A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 24, NO. 6
Shadows and Light
ONE OF JONI MITCHELL’S BALLADS,
“Shadows and Light,” begins, “Every picture has
its shadows and it has some source of light.” A chorus responds, “Blindness and sight.”
As with so many of the economic signposts we’ve seen over the past several weeks,
there’s a little bit of darkness and a little bit of light in each. Take Friday’s consumer spend-
ing and income report, for instance. The pessimists sawApril’s spending decline of 0.1%
as a signal that the economic expansion is in trouble. The optimists noted that despite that
decline, spending actually rose on a year-over-year basis to the fastest rate in two years.
On the income side of the ledger, while April income growth was the slowest we’ve
seen this year, the year-over-year number was a pickup from the prior two months.
The same goes for inflation. Inflation hawks, who tend to see signs of an overheating
economy and loose monetary policy around every corner, probably took Friday’s report
on PCE inflation, which is the Fed’s favored metric, as proof we are about to suffer the
winds of rapidly rising prices. At 1.6% year over year, it was the highest since Nov. 2012,
and core PCE inflation, at 1.4%, was the highest since March 2013. Inflation doves aren’t
so worried about these numbers. I’m in the camp that says higher inflation is a good thing,
so long as it’s not runaway inflation, which these numbers absolutely do not suggest.
What does all this mean for the markets? Again, you can take either side of this argu-
ment. As May came to a close, Merrill Lynch’s strategists were writing that the summer
would bring further gains followed by a “nasty correction.”
Despite trying to cut my sodium intake, I take all of these prognostications and crys-
tal-ball predictions with a massive amount of salt. As I’ve often said, you can find fairly
The Independent Adviser for Vanguard Investors and FFSA are completely independent of The Vanguard Group, Inc.
FUNDS FOCUS
> SECTOR
Riding Through the Storms
PICK THE RIGHT SECTOR AT THE RIGHT TIME,
and there are some outsized returns to
be had. But focus too much of your money on the wrong sector, and all you’ll have are
regrets.
Despite its philosophy of diversification, diversification, diversification, Vanguard
gives investors plenty of ways to play the sector game. The question is, should we?
I wouldn’t categorically say you can’t make money in sector funds—you can, but let’s
get a couple of things out of the way.
First, I can’t tell you which market sector will lead the way (or fall behind) in any
given year, much less any month or quarter. Nor do I know anyone that can do this with
any consistency. Check out the crazy quilt on page 12, where I’ve plotted the returns for
DOW JONES INDUSTRIALS
May Close:
16717.17
STANDARD & POOR’S 500
May Close:
1923.57
3000
3300
3600
3900
4200
4500
MAM F JD NOS AJ J
NASDAQ COMPOSITE
May Close:
4242.62
0.00%
0.02%
0.04%
0.06%
0.08%
MAM F JD NOS AJ J
3-MO.TREASURY BILLYIELD
May Close:
0.03%
2.0%
2.3%
2.6%
2.9%
3.2%
MAM F JDNOS AJ J
10-YR.TREASURY NOTE YIELD
May Close:
2.46%
14000
14900
15800
16700
17600
MAM F JD NOS AJ J
1500
1600
1700
1800
1900
2000
MAM F JD NOS AJ J
AVERAGEVANGUARD INVESTOR*
May:
1.7%
YTD:
4.2%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
MAMF JDNOSAJ J
*See the footnotes on page 2.
Funds Focus: Sector......................................................... 1
Model Portfolios................................................................ 2
A Year of Changes............................................................. 4
Interview: Charles Plowden.............................................. 5
Beware the Bear............................................................... 6
Performance Review.................................................... 8-11
An Active Option and a Word of Caution........................ 15
Dan’s Do-It-Now Action Recommendations.................... 16
PIN
7638
JUNE 2014
SEE
SHADOWS
PAGE 3
>
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 12
