(PUB) Investing 2015

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The Independent Adviser for Vanguard Investors • January 2015 • 15 FOR CUSTOMER SERVICE, PLEASE CALL 800-211-7641
maximum to my own 401(k) as well as
my IRA (which I converted to a Roth in
2010) every year. In fact, when I can, I
add my 401(k) money early in the year
on the assumption that markets rise more
often than they fall, hence my desire to
buy early, and at the lowest possible price.
Playing Catch-Up
As if the opportunity to save your
hard-earned dollars for retirement, tax-
deferred, wasn’t good enough news,
the fact that folks like me, age 50 and
older, can save additional dollars is an
added bonus.
For those of us past the half-century
mark, we can once again contribute an
extra $1,000 to our IRAs in 2015, for a
total of $6,500, and the numbers are even
higher for other retirement plans (see the
table on page 14). If you are over 50 or
are turning 50 in 2015, take advantage
of the option. And if you didn’t do so in
2014, you still have until April 15, 2015,
to make the most of this fantastic feature.
(In 2014, the limit was the same, $5,500
plus an additional $1,000 catch-up.)
In fact, if you don’t think you’ll have
the full amount available to contribute
for 2015 right away, make sure you take
advantage of the maximum 2014 contri-
bution limit first, before adding money
for 2015. This way you won’t lose the
option should a sudden spot of finan-
cial fortune give you additional money
which can then be contributed to your
tax-deferred account later in the year.
If you’re newly eligible for the catch-
up contributions, talk to your company’s
Human Resources or employee benefits
department about your in-house retire-
ment account and make sure that they’ll
accommodate you. While employers
are not required to allow the catch-up
contributions, most should be with the
program by now.
Regardless of your age or income
level, you should strongly consid-
er making your 2015 contributions
now, rather than later. And if you still
haven’t done all you can for 2014,
do that first. Retirement accounts are
great long-term savings and invest-
ment vehicles, and regular contribu-
tions, when properly invested in, say,
one of my Model Portfolios, will really
add up over time. n
AFTER A DECADE fraught with man-
ager turnover and miscues, it appears
that, in at least one respect, Capital
Value is on a steady course. December
marks five years since David Palmer
was added to this go-anywhere con-
trarian fund as a co-manager with
Peter Higgins. Though both work for
Wellington Management, they maintain
separate sub-portfolios and even work
from different offices—Palmer down
the road from Vanguard HQ in Radnor,
PA, and Higgins in Boston.
Yet, while the manager musical
chairs have stopped, so has the fund’s
relative outperformance. Take a look
at the chart to the right. In it I’ve
compared Capital Value’s performance
to its benchmark, the Russell 3000
Value index, as well as Total Stock
Market. You can see that from the time
Peter Higgins was brought in to replace
former manager David Fassnacht in
June 2008, the fund has definitely put
up better numbers than the index and
the index fund. Yet, because Capital
Value’s volatility proved too great for
Vanguard’s executive branch, they
brought in David Palmer in December
2009 to calm things down a bit.
And that’s when performance, or rath-
er outperformance, began to dissipate.
The fund outperformed for a while, then
underperformed for a while longer, then
outperformed again. But early in 2014,
the tide turned once more, and at the end
of 2014, the fund’s five-year annualized
gain of 13.9% was sub-par compared to
the 15.6% return for Total Stock Market
or, say, the 16.5% return for U.S. Value,
another value-oriented fund.
Now, in fairness, Capital Value
doesn’t really have a good Vanguard
fund to compare it with given its deep-
value orientation. Peter Higgins, in
particular, is an eclectic investor with
nerves of steel who is willing to tread
where others fear in search of values.
Sometimes that works wonders. Note
the fund’s whopping outperformance
between late 2008 and late 2009—a
run that forced Vanguard to close the
fund as money began to flow in by
the bucketload. Capital Value gained
81.5% in 2009 alone. Palmer’s style
is a bit more sedate but still oriented
to finding undervalued companies that
may be a bit unloved. Unfortunately,
there are many times when the fund’s
go-anywhere mandate doesn’t pay off
for shareholders.
So, depending on when you want to
start your measure of Capital Value’s
performance, you can find periods of
tremendous relative gains, and oth-
ers that aren’t so hot. Vanguard, for
instance, uses a rolling, three-year peri-
od to determine whether a manager’s
performance deserves a bonus, or a
give-back. Beginning three years after
Palmer came aboard, the two managers
have, together, been dinged a lot more
money than they’ve earned in bonuses.
When you look at rolling three-year
periods beginning in December 2012,
CONTRARIANISM
Buy at the Worst, Sell at the Best
Capital Value vs. the Indexes
10/0210/0310/0410/0510/0610/0710/0810/0910/1010/1110/1210/1310/14
rising line = fund outperforms
Freeman
retires,
Fassnacht
takes over
▼
▼
▼ Palmer
added as
co-manager
Fassnacht
out, Higgins
takes over
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
Capital Value vs. Russell 3000 Value
Capital Value vs. Total Stock Market
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