(PUB) Vanguard Advisor

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

S EPT EMBER 2014

Model Portfolios................................................................ 2 Performance Review.................................................... 8-11 The Investment Tipping Point.......................................... 12 Ghost in the Machine. .................................................... 14 When One Fund Acts Like Another................................ 14 Vanguard Speak.............................................................. 15 Quarterly Payouts............................................................ 15 Dan’s Do-It-Now Action Recommendations.................... 16

PIN: SEE PAGE 16

Turbulent Times THE WORLD’S A MESS. Russia has now, with no uncertainty, invaded Ukraine; the long- simmering issues in the Middle East are being fanned into a roaring fire by ISIS; the Ebola virus is becoming a larger health issue in Africa than was originally thought; and Europe seems on the verge of deflation if not outright recession. We are not immune. From aerial tiffs with the Chinese to cyber attacks emanating from who-knows-where, and the broader issue of our presumed role as the cop on the global beat and how we respond to that, we can’t exactly erect barriers to insulate our- selves from conflicts seemingly far from our shores. So maybe it isn’t so surprising that new highs posted by U.S. stocks reflect a continu- ously strengthening economy at home, while our bond market suggests that investors here remain nervous (money keeps pouring into bond funds) and overseas investors see us as both a safe haven and, yes, even an island of relative value. In Germany, for instance, the yield on the 10-year bund has fallen below 0.90%, making our 10-year’s 2.34% yield look positively wunderbar. Let the naysayers and bears keep growling. Last month, I told you that I thought all the chatter about the stock market’s imminent demise, having fallen a few percentage points from its mid-July peak, was a bunch of hooey. Well, the S&P 500 index hit multi- ple new highs in August, while at the same time, more and more economic data confirms that the U.S. economy is growing nicely, with corporate profits also moving higher. Total Stock Market gained 4.2% for the month, while Total International Stock and Total Bond Market both added 1.1%.

AVERAGEVANGUARD INVESTOR* August: 2.6% YTD: 7.4%

-2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0%

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*See the footnotes on page 2.

DOW JONES INDUSTRIALS August Close: 17098.45

14600 15200 15800 16400 17000 17600

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STANDARD & POOR’S 500 August Close: 2003.37

1650 1750 1850 1950 2050

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NASDAQ COMPOSITE August Close: 4580.27

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3600 3900 4200 4500 4800

FUNDS FOCUS > MONEY MARKET FUNDS Zero Yield, But Still Valuable

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3-MO.TREASURY BILLYIELD August Close: 0.02%

INVESTORS HAVE TWO COMMON, YET OPPOSING SAYINGS about cash: “Cash is trash,” and “Cash is king.” Well, which one is it? Neither, actually. In my view, cash is a cornerstone of any investment portfolio and a vital money management tool, but it is not a long-term investment itself. For most fund investors, the equivalent to cash is a money market fund. If all goes according to plan, a money market fund’s price will sit at $1.00 as we earn a little bit of income day in and day out without reading about the fund in the headlines. (Yawn.) Unfortunately for investors, that yield has been hard to come by for some time now, and money market funds have been making headlines. Let’s start with the headlines. As I mentioned last month, the SEC recently changed some rules when it comes to money market funds—though for you and me, the changes

0.00% 0.02% 0.04% 0.06% 0.08%

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10-YR.TREASURY NOTE YIELD August Close: 2.34%

2.0% 2.3% 2.6% 2.9% 3.2%

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A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 24, NO. 9 The Independent Adviser for Vanguard Investors and FFSA are completely independent of The Vanguard Group, Inc.