Fund Focus: A Good Market Isn't Hard to Find

Another week of stock gains across global markets is welcome news [Fund Focus Weekly - Winning Strategies for Mutual Funds Investors] [Fund Focus Weekly]( In This Issue [arrow] [This Week's Fund Focus](#L1) [arrow] [Fidelity Market Flash](#L2) [arrow] [Vanguard Fund Review: Money Market Funds](#L3) Jun 08, 2018 []This Week's Fund Focus In this week's Fund Focus Weekly, Jim reviews the state of the U.S. economy and markets and suggests that a good time to check your risk tolerance and adjust your portfolio is while the markets are humming along, as they are now. Then Jeff outlines how a money market fund fits into a robust portfolio and demonstrates how even though it's nice that yields are higher, the money you can make from a money market is not the whole story. For the latest news on all things Vanguard and Fidelity as they happen, make sure to follow [Dan and Jeff]( and [Jim]( on Facebook. []Fidelity Market Flash: A Good Market Isn't Hard to Find By Jim Lowell Jim Lowell's Fidelity Investor Another week of stock gains across Asian markets, European bourses and our own exchanges and counters is welcome news … and since there were no new news to counter fundamental evidence for more (not less) global growth, gains were the rule. Advertisement [The Independent Adviser for Vanguard Investors]( And while nothing has changed to diminish the litany of fears, a fuzzy kind of hope relating to the historic summit in Singapore between the U.S. and North Korea, coupled with last week’s bounty of positive economic facts, helped bolster investors at home and abroad. After last week’s full cupboard of meaningful market data, this week we knew bare bones were in store. What we have seen so far: Factory orders rose a bit (once the always-volatile aircraft order is backed out); the service sector (accounting for 90% of our workforce) continues to grow at a rapid clip (with job creation and new orders both marginally up from the prior month); and job openings hit a record high (a bullish indicator of workforce confidence in being able to leave current positions in pursuit of more interesting and higher-paying jobs). The investment trend I see: Expansion (a.k.a. growth) persists here in the U.S. despite real tariff disputes and trade war mongering. Next week we get a bit more on the report plate, with a key Fed meeting and press conference to digest. Next Wednesday is the FOMC rate hike announcement (where expectations are for a 0.25% increase) and Fed Chair Powell’s press conference; his words and the Fed’s actions will be the obvious focal point of the week. Report-wise, we’ll be treated to a consumer expectations survey, small business confidence index, inflation gauges, retail sales (one way to read consumer confidence and financial dispositions), regional manufacturing gauge, and consumer sentiment. Whether or not we head into this weekend on an even higher note, I think it’s important for investors to take stock of where their portfolios are both in terms of a decade’s worth of accumulated returns and a likely reduction of risk tolerance over the span of that same decade, which may be masked by the kind of complacency and confidence bull markets create. In the way that looking for a new job is always best done while you have your current one, checking not just your portfolio’s return but also your psychological profile with specific regard to risk tolerance is best done before the next downturn begins. In my newsletter Fidelity Investor, I provide guidance to my readers on how to defend their hard-won gains while pursuing reasonable returns over the span of the next decade or more. To do so, I focus on risk as much as, if not more than, I focus on returns. And the managers that populate my portfolios do, too. [When you join Fidelity Investor today, you'll have instant access to my Model Portfolios and the managers I trust to grow our wealth.]( []Vanguard Fund Review: Money Market Funds By Jeff DeMaso The Independent Adviser for Vanguard Investors Raise your hand if you're happy to finally be earning some yield on your money market fund. I'm willing to bet that every hand in the room is up—some people may even be raising both hands. While I welcome the rising yields on money market funds as much as the next person, let's not get carried away. Money market funds haven't suddenly become wealth-compounding machines—and hence, are not long-term investments. The chart below shows the yield of Prime Money Market over the last 25 years or so. For the first 15 years, through the end of 2008, the fund's average yield was 4.0%. But at the end of 2009, the fund's yield hit rock bottom and stayed there for six years. What happened? Well, on December 16, 2008, the Federal Reserve cut the fed funds rate to a range of 0.00% to 0.25% and kept it there for seven years. Money markets' yields are generated by very short-term bonds that peg their own yields to Fed policy. If the fed funds rate is low, so are money market yields. Of course, investors shouldn't expect to earn outsized returns without taking some risk. And money market funds, with their stable NAVs, have essentially no risk, and Vanguard's are safer than most. (Note, however, that as I just highlighted, there is the risk that your money fund fails to keep pace with inflation.) If we are taking less risk in a money market fund, we shouldn't expect them to earn more than bonds or stocks over any reasonable time horizon. It's the stable NAV, the promise of putting in a dollar today and getting a dollar back in the future, that makes money market funds such poor long-term investments—but also such valuable money management tools. Money funds are incredibly convenient and simple to use. As a conduit, they are a powerful money-management tool. You can write checks on them. You can wire money into and out of them. You can use them to move money into and out of your Vanguard funds. You can direct distributions from other funds into your money market fund. Writing a check from your money market account is easy. You don't have to transfer money to a separate checking account, and it's not a taxable event that must be reported to the IRS. If you're going to write a check from your money market account, just confirm you have enough assets in your fund first, otherwise you'll need to sell some bond or stock fund shares (which could impact your tax bill) and have the money transferred into your money market. Money market funds are also practical for systematic investment plans, like dollar-cost averaging or value-averaging. Your money continues to earn interest, remains completely safe, and can be moved with ease into another fund when the time comes. In taxable accounts, Dan and I have long recommended and practiced a strategy of having distributions, whether they are monthly income from your bond fund or year-end capital gains from a stock fund, deposited automatically into our money market funds. This money becomes instantly available should we need to write a check on it. It also allows us to reallocate or rebalance without having to sell fund shares. This is helpful if you rebalance annually or are executing a gradual shift in your portfolio's allocation. A fourth and final reason to hold a money market fund is that cash is a shock absorber, taking the edge off of the volatility in the rest of your portfolio. Ultra-Short-Term Bond and Short-Term Investment-Grade can fill the shock-absorbing role as well. Your money market fund or short-term bond fund isn't going to make you rich on its own, but it should help stabilize your portfolio while putting you in a position to buy when everyone else is rushing for the exits. I'll say it one more time: Cash is a money management tool, not an investment. Vanguard is probably the best hardware store in town. It's nice to finally be earning a bit of income on our money market funds, but that's not why you should own one. The objective is to have some safe, liquid money available to use, and in my mind Vanguard's funds are some of the best cash-holding vehicles available today. So what can you put in your portfolio to make gains? [Subscribe to The Independent Adviser today]( to find the best of the best at Vanguard—the funds in our fundamentally driven Model Portfolios, which have provided triple the profit of the average Vanguard investor since 1991. Until next week, this is Fund Focus Weekly wishing you a safe, sound and prosperous investment future. Dan Wiener, Editor, The Independent Adviser for Vanguard Investors Jeff DeMaso, Co-Editor, The Independent Adviser for Vanguard Investors Jim Lowell, Editor, Jim Lowell's Fidelity Investor [Like Dan and Jeff on Facebook]( [Like Jim on Facebook]( To prevent this email newsletter from getting swept up by an overzealous spam filter, please add our "From" address (FundFocus@InvestorPlace.com) to your address book. Comments? Send us an email to feedback@investorplace.com. MANAGE YOUR ACCOUNT We hope this timely investing advice is valuable to you. 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