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The Independent Adviser for Vanguard Investors • August 2016 • 3 FOR CUSTOMER SERVICE, PLEASE CALL 800-211-7641
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And it wasn’t just stock indexes
hitting new records; the yield on the
10-year Treasury bond hit a 240-year
low of 1.321% in July, putting prices
sky-high (remember, when yields go
down, bond prices go up).
As I’ve said time and again, when
markets (and portfolios) hit highs, there
are really only two future outcomes—
you either go on to another all-time
high, or you drop below it. Don’t let
a short-term decline, which we could
easily see in the coming months, fill
you with regret that you somehow
didn’t sell at the top and lock in those
highs. That’s a foolish way to invest,
since it’s simply an attempt at short-
term market-timing that just won’t
work. Over the more than 25 years that
I’ve been writing to you, we’ve had
countless opportunities to sell “at the
top.” But had we done so, where would
we be now? Personally, my holdings in
funds like Dividend Growth and sev-
eral of the PRIMECAP-run funds like
Capital Opportunity have never been
larger. I love compounding even small
gains on top of ever-larger amounts of
money.
If you want another example of the
futility of trying to time the market,
consider the last trading day of July. The
morning’s initial report (there’ll be two
revisions in the weeks ahead) on second-
quarter GDP indicated the U.S. econ-
omy grew at a 1.2% annualized pace,
which was well short of expectations.
How do you think traders responded to
this disappointing read on our economy?
Well, after initial selling, buyers stepped
in, and the S&P 500 index finished the
day with gains. Go figure.
Looking ahead, with the conventions
behind us, the real heat in the presiden-
tial contest will begin as Donald Trump
and Hillary Clinton slug it out on the
campaign trail. This will be a very
hard-fought contest, and while history
says that the outcome should have little
impact on investment markets long-
term, the uncertainty around escalating
rhetoric could cause volatility, which
has come down lately, to spike again.
Stay tuned—but also, stay calm.
Taking Money to the Bank
Closer to home and our pocket-
books, those fee waivers Vanguard has
been applying to its tax-exempt money
market funds have been cut way back.
Based on the recent crop of semiannual
reports, expenses for five tax-exempt
money funds have risen anywhere from
50% to 83%. Yes, I know the expenses
remain low, but on a percentage basis
(the way Vanguard likes to present
changes), the differences are huge. I
still don’t understand why, if Vanguard
could run the funds for as little as
0.05% to 0.08%, they couldn’t keep
doing so. They clearly had enough
other cash flow to make up for the
waivers, and still do.
I’m pretty sure Vanguard continues
to shave costs in the technology area. It
appears their computers are still mak-
ing hash of many people’s consolidated
brokerage and fund accounts. Besides
the complications arising from holding
two money market funds, like bounced
checks, apparently Vanguard isn’t
reporting correct prices on reinvested
distributions. And so far, according to
those of you who’ve written me, they
have no explanation for the problems.
Many of you have said you’re tired
of the snafus and the lousy customer
service and are moving your money
to Fidelity. I won’t try to dissuade
you. I have accounts at Fidelity, and
their technology is lightyears ahead
of Vanguard’s. It’s said that you get
what you pay for, but it’s also true that
you don’t get what you don’t pay for.
Vanguard isn’t the “low-cost provider”
for nothing.
And on a final note, The New York
Times reported that several senior busi-
ness leaders, including Vanguard chair-
man Bill McNabb, have been meeting
to try and put together what would
essentially be a set of governance rules
(recommendations, really) for pub-
lic companies that include things like
executive compensation and earnings
guidance. But one issue stuck out to
me: The group apparently thinks that
companies should compensate board
members in stock, not cash, something
I’ve said Vanguard should be doing with
its own fund board for years, and which
I repeated recently in last month’s issue.
It’s called eating your own cooking,
and the fact that McNabb is part of a
group recommending it to companies,
but isn’t doing so at his own company,
Vanguard, is just disingenuous. I own
more Vanguard funds than McNabb
does, and you’ll never be able to accuse
me of “Do as I say, not as I do.” I defi-
nitely eat my own cooking. n
DIVIDEND FROM PAGE 1 >
Money Market
Expense Ratios
Prior Current Change %-age
California 0.06% 0.10% 4 bps 67%
New Jersey 0.08% 0.12% 4 bps 50%
New York 0.06% 0.11% 5 bps 83%
Ohio 0.08% 0.12% 4 bps 50%
Pennsylvania 0.05% 0.09% 4 bps 80%