(PUB) Vanguard Advisor

12.9% this year, but it remains more than 57% below the high established in May 2008. While investor sentiment for some of these volatile sectors has waned and waxed, the steady-Eddies in our Model Portfolios are generating a much more comfortable ride for you and me. Halfway through the year, we’ve earned returns ranging from 6.2% to 6.9%, compared to Total Stock Market ’s 6.9% gain, and as you’ll see on page 2, the long-term numbers and risk we’ve experienced put straight indexing strat- egies to shame. Am I concerned that International Growth , up just 2.3%, is lagging Total International Stock ’s 5.8% gain? Not at all—six months do not make a performance record for long-term investors like us. Ditto Dividend Growth , which may be up just 4.6% but is still ahead of its index- fund sibling Dividend Appreciation Index ’s 4.5% return. As I look ahead, rather than in that rearview mirror, I see more signs of a slow-growth, not no-growth economy that should provide us with further profits as the year progresses. Are there potholes in the road ahead? I’m betting on it. That’s why you and I keep our wits about us and a few bond funds in our portfolios, from Short-Term Investment-Grade and Intermediate- Term Investment-Grade , up 1.7% and 4.5%, respectively, to High-Yield Corporate , up 5.0%. Their income yields act like shock absorbers when the road gets rough, yet the cost of their insurance is not prohibitive. We may not be livin’ easy, but I’d say our intelli- gent diversification means we’re living easier as the markets and world events churn around us. n

SUMMERTIME FROM PAGE 1 >

Recovery Is Simply Taking Longer

year. On the other hand, as Jeff and I will show you on page 13, you have to take Treasury yields in the context of the global markets. While the stock bull market is now more than five years old, I don’t think it’s over by any means. For some time, I’ve been saying that this has been an abnormally slow grind of an economic recovery and expansion. I talked a bit about this in the June 12 Hotline , but let me repeat that what we are experi- encing is a very drawn-out expansion. Labor markets have now recovered all of the jobs lost in the recession, and the unemployment rate has inched down to 6.3%; the housing market is growing again; the leading economic index is still well below its prior high but head- ing in the right direction; and overall economic growth is, well, stuttering forward. The latest report showing that GDP contracted by 2.9% in the first quarter is clear evidence that it’s not all smooth sailing, but remember that what happened primarily during the bitterly cold months of January and February is well in the rearview mirror, and more current indicators show that the econ- omy was merely stalled, not stymied. The fact that many investors are still anxious about the stock market gives me some measure of comfort. I haven’t had a New York cabbie talk to me about stocks in a long, long time. The recent outperformance of utilities and REITs ( Utilities Index is up 17.9% and REIT Index is up 17.6% year to date) is another sign that investors are focused on yield, and what those seg- ments of the markets can do for them now, as opposed to what others can do

120

Leading Economic Index Period of Recovery

100

80

60

40

20

0

5/60

5/66

5/72

5/78

5/84

5/90

5/96

5/02

5/08

5/14

for them long-term. Short memories are an investor’s Achilles’ heel. Last year REIT Index was up just 2.3% compared to a stock market up more than 30%, and during the last market downturn, it cratered 68.3%. That’s a ton of risk to be taking for a step up in current income. One thing we haven’t seen so far this year is an adverse market reaction to the seemingly daily onslaught of dev- astating news from the Middle East and further afield. Whether it’s the “ISIS crisis” or the continued game of politi- cal and humanitarian chess in Ukraine and Africa, stock and bond market investors seem to have taken the turmoil in stride. Oil prices have moved higher by about 10%, but that’s not a panic, and after hitting a high of almost $107 per barrel, the price has actually fallen a bit closer to $105 lately. Energy , down 6.8% for the year in early February, is now up 14.2%. If you’re looking for volatility, you can find it there, or say, in Emerging Markets Stock Index , which was down 9.0% earlier this year and is now showing a gain of 6.9%. Precious Metals & Mining may be up

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The Independent Adviser for Vanguard Investors • July 2014 • 3

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