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A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 25, NO. 1
Red Scare
WHETHER IT WAS THE NORTH KOREAN HACK
of Sony Pictures, the rebuilding of
bridges with Cuba, or Russia’s plunging ruble and rising rhetoric, not to mention large
losses in the oil markets, red was the color of the month. Plus, early on, it appeared that
despite a stellar 2014, the U.S. stock market might actually end the year on a negative
note. After hitting a high on the fifth, the S&P 500 index dropped 4.9% in seven days—
hardly a panic, but definitely a reversal of fortunes.
Fed Chair Janet Yellen came to the rescue, though, and her early holiday present of
a commitment to keep interest rates low well into 2015 spurred some of the strongest
buying Wall Street has seen in years. When all was said and done,
Total Stock Market
lost a fraction for the month and was up 12.4% for the year.
Total Bond Market
gained
5.8% for 2014, and with foreign stocks under pressure from slowing economies and a
strengthening dollar,
Total International Stock
lost 4.2%.
It was an active month for Vanguard on many fronts. You may recall that in the Nov.
26
Hotline
, Jeff mentioned a seeming contradiction in Vanguard’s website announcement
of its new
Ultra-Short-Term Bond
fund, noting that while Vanguard took pains to say it
isn’t a money market substitute, the informational article it posted on its website initially
led off by saying that investors who’d like to “earn a better return than the near-zero yield
of a money market fund without losing the ability to access your money” as with a cer-
tificate of deposit, should consider Ultra-Short-Term Bond. To me that sounded a lot like
they were making a case for it as a money-fund substitute.
The Independent Adviser for Vanguard Investors
and FFSA are completely independent of The Vanguard Group, Inc.
OUTLOOK 2015
Past Isn’t Always Prologue
HUMANS: LET’S FACE IT, WE ARE NOT PERFECT.
The economic textbooks and theory
pretend that we are flawlessly rational, information-crunching robots that are out to max-
imize our own personal wellbeing at every turn. But in reality, we are emotional. And we
are often unable to keep up with the fire hose of information that comes our way through
newspapers, radio, television and the Internet. A growing and highly entertaining collec-
tion of books have captured the myriad biases we all have (to varying degrees) that cause
us to make regrettable decisions. (For the curious, Dan Ariely’s
Predictably Irrational
,
Daniel Kahneman’s
Thinking, Fast and Slow
and Robert Cialdini’s
Influence
are just a
few of mine and Jeff’s favorites.)
The bias that I believe investors can be most prone to, and which we’ll all need to be
most conscious of as we enter 2015, is “recency bias”—the tendency to extrapolate the
DOW JONES INDUSTRIALS
December Close:
17823.07
STANDARD & POOR’S 500
December Close:
2058.90
3900
4150
4400
4650
4900
D NOS AJ JMAM F J
NASDAQ COMPOSITE
December Close:
4736.05
0.00%
0.02%
0.04%
0.06%
0.08%
D NOS AJ JMAM F J
3-MO.TREASURY BILLYIELD
December Close:
0.04%
2.0%
2.3%
2.6%
2.9%
3.2%
D NOS AJ JMAM F J
10-YR.TREASURY NOTE YIELD
December Close:
2.17%
15600
16275
16950
17625
18300
D NOS AJ JMAM F J
1750
1850
1950
2050
2150
D NOS AJ JMAM F J
AVERAGEVANGUARD INVESTOR*
December:
-0.5%
YTD:
8.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
DNOSAJ JMAMF J
*See the footnotes on page 2.
Model Portfolios................................................................ 2
2014 Report Card.............................................................. 5
2014 Year in Review.......................................................... 6
Performance Review.................................................... 8-11
A Collective Shudder. ..................................................... 12
Contribute Sooner, Retire Earlier.................................... 14
Buy at the Worst, Sell at the Best.................................. 15
Dan’s Do-It-Now Action Recommendations.................... 16
JANUARY 2015
SEE
RED
PAGE 3
>
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
>
SEE
OUTLOOK
PAGE 4