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A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 26, NO. 9
Wake Up!
AUGUST IS OVER,
and with it ends one of the most mellow summer months that long-
term investors like us have ever experienced. And that’s saying something, given how
abnormally mellow the stock markets have been since 2011.
Over the past five years, the average level of the VIX, which is one measure of market
volatility, has been well below its long-term average, and despite a pickup in early 2016,
as August ended, the VIX’s average level for the year had dropped to the same level as
2015’s, more than 15% below the long-term average.
Prior to Memorial Day, the average daily move in the S&P 500 index was 0.7%, but
since Memorial Day it’s been just 0.5%, and in August it’s been 0.3%. It’s a safe bet that
as traders return from the beach, we’ll see volatility pick up. If volatility is coming, and
with markets now below the highs hit mid-month, should we be selling, having already
missed the top?
No way! Consider that since the end of the Great Recession and the bear market it
spawned, investors have had 118 opportunities to sell at an S&P 500 high. That’s right.
Since the market hit its high in 2007 before the financial crisis and recession, there have
been 118 new highs for the S&P 500 index. But if you’ve been watching your portfolio,
rather than the index, then you may have seen something on the order of 174 all-time
highs. Why? Because of dividends. On a total return basis, the S&P has hit 174 all-time
highs since the 2007 bull market came to an end. Should you have sold when the market
hit a high to avoid being “down?” The answer is self-evident.
I know that there are some pundits out there that say the bull market is getting long in
The Independent Adviser for Vanguard Investors
and FFSA are completely independent of The Vanguard Group, Inc.
FUNDS FOCUS
> AGGRESSIVE GROWTH FUNDS
In Praise of the Middle Ground
SOMETIMES TOO MUCH OF A GOOD THING
can be a bad thing.
Take asset accumulation for instance. Vanguard’s success in gathering tens of billions
of new investment dollars every month means that if you want to add an aggressive stock
fund to your portfolio—one that focuses on the more volatile small- and mid-cap areas
of the market—your best option may be to focus on index funds, or begin looking out-
side the Vanguard stable.
I suspect some readers may be wondering if Dan and I have lost the active-manage-
ment script, so allow me to explain. While there are exceptions, dramatic growth in
fund assets is the enemy of good active management, particularly for managers buying
mid- and small-cap stocks. Consider two fund managers seeking to buy stock
DOW JONES INDUSTRIALS
August Close:
18400.88
STANDARD & POOR’S 500
August Close:
2170.95
4300
4550
4800
5050
5300
A J JMAMF JDN OS
NASDAQ COMPOSITE
August Close:
5213.22
0.00%
0.07%
0.14%
0.21%
0.28%
0.35%
A J JMAMF JDN OS
3-MO.TREASURY BILLYIELD
August Close:
0.32%
1.2%
1.4%
1.6%
1.8%
2.0%
2.2%
2.4%
A J JMAMF JDN OS
10-YR.TREASURY NOTE YIELD
August Close:
1.57%
15700
16300
16900
17500
18100
18700
A J JMAMF JDN OS
1820
1900
1980
2060
2140
2220
A J JMAMF JDN OS
AVERAGEVANGUARD INVESTOR*
August:
0.1%
YTD:
6.4%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
AJ JMAMF JDNOS
*See the footnotes on page 2.
Model Portfolios................................................................ 2
Billions In, Billions Out at Vanguard.................................. 3
A Strong Start, Still in the Shadows................................. 4
Watch Out for the Gold Bugs........................................... 5
Funds for Investors. ETFs for Traders................................ 6
October Omens?.............................................................. 7
Performance Review.................................................... 8-11
Dan’s Do-It-Now Action Recommendations.................... 16
S EPT EMBER 2016
SEE
WAKE
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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
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SEE
FOCUS
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