(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 A muni bond fund like Intermediate-Term Tax-Exempt balances risk and returns while
keeping your tax bill low. Just don’t forget your aim is to maximize after-tax returns.
(See page 1)
4 Don Kilbride remains committed to his game plan at Dividend Growth . You should, too.
(See page 4)
4 The media is ringing the alarm (again) about bonds, but as I’ve been saying all along, there is
still an important role for bonds in your diversified portfolio. (See page 15)
Corporate. That may sound like a
lot, but at the end of 2008, after los-
ing 21.3%, the fund still had just shy
of $7 billion in assets. So that $100
million represented less than 1.5% of
the fund’s assets even after the worst
year since its 1978 inception. In other
words, 98.5% of the fund’s assets did
not go anywhere.
Let’s take another example identi-
fied in the Journal article: Short-Term
Investment-Grade. Investors pulled
$1.1 billion from this corporate bond
fund as it experienced its worst decline
on record—a loss of 4.7%—in 2008.
Again, it sounds like a lot of money,
but with nearly $18 billion in assets at
the end of 2008, the fact is that about
94% of the fund’s assets stayed put.
Investors were hardly stampeding for
greener pastures.
Looking at the six Vanguard funds
on the list, you can see in the table
that half of them actually took in new
money in 2008, rather than losing it.
And Short-Term Investment-Grade’s
outflows were the worst of the lot.
Liquidity Problems
It’s worth remembering that many
news articles of late, with the Journal’s
being only the most recent, seem to
wax rather nostalgic for what could
only be thought of as the “good old
days,” when bond brokers and deal-
ers supposedly provided great quan-
tities of liquidity for those wishing
to sell bonds. This notion of broker-
dealer market support is a bit of a
fallacy, because in times of crisis (and
you need only look to the bond mar-
ket lockup of 2008), all manner of
high-quality corporate bonds virtually
stopped trading. These “market mak-
ers” were nowhere to be found. And
yet, as noted, Vanguard’s investors
stayed put and didn’t panic.
Yes, investors do tend to move in
herds, and many could stand to improve
their behavior a bit. But investor behav-
ior isn’t as bad as the press makes it out
to be—at least not when it comes to
Vanguard’s investors.
And one final note. For all the sell-
ing that’s being done, it’s worth remem-
bering that there’s a buyer on the other
side of every sale. Yes, the seller may
be a more willing seller than the buyer
is a willing purchaser, and hence prices
go down. But that’s what makes mar-
kets. It doesn’t, however, mean the end
for your bond fund investments. n
>
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