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A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 25, NO. 10
It Isn’t a Loss Unless You Sell
ALL BEAR MARKETS
are preceded by 10% to 15% corrections. But most 10% to 15%
corrections do not lead to bear markets. While the markets’ daily fluctuations may have
you thinking you’re losing money, the fact is if you’re a long-term investor like me,
you’re still sitting on some pretty significant gains even after this recent retrenchment.
Despite a bit of a rally on September 30, the month ended with stock markets around
the globe lower than where they started. Very few of the major stock markets are in
positive territory for 2015, and emerging markets have taken it on the chin.
Emerging
Markets Stock Index
, with a 3.2% fall this past month, is off 15.2% for the year, put-
ting it in league with
Energy
(down 21.0%) and
Precious Metals & Mining
(down
25.2%) as the worst performers among Vanguard’s mutual funds. By contrast,
Total
Stock Market
is off 5.6% for the year, and
Total International Stock
is down 6.9%.
Total Bond Market
has managed a 0.9% gain.
Last month, we talked about the increased volatility in the stock market, the unremit-
ting and to some extent unreasonable focus on China, and the fact that a 10% to 15%
stock market correction was entirely within the realm of the possible and well overdue.
The Dow and S&P indexes were actually lower in August, and ended September down
11.1% and 9.9% from their May highs. That’s hardly harrowing.
It’s been a while since we’ve seen paper losses in our portfolios like those suffered
over the past few months, and the fact that the calendar quarter has just ended means
there’ll be an inordinate focus on the past few months’ returns. Actually, what we’ve
The Independent Adviser for Vanguard Investors
and FFSA are completely independent of The Vanguard Group, Inc.
FUNDS FOCUS
> TAX-FREE FUNDS
Tax-Free Income: Good, Not Always Best
OUR CONVERSATION ABOUT BONDS
has now spanned many months, but there’s one
topic still left on the table, and it’s a big one: Taxes. Taxes are a cost—reducing the
amount of income and gains you and I keep at the end of the day—and as with all costs,
keeping them low is just good practice. Tax-exempt bond funds are a useful tool for
reducing your tax bill, and Vanguard’s muni bond team, which manages every single one
of the firm’s tax-exempt bond offerings, is top-notch.
All of this being said, I don’t want you to focus only on minimizing your tax bill
when the real aim is to maximize your after-tax returns. They are not always the same
thing. I’ll explain, but let’s start at the beginning.
Just like the U.S. government and businesses, which issue bonds for a wide range of
purposes, states and local governments (cities and towns) have their own funding needs for
DOW JONES INDUSTRIALS
September Close:
16284.70
STANDARD & POOR’S 500
September Close:
1920.03
4200
4500
4800
5100
5400
SA J JMAM F JD NO
NASDAQ COMPOSITE
September Close:
4620.16
0.00%
0.02%
0.04%
0.06%
0.08%
SA J JMAM F JD NO
3-MO.TREASURY BILLYIELD
September Close:
0.00%
1.6%
1.9%
2.2%
2.5%
2.8%
SA J JMAM F JD NO
10-YR.TREASURY NOTE YIELD
September Close:
2.06%
16000
16600
17200
17800
18400
SA J JMAM F JD NO
1800
1900
2000
2100
2200
SA J JMAM F JD NO
AVERAGEVANGUARD INVESTOR*
September:
-1.8%
YTD:
-3.8%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
SAJ JMAMF JDNO
*See the footnotes on page 2.
Model Portfolios................................................................ 2
Interview: Donald Kilbride................................................. 4
Performance Review.................................................... 8-11
An Actively Passive Distraction....................................... 12
Vanguard Looks Overseas for Income............................ 14
Special Distributions....................................................... 14
Liquidity and Safety. ....................................................... 15
Dan’s Do-It-Now Action Recommendations.................... 16
OCTOBER 2015
SEE
LOSS
PAGE 3
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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
FOCUS
PAGE 4