(PUB) Investing 2016

The Independent Adviser for Vanguard Investors

•

March 2016

•

FOR CUSTOMER SERVICE, PLEASE CALL

800-211-7641

Let them have their hard-earned money,

but open a Roth IRA in your child or

grandchild’s name and add the money

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 a Roth for them.

Maybe you can’t afford to add 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 teen contributes

$250, maybe you’ll contribute $500.

Grandparents, obviously, can get into

this act.

Finally, there’s the issue of the many

$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,

where the IRA minimums are also just

$1,000 (POAGX, my favorite for kids,

is now closed, so go for POGRX).

Or, if you have a personal represen-

tative at Vanguard, see if they’ll waive

the minimum on

Dividend Growth

for

your child or grandchild. Obviously you

won’t be making regular contributions

to the IRA, since its deposits are contin-

gent on the child’s income stream, but if

Vanguard’s smart, your request will be

seen as a way to grab a potential long-

term client at an early age.

Finally, don’t procrastinate. If your

child or grandchild (or young friend)

earned some income last year, you have

until April 15 to fund an IRA for 2015,

and then if they earn some money this

year, you or they can add money for

2016 as well.

Remember, the longer you or your

children wait, 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, con-

tributions to a Roth IRA are not made

pre-tax, as they would be on a tradi-

tional 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 earnings in any

given tax year. (This will be more of a

concern for the youngest investors.)

In any case, helping to put 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.

DON KILBRIDE

just celebrated 10 years

Dividend Growth

. Shareholders

ought to throw him a party. The

51-year-old Wellington Management

partner has generated stellar returns,

beating the stock market while taking

on less risk, and he’s consistently out-

performed his index bogey. Who says

active management doesn’t work?

Since taking the helm of Dividend

Growth in February 2006, Kilbride has

steered the fund through both bull and

bear markets. I always like to see how

a manager performs over a full market

cycle, and Kilbride has had a good one

during which to demonstrate his skills.

Take a look at the relative performance

chart comparing Dividend Growth to

500 Index

in the middle column.

You can see that the slowly rising line

early in his 10-year tenure turned into a

huge spurt of outperformance during the

financial crisis, when Dividend Growth

outperformed 500 Index by a full 13

percentage points over the 16 months

from November 2007 through February

2009. In a period when stocks were los-

ing money big-time, dropping 38.0%

versus 51.0%might not seem like a win,

but it meant that Kilbride had to gener-

ate a 61.3% return to recover his losses,

while investors in 500 Index needed to

more than double their money, gaining

104.1% to get even.

Also notice that in the immediate

aftermath of the market bottom, when

stocks soared, 500 Index outpaced

Dividend Growth for a period of about

two years. Over short time spans, it was

a toss-up; Kilbride might outperform, or

he might underperform. But as the full

10 years comes into focus, you can see

he’s more than earned his shareholders’

respect with a gain from January 2006

through January 2016 of 122.9% versus

500 Index’s 85.3% return—a 44% beat!

Of course, Kilbride isn’t buying the

largest 500 stocks in the U.S. market

and weighting them according to their

market capitalization. He’s selective-

ly choosing companies where he

ACTIVE MANAGEMENT

Dividend Growth’s Decade

Dividend Growth Under

Kilbride

2/06

2/07

2/08

2/09

2/10

2/11

2/12

2/13

2/14

2/15

2/16

Rising line = Dividend Growth outperforms 500 Index

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

Kilbride Against

the Index