(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

MAY 2014

Model Portfolios................................................................ 2 Managing Tax-Managed Funds.......................................... 4 U.S. Growth Emerging?.................................................... 4 Fool’s Gold........................................................................ 5 Selected Value Bulks Up................................................... 6 Smooth Sailing?................................................................ 7 Performance Review.................................................... 8-11 Windsor II Slims Down................................................... 15

PIN 7638

End of Days? WHETHERYOU BELIEVE the versions of the end of days that essentially see the second coming of all manner of gods or messiahs, or the other versions, which posit that decay, redemption and rebirth are what’s in store, the seemingly endless fascination with an end-of-days scenario for the bull market just can’t seem to gain traction—though it’s not for lack of trying. Every day stocks fall, investors are greeted with headlines warning that this is the correction. The false prophets of Wall Street foresee a terrible time ahead, with stocks falling at least 10%, inflation (or deflation—take your pick) coming down upon the consumer from on high, and a “rigged” market bringing famine and destruction upon all who attempt to profit from it. Enough already! The fact is that a 10% market decline is more common than you think. If at any time over the past 30 years a Martian had landed on earth and compared the current level of the S&P 500 index to its most recent high, there is a one-in-three chance that the alien would have found the market 10% or more below that high. And on just under half (48.4%, to be precise) of the more than 8,000 trading days over the past three decades, the S&P 500 index was 5% or more below its most recent high. So let me say it again: Market declines are a part of the fabric of our daily investment lives. And, as if the handwringing over a market stepback weren’t enough, investors were handed yet another reason to avoid stocks when Michael Lewis, author of Moneyball and The Big Short , called the stock market “rigged” against investors in a 60 Minutes interview. Lewis was on the program to promote his new book, Flash Boys , which tells a fast-paced tale of high-frequency trading (HFT or speed trading) and its impact on today’s markets.

AVERAGEVANGUARD INVESTOR* April: 0.5% YTD: 2.5%

-3.0% -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 April Close: 16580.84

14000 14900 15800 16700 17600

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STANDARD & POOR’S 500 April Close: 1883.95

1500 1600 1700 1800 1900 2000

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NASDAQ COMPOSITE April Close: 4114.56

3000 3300 3600 3900 4200 4500

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TAX EFFICIENCY Exceedingly Efficient

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3-MO.TREASURY BILLYIELD April Close: 0.02%

WITH THE APRIL 15 TAX DEADLINE now behind us, I can fully appreciate the desire to minimize one’s tax bill. However, the goal of investing isn’t to avoid taxes, but to maxi- mize wealth after paying taxes. Keeping an eye on taxes certainly should be a part of your investment strategy, but it’s not the whole story. For the past three and five years, most of Vanguard’s funds have been quite good at shielding most of their shareholders’ returns from the tax man. This was largely thanks to big tax losses recorded during the bear market. However, those tax losses are now ancient history, and taxable gains are building in Vanguard’s funds. In a nutshell, U.S. Growth was the single most tax-efficient fund over the past three years, as the portfolio managers took advantage of millions in realized losses. In fact,

0.00% 0.02% 0.04% 0.06% 0.08%

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10-YR.TREASURY NOTE YIELD April Close: 2.65%

2.0% 2.3% 2.6% 2.9% 3.2%

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SEE EFFICIENCY PAGE 12

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A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 24, NO. 5 The Independent Adviser for Vanguard Investors and FFSA are completely independent of The Vanguard Group, Inc.