Professional Documents
Culture Documents
Award
Winners:
Best and Worst
Vanguard Funds
Dan Wiener, Editor, Independent Adviser for Vanguard Investors
SPECIAL REPORT
Award Winners
Y ou r V a n g u a r d Actio n P la n
By Dan Wiener
Id like to welcome you as the newest member of the Fund Family Shareholder Association (FFSA).
Your investing success is my number-one priority.
FFSA members who have been with my newsletter serviceThe Independent Adviser for Vanguard
Investorsfor the last decade know the value of having an investment strategy in place that beats the
market over the long haul.
Before I name my award-winning Vanguard fundsand those to stay away fromI want to begin by
giving you some real, actionable advice to address the topics many investors are asking me about now. I
have organized your Action Plan into investors top areas of concern.
Concern #1: Is indexing the whole stock market always the best way to invest?
Action #1: Make sure you choose the RIGHT index funds.
While 500 Index and Total Stock Market Index generally get all the attention, dont forget that when
you index the whole market, you get all the dogs. Personally, I favor the managers in my Growth Model
Portfolio, but for those who want to index, I provide a Growth Index Model Portfolio as well. See page 2
of the latest monthly newsletter or the portfolio page of www.adviseronline.com for more.
Concern #2: How can I reduce the impact of fees on my portfolio?
for
to buy?
Action Plan
for
Vanguard Investors
5
The portfolio is eclectic. Tobacco stocks, financials, a cruise-ship operator and an oil service
company can be found in Selected Values mix.
And thats what makes it appealing. Barrow
picks his companies one by one, from the bottom
up. Ive always been a fan of his no-nonsense
stock-picking style. While he could retire soon,
or at least scale back his involvement (I suspect
Giambrone will succeed him), we still have plenty of time to enjoy the ride. By the way, Jim also
says he has a good chunk of his own money in
the fund. I do, too.
Dividend Growth is a large-cap fund whose holdings serve as a counterpoint to more growthy
stocks found in other funds in my Model
Portfolios. While the dividend yield is not sumptuous, at around 2%, the companies in this fund
tend to be quite different from what youll find
in, say, one of the PRIMECAP-managed funds.
Wellington Managements Donald Kilbride is a
value investor with a laser-like focus on companies that he feels can grow their dividends. That
doesnt mean they necessarily have big yields
to start with. It means these are companies that
Kilbride believes have the will and the means to
increase dividends, and as they do, that investors will pay a higher price for the stock. One
thing I like about this fund is Kilbrides concentrated portfolio of just 50 stocks or soa far cry
from the hundreds found in many growth and
income funds.
Indexers might ask why not invest in HighDividend Yield Index or Dividend Appreciation
Index instead. The answer is simple: Since he took
over, Kilbride has made mincemeat of these index
funds, and I believe he will continue to do so.
Winner: Wellington
Like Wellesley Income, Wellingtons mandate for the income portion of its portfolio was
changed in 2000 to reduce the funds interest-rate
risk. Not a great time to make the change, but
over the long haul, a good move. Its bond holdings are now measured against an intermediateterm, rather than a long-term, benchmark.
Winner: Short-Term
Investment-Grade
This is my favorite Vanguard fund at the short
end of the yield curve. Formerly called ShortTerm Corporate, it is extremely safe, produces
steady returns, and offers some diversification
that the Treasury and Federal funds dont. Rather
than investing only in Treasury, Agency or
other government-backed securities, Short-Term
Investment-Grade invests in high-quality corporate bonds, asset-backed bonds and a smattering
of other non-Treasury securities. The combination responds to rising or falling interest rates
less rapidly than Treasurys, meaning that it rises
a bit slower when rates drop and falls a bit less
when rates rise, since its excess yields protect
investors and prices. Over time a portfolio like
this one will outperform a Treasury portfolio, as
this one has.
Now with a new management lineup, its a brandnew fund, for all intents and purposes. Well have
to see whether thats an improvement or not. Only
time will tell, but Im in no rush to recommend
the new U.S. Growth as theres nothing here that
makes it an outstanding candidate for investment.
More Losers:
STAR LifeStrategy Funds;
Target Retirement Funds
My Model Portfolios on page 2 of every newsletter issue will guide you to better profits and, in
many cases, less risk than these supposedly simple funds that Vanguard has created for you. For
example, my Conservative Growth Portfolio allocates even less of its assets to stocks yet beats the
pants off of Vanguard STAR LifeStrategy Growth.
Dont be fooled by simplicity. It can mean smaller
profits in your later yearstoo late to do better.
T H E
I N D E P E N D E N T
ADVISER
for Vanguard Investors
www.AdviserOnline.com
The Vanguard Group, Inc. FFSA is not affiliated in any way with The Vanguard Group, Inc., and receives no compensation from The Vanguard Group, Inc.
Supplement to
The Independent Adviser for
Vanguard Investors
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