to mort- gage securities. I doubt there were many investors worried about these issues a month ago. The question: Is Deutsche Bank the next Lehman Bros.?Yes or no, I doubt they are about to put the global markets into a tailspin. On the other end of the spectrum, Energy had a good September, gain- ing 2.7%, and is having a great year, up 26.2%—second best among all Vanguard funds. Energy ETF gained 3.4% in September and is up 19.9% on the year. The latest boost was, obviously, the aforementioned com- mitment by OPEC to curtail produc- tion. I’m a skeptic. The exact agree- ment still needs to be worked out, and then OPEC’s members have to follow the rules—something that hasn’t hap- pened in the past. (So why now?) Even before the OPEC announcement, though, Energy’s fortunes have ben- efitted from the rising price of oil, which, after briefly falling below $30 a barrel in February, has stabilized in the $40 to $50 range. While that is well below the $100-a-barrel level of two years ago, the end to free-falling oil prices has allowed beaten-down energy stocks to rebound.

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Daniel P. Wiener - Senior Editor Jeffrey D. DeMaso - Editor/Research Director Seth H. Kennedy - Assistant Editor Amy Long - Vice President and Publisher David Clarfield - Managing Editor Rachel Johnsen - Editorial Assistant Louisa Dorado - Marketing Director Mary Southard - Marketing Director John Hall Design Group - Design and Production Fund Family Shareholder Association Member, Newsletter Publishers Association Daniel P. Wiener - Chairman James H. Lowell - President (www.FidelityInvestor.com)

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The Independent Adviser for Vanguard Investors • October 2016 • 3

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