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The Independent Adviser for Vanguard Investors • February 2016 • 3 FOR CUSTOMER SERVICE, PLEASE CALL 800-211-7641
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prices are a boon, and eventually the
benefits of lower oil prices will start to
come through the system.
Earnings suggest the economy
remains in solid shape, particularly
once you’ve taken oil company declines
out of the equation. In particular, com-
panies tied to the consumer continue to
do well.
And interest rates and inflation
remain low, which means you can bor-
row cheaply.
In Malvern
Vanguard had a busy January, trim-
ming the manager ranks at Explorer
and Morgan Growth, but adding a
manager to Small Company Growth
Annuity (see page 7 for more). A
shake-up in Vanguard’s Quantitative
Equity Group saw Binbin Guo and
Anatoly Shtekhman named as co-man-
agers to various funds, replacing James
Troyer and Michael Roach. Vanguard
also shook up the managers on a num-
ber of their index-based annuities.
As the month closed, Vanguard
launched an Institutional Select share
class for three core index funds with
operating expenses of just 0.01%—or
1 basis point. Three others will charge
0.02% to 0.045%. Of course, you’ll
need a minimum of $3 billion to invest
in the new share classes, or $5 billion for
500 Index’s and Total Stock Market’s
shares. That’s billion with a “b.” Pension
funds will love this, and it’s a real stick
in the eye to Vanguard’s competitors.
Meanwhile, Vanguard delayed the
launch of its two new foreign stock
index funds (and ETFs), International
High Dividend Yield Index and
International Dividend Appreciation
Index. We’ll have more to say on
these and will be adding them to our
Performance Review pages when they
finally arrive, but I wouldn’t rush to
invest in either fund.
One last note. I wanted to say a
big “Thank You” to those who wrote
about your service issues at Vanguard.
Some of you wrote to say you had had
a smooth transition with your account
consolidations. Terrific. Others, how-
ever, complained that the switch to a
new money market fund and the lack of
checks caused them to bounce checks
to the IRS, which is not a good thing.
Vanguard obviously dropped the ball
on customer service there, and from
what you tell me, its reps haven’t been
sympathetic to your travails. I’m really
sorry to hear that, and remind you that
you have a couple of options—one
is to check, double-check and triple-
check everything that Vanguard does.
The other is, unfortunately, to move
your account. I had one letter from a
former Vanguard investor who says
his multimillion-dollar account was so
bungled that he moved everything he
had to Fidelity. He still uses Vanguard
funds, but says he’s much happier with
Fidelity’s service. I think it’s worth
mentioning yet again that when a com-
pany like Vanguard makes its reputa-
tion on low, low costs, something has to
give, and that’s often service.
Finally, from our “check your sourc-
es” file, Vanguard has once again trot-
ted out that old quote attributed to
Albert Einstein that compound interest
is the eighth wonder of the world. As
good as it sounds, Einstein never said
it. I mentioned this to Vanguard. The
response? Silence. Having been caught,
I wouldn’t be surprised if that misquote
is finally put to rest. n
1.1%, respectively. But some of our
managers did lag in January. Health
care stocks have historically held up
relatively well in tough markets, but that
wasn’t the case in the first 19 trading
days of the year. Health Care fell 8.9%,
and the weakness in the health care sec-
tor weighed on Capital Opportunity,
which also declined 8.9%.
Also, I’ve received a number of ques-
tions about High-Yield Corporate,
which fell 1.0%. Jeff and I will have
much more to say on this next month,
but the short answer is that I’m sticking
with High-Yield Corporate, and sug-
gest you do, too.
So far, I’ve described losses that have
already happened. They are behind us.
Selling now won’t change that fact. So
let’s acknowledge that declines are a
natural part of investing. In fact, over
the past 115 years, we’ve seen stocks
decline 10% or more every 18 to 24
months, on average. And remember
that while every bear market was pre-
ceded by a correction, not every correc-
tion necessarily leads to a bear market.
Historically, only one out of three cor-
rections has led to a bear market.
I suspect you’ve heard the multi-
tude of reasons to be scared—slowing
Chinese growth, tumbling oil prices,
Middle East turmoil, a U.S. election,
etc. And while the pessimists always
seem to sound smarter because of their
absolutism, I think there are plenty of
reasons to be optimistic.
Oil prices are low. Yes, I see this as
a positive. Unless you are a country
(think Saudi Arabia, Russia or Brazil)
or region (say, North Dakota) which
depends on oil revenues, then lower oil
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