(PUB) Vanguard Advisor

attractive complement to stocks. Stocks and bonds both have positive return expectations over time, and it’s not unusual for them to gain ground togeth- er, but bonds have consistently been a counterweight in balanced portfolios when stocks declined. n

abandon bonds, is that bonds regu- larly provided a nice offset when stocks were dropping. In fact, over this nearly 30-year period, bonds notched positive returns every single time stocks were down over a 12-month stretch. This is what makes bonds such an

stocks and bonds generated positive returns at the same time. Contrary to pop- ular belief, stocks and bonds both making gains this year isn’t out of the norm. Dogs and cats living together this is not. Another key takeaway, which can be filed as yet another reason not to

PROFITS Partnership Plan Steady

IT STILL PAYS to be a big dog at Vanguard—a lot better than investing in Vanguard’s flagship, 500 Index . Vanguard’s crew got the word as the markets closed on the afternoon of June 12: The 2013 dividend for the Vanguard Partnership Plan was $146.52, matching precisely the 12.0% increase Vanguard employees saw for 2012. Since Vanguard founder Jack Bogle created the Partnership Plan in 1984, the distributions from the plan have risen 42-fold. Compare that to an investment in flagship fund 500 Index, which is up only half as much over the same period. And no, Vanguard employees, all of whom own at least some shares in the Plan , don’t have to buy their shares—they are awarded shares for multiple reasons, including, at times as rewards for jobs well done. Of course, in exchange, Vanguard’s crew members are often paid lower salaries than they might earn elsewhere. Plus, dividends are paid out over five years, so if you leave Vanguard during that

Asset Growth Well Outpaces the Dividend...

...But Over 3 Years, the Gap Narrows a Bit

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dividend comes closer to matching the firm’s asset growth. Vanguard’s executives earn the bulk of their compensation (90% or so) from the Partnership Plan . While Vanguard no longer discloses data that allows me to estimate top executives’ compensation (even though you and I are sharehold- ers), I’ve done some calculations based on disclosures made years ago about Vanguard’s compensation to former chairmen Jack Bogle and Jack Brennan. If Jack Bogle were still Chairman today, he’d be bringing down about $15 million a year. It’s a good bet that McNabb is taking home something close to that. Now, before you think that’s outrageous, consider BlackRock’s CEO, Laurence “Larry” Fink, who pulled down a reported $22.9 million last year. So yes, Vanguard is a very, very profitable enterprise, despite its claims of being something akin to a non-profit. I don’t believe too many non-profits pay their execs compensation in the eight-figure range. >

period, you lose whatever hasn’t yet been paid to you. The Partnership Plan is Vanguard’s internal profit-sharing mechanism, designed to reward all employees, from top management to phone operators, with profits the low-cost fund provider generates each year. Based on a rolling three-year period, and in large measure focused on assets under management rather than fund performance and fac- toring in the “cost savings” compared to industry averages, the Partnership Plan pays out many millions of dollars a year to Vanguard’s top dogs, while limiting most employees to a bonus that is cal- culated using a tricky set of variables related to their job “grade” and tenure. Chairman Bill McNabb, named President in early 2008 and CEO later that same year, has seen assets under management grow about 133% over the five years since the end of 2008, while the Partnership Plan ’s dividend has grown less than half as fast, up 60%. But on a rolling three-year basis, the growth in Vanguard’s Partnership Plan

Dividend Growth Is Steady UnderMcNabb

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Partnership Plan Dividend Growth

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The Independent Adviser for Vanguard Investors • July 2014 • 15

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