(PUB) Vanguard Advisor

The Independent Adviser for Vanguard Investors

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April 2014

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15

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will probably be the areawherewewill create themostwealth, in terms

of stock performance and in terms of total return.

When you say “we,” is that the fund, or ingeneral, thehealth

care sector in themarket?

I’d say for sure the fund, and I think you couldextend that out, but I’m

just going to speak for the fund. I think—and I’mnot saying thiswith

blinders on—that thehealth care sector fitswhatwedo sowell, and I do

think thedemographic tailwindbehindhealth careand the science that’s

emergingandall of that you readabout every day…I do think that is

going toplant the seeds for really powerfulwealth creation.Wewant to

beexposed to that.

Thehealth teamhas for a long timehadabigposition in

UnitedHealth, and youhaveabigposition inUnitedHealth.When

I see that stock, I think somebodyhasgot tobedeeplyknowl-

edgeableabout theAffordableCareAct.

I agree. I think,when this isall saidanddone,what thegovernment

will conclude is thatweneed theunparalleledexpertiseof a company like

this. Theothermanaged care companies, but specifically this companyand

everything it hasbecomeover the last five years—not only in termsof its

benefitsbusiness,which isenormous, butOptum,which is its servicebusi-

ness—will grow in importanceexponentially. I agree100%with youon

that, and that’soneof those themes that I’m thinkingabout inhealth care:

Which companiesaregoing tomanage the infrastructureof theACA?And

nobodywill bebetter positioned for that and forwhat I thinkhealth care is

going to look likeover thenext 25 years than this company.

Don,who is your number two?Whopulls the triggerwhen you

areon vacation?

When I’m on vacation, any trigger-pulling is ultimatelyme. I never

really go completely on vacation, so anytimewe are going to do anything

with the portfolio, itwon’t be donewithoutme knowing about it. Butwe

do have people on the team—one person in particularwhoworks very,

very closelywithme is Peter Fisher.

I’m not sure I’d call him a hit-by-the-bus guy, but if that happened he

would certainly be in a position tomanage the portfolio very effectively.

So he is the guy that I lean on quite heavily every day. But, like I said,

100% of the decisions continue to bemade byme. 100% of the responsi-

bility ismine. And that’s theway it’s going to be for a long time. Nobody

else is going to bemaking decisions exceptme—for better orworse.

You’vehit $20billion inassets. Do youhaveanykindof capacity

constraint that youare thinkingof?

Iwouldmeasure the riskof capacitysimplybyhowhard it is forme todo

what I amdoing. So, if I have things Iwant todo in theportfolioand I can’t

do thembecauseof thesizeof theportfolio, thatwouldsignal tome that I

haveacapacityproblem. I don’t see that at all. So, I still feel prettygood.

Thanks, Don. Asalways, it’sbeenan insightful conversation.

yourself. Remember, the child may

earn $1,000, but with taxes taken out,

they will not bring it all home. That

doesn’t keep you from putting a full

$1,000 into aRoth for them.

Maybeyoucan’t afford toadd the full

amount. Consider making a deal with

your teen to match a portion of their

earnings that they add to the Roth as

well. If the teencontributes$250,maybe

you’ll contribute $500. Grandparents,

obviously, canget into this act.

Finally, there’s the issue of themany

$3,000 minimums at Vanguard. First

off, you could start the youngster in a

STAR

account for just $1,000. While

I’m not a huge fan of STAR because

of the amalgam of funds it cobbles

together, its one saving grace is that

low, low minimum. My preference,

however, would be to go directly to

one of the

PRIMECAP Odyssey

funds

(POAGX, my favorite for kids, is now

closed, so go for POGRX), where the

IRAminimums are just $1,000.

Or, if you have a personal represen-

tative at Vanguard, see if they’ll waive

the minimum on

Selected Value

or

Dividend Growth

for your child or

grandchild. Obviously you won’t be

making regular contributions to the

IRA, since its deposits are contingent

on the child’s income stream, but if

Vanguard’s smart, they’ll see this as a

way tograb a potential long-term client

at an early age.

Remember, the longer you or your

childrenwait, the smaller your potential

compounded earnings. Of course, with

income comes taxes, and your children

will need to begin filing their own tax

returns. And, as I mentioned earlier,

contributions to a Roth IRA are not

madepre-tax, as theywouldbeona tra-

ditional IRA.Also, be aware that if you

do help your child by contributing on

their behalf, the total amount put into

the IRA cannot exceed their total earn-

ings in any given tax year. (This will

be more of a concern for the youngest

investors.)

Inanycase, helping toput your teen-

age child or grandchild on the road to a

more comfortable retirement may truly

be one of the best gifts you can make,

and it will be one that keeps on giving

year after year.

n

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