(PUB) Vanguard Advisor

with ourselves, we’ll acknowledge that far fewer than 100% of our investment decisions work out as planned. Sticking with a sector that’s out of favor is tough. I’ve regularly allocated 5% to 10% of my Model Portfolio assets to Health Care, and it has been a great and complementary component of those portfolios over time—in no small part thanks to the talented team at Wellington. (I would not be as sanguine about the health care index options.) The allocation to Vanguard’s original Health Care is one bet I’m willing to make, consistently. n 96% 79% 89% 96% 67% -10% 62% 90% 90% 30% 60% 91% 93% 53% 82% 95% 85% 22% 69% 89% 93% 77% 90% 97% 91% 58% 86% 95% 90% 44% 78% 96% 70% -2% 53% 87% 34% 32% 68% 85% Min Avg. Max

diversification I can live without. So can you. Hopefully, at this point, I’ve con- vinced you that sector investing isn’t easy. So maybe you are now thinking that you’ll just make a small bet. But will a 3% position in Precious Metals & Mining or REIT Index really move the needle in your portfolio? My feeling is that if you’re going to invest in a sector fund, you’d better put some meat behind it. That means a good 5% minimum and probably more like 10%. Of course, that could get pretty dicey if things go south. Remember, if we are really being honest >

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Correlations Change Over Time

Current

MSCI Consumer Discretionary MSCI Consumer Staples

MSCI Energy MSCI Financials MSCI Health Care MSCI Industrials

MSCI Information Tech

MSCI Materials

MSCI REIT

MSCI Telecom MSCI Utilities

27%

0% 45% 75%

S&P Global ex-U.S. Property

73% 37% 69% 92%

Active Funds Energy

90% 28% 60% 92%

Precious Metals & Mining

54%

7% 47% 84%

Health Care 80% 34% 72% 91% Note: Based on returns from June 1992 through Apr. 2014 (Jan. 1995 start for REITs). Sources: MSCI, S&P and Wilshire. Analysis: FFSA.

DAN’S DO-IT-NOW ACTION RECOMMENDATIONS 4 Small-cap stocks can deliver both big returns and big risks. Be prepared for a correction every year, but stick with Capital Opportunity and Selected Value . (See page 6) 4 Managed Payout has been overhauled over the past year, but I still wouldn’t invest in this mov- ing target. (See page 4) 4 The allure of sector funds is fleeting. If you are going to play sectors, you had better have a disci- plined strategy. I’m still partnering with Health Care for the long run. (See page 1)

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, helping to

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.

oversee $2.7 billion in assets. Jeff graduated magna cum laude from Tufts University with a B.A. in economics in 2006, 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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