(PUB) Investing 2016

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The Independent Adviser for Vanguard Investors • March 2016 • 3 FOR CUSTOMER SERVICE, PLEASE CALL 800-211-7641
Daniel P. Wiener - Senior Editor
Jeffrey D. DeMaso - Editor/Research Director
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six cents per share ($0.0589) after
a small increase last year. However,
Vanguard now says that 94% of that
distribution is a return of capital, ver-
sus about 57% last year. What this
means is that Vanguard is unable to
generate enough current income to
keep the distribution even without dip-
ping into capital. That’s not surprising,
given where interest rates are. But
it’s also a problem, since Managed
Payout’s entire raison d’être is to pro-
duce a consistent 4% dividend regard-
less of where it comes from. In my
eyes, Managed Payout remains a lousy
investment.
Vanguard’s directors apparently
agree. Not a single one owns, or has
ever owned, the fund or its predecessor
funds. If the Vanguard board doesn’t
see fit to put a single, solitary dollar
into Managed Payout, why would you?
The fund has the single worst record
among Vanguard’s balanced funds
and has generated less than half the
total return of Wellesley Income since
inception. In fact, Vanguard’s disclaim-
er on Managed Payout is longer than
that for virtually any other fund except
Market Neutral, which, of course, is
a component of the Managed Payout
fund. Investors haven’t been fooled.
Managed Payout is barely taking in
new money, and assets have stagnated
at about $1.6 billion—hardly a roaring
success. I’d stay away.
As you know, I’ve been warning
for some time that you need to keep
an eye on your accounts, particularly
if you “consolidated” your brokerage
and mutual fund accounts as Vanguard
has requested you do. Now there’s
more to worry about. According to an
article by investigative reporter Susan
Antilla for The Street, Vanguard sent
71 emails about 57 different clients’
financial transactions ranging from $3
to $50,000 to a single shareholder, who
says none of the emails were about his
own accounts. Vanguard’s response was
to term it a “one-time, isolated matter,”
and put the blame on an unidentified
system error.
Listen, whether Vanguard is obfus-
cating or not, the simple truth is that
when expenses are super-low, some-
thing has to give, and one place that may
be having an impact is in Vanguard’s
information technology department.
Hiding behind the veil of a “one-time,
isolated matter” may calm investors
this time, but I remain unconvinced and
recommend, yet again, that you keep
a very close eye on your accounts and
any transactions that take place within
them. If you suspect anything, docu-
ment your suspicions and call Vanguard
immediately.
A note to me won’t hurt, either,
because if there’s one thing Vanguard
hates, it’s negative press. Jack Bogle
was always fond of quoting Supreme
Court Justice Louis D. Brandeis, who
said, “Publicity is justly commended
as a remedy for social and industrial
diseases. Sunlight is said to be the best
of disinfectants; electric light the most
efficient policeman.”
I couldn’t agree more.
And finally, Jeff and I thought
Vanguard had filed documents with
the SEC to finally launch the promised
International Dividend Appreciation
Index and International High
Dividend Yield Index funds and ETFs,
but so far they haven’t seen the light
of day. We’ll keep you apprised in the
Hotline. n
worry too much about their short-term
financial wealth. Going against the
grain of our emotions is what makes
investing so challenging.
Those challenges remain, particular-
ly when you consider all the naysaying
that’s making headlines in the current
highly charged political environment.
Yet, as Warren Buffett writes in his
annual letter to Berkshire Hathaway
shareholders released this past week-
end, “For 240 years, it’s been a ter-
rible mistake to bet against America,
and now is no time to start. America’s
golden goose of commerce and inno-
vation will continue to lay more and
larger eggs.”
Amen. In fact, to my way of think-
ing, some of those innovations will
come from companies in the tech and
medical fields that populate portfolios
of funds like Capital Opportunity and
Health Care.
Aswe head intoMarch, theU.S. econ-
omy is on solid ground. Unemployment
is low, as are interest rates. Consumer
balance sheets are strong, and the hous-
ing and auto industries are vigorous.
Even inflation has begun to turn higher,
and despite what some pundits might
say, that’s a good thing for our econ-
omy and for the markets. I’m sticking
with my fund and overall portfolio rec-
ommendations, and suggest you stick
with me on that.
A Fund for Retirement?
Retirement investors must be pretty
fed up with Managed Payout . The
much-manipulated fund’s 2016 month-
ly distribution, paid out mid-month, is
unchanged from 2015 at a little under
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