(PUB) Investing 2015

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16 • Fund Family Shareholder Association
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
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.
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. Jeff gradu-
ated magna cum laude from Tufts University
with a B.A. in economics, holds the Chartered Financial
Analyst designation and is a member of the CFA Institute and
the Boston Security Analysts Society.
DAN’S DO-IT-NOW ACTION RECOMMENDATIONS
4 The headlines are loud and messy outside of U.S. borders, but don’t shy away from foreign
stocks. In fact, this is a good time to add to International Growth. (See page 1)
4 Rising interest rates are good, not bad. The extra income they bring to your portfolio makes up
for price declines. (See page 12)
4 Jack Bogle comes on strong about disclosure, and it’s not a leap to say he thinks Vanguard’s is
sorely lacking. (See page 7)
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collapse that many headlines would
lead you to believe is fast approaching.
What really hurt bond investors in
the 1970s was inflation. Over that five-
year stretch at the end of the 1970s
when Long-Term Investment-Grade
grew at a 1.7% rate, inflation was run-
ning at a 10.4% pace. In real terms, this
was a particularly fierce bear market
for bonds. But where we stand today is
starkly different from where we were
in the 1970s. Back then, in response to
inflation’s fierce advance, the Fed was
aggressively raising interest rates from
under 5% to nearly 20% to try to tame
it. Today, just reaching the Fed’s goal
of 2% inflation is tough, and the Fed is
trying to figure out how to lift rates from
near-zero without derailing economic
growth. In order to see rates rise as dra-
matically as they did 40 years ago, our
economy and inflation are going to have
to shift into a much, much higher gear.
InvestingToday for Rising Rates
As I’ve said over and again, it is not
time to ditch your bond fund. While
you may not be comfortable seeing
losses in your bond funds over the short
term, rising rates will ultimately reward
investors who stay the course with
greater levels of income.
Plus, growth and capital apprecia-
tion aren’t the real reason to own bonds
in the first place. Bonds should pro-
vide income and stability to diversified
portfolios. A 2% yield may not look
attractive with stocks generating 10%
gains, but in a falling stock market,
even 2% looks awfully comforting.
And as we saw earlier, bonds, particu-
larly Treasurys and investment-grade
corporate bonds, have done a worthy
job offsetting falling stock prices and
have helped to manage the risk in one’s
overall portfolio. That, in a nutshell, is
why investors own bonds.
This isn’t to imply that you should
necessarily hang on to your long maturity
bonds if you’ve got them. As you can see
in my Model Portfolios, I recommend
holding bond funds that focus on bonds
with short and intermediate maturities.
Despite the current low-yield envi-
ronment, and the media’s infatuation
with rising interest rates, if you are
investing to generate income or looking
to manage your portfolio’s risk, bonds
remain a critical piece of that strategy.
Next month, after you’ve had some
time to digest what we’ve covered over
the past two months, I’ll apply all this
thinking to Vanguard’s funds and show
you more specifically where I think the
best values lie, and why. By then, you’ll
be a bond market pro. n
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