Copyright 2019 Tom Madell, PhD, Publisher
Jan. 2019. Published Jan. 1, 2019.
Corrected Jan. 4, 2019.

It's Time for a Change

By Tom Madell

Down through almost 20 years, my Newsletter has tried to be about just one main thing: helping readers pick the best mutual funds, and more recently, ETFs. I have tried to avoid detailed discussion of economics, and have usually been leery of making market predictions. But all efforts to steer investors toward what I concluded were likely the best investments and fund categories to select for the next several years were, in reality, implicit predictions.

For roughly half of these 20 years, time and again, my advice and Model Stock Portfolios almost always ran ahead the market averages. But since then, it appears that index funds have become so predominant that more and more of investors' dollars went into the same subset of US stocks, continually boosting the returns of these same US stocks and indexes. Anyone investing away from these indexes came to be in the minority of where the money was flowing, and likely, not able to enjoy the returns to the same extent.

Now, although I'm not holding my breath about this, we may be in for a new test of index predominance. This may come if the market continues on its very recent path of a downward trend in prices. Since the index funds nearly always are 100% invested in stocks, any very sluggish or even negative slope to stock prices will fully affect index fund performance. Therefore, it is possible that those funds and ETFs that are not mirror images of the main stock indexes may therefore have a better chance of, at least, somewhat cushioning the blow. What may help define who is relatively successful vs. who isn't, may also be a function of those having a somewhat greater cash position, and perhaps, a somewhat above average position in bonds. If future returns are indeed less than what many have now come to expect, certainly cash, and maybe bonds, will keep their returns in positive territory.

Getting back to the main subject of this Newsletter, all of the above makes me feel that, after these many years of nearly the same format on this website, it's time for a change.

True, by following quite closely the strategies presented on this site over many years, I personally have prospered beyond all expectations. On the other hand, I don't know how true that has been for my readers (at least I haven't gotten hardly any feedback telling me such), especially if they haven't discovered my site until somewhat recently.

But frankly, most of the gains I myself have achieved haven't been a result of finding new funds, year in and year out, as may have been implied by my Model Portfolios, but mainly by holding on to those stock funds that appeared to have continuing promise and watching as they typically slowly appreciated in value.

Many additional stock and bond funds were at times tried but eventually pared back or eliminated going back to late 80's, well before my site started in 1999. So the funds that now remain in my personal portfolio (as opposed to my Model Portfolios, which may be slightly different), have to have produced good results to have survived in my own portfolio for many, many years.

In order to accentuate the funds that have worked best for me, I am replacing my quarterly Model Portfolios starting now. In their place, I plan to list the funds I have the biggest positions in and to regularly show how they have been doing over very long periods, namely, over the last 5, 10, and 15 years. If I no longer maintain any of these current funds among my biggest holdings, I will drop such funds from the listing. Likewise, I will add any fund if it subsequently becomes among my biggest holdings. These listings will therefore more accurately reflect my personal and still recommended holdings.

While I have not held each and every fund listed for as long as 15 years, their long-term returns will give an idea of how one can double, triple, or even quadruple your money if you find good stock funds and do what I did, that is, hold, occasionally add to, and relatively rarely take profits from them or sell part or all when they didn't meet my expectations.

Surprisingly, a 15 year annualized return of about 8% will likely result in a tripling of your initial investment, assuming it is invested in a tax-deferred account. While you might not think that an annualized 8% return can lead to a tripling of your money, the table following the performance figures will show how this happens. Of course, it is very unlikely that a bond fund will ever average an 8% return over 15 years, but still, the accumulated growth here can be far better than just holding your money in a money market account.

Stock Funds

Note: All Vanguard stock and bond funds listed are Investor Shares; Admiral shares have slightly higher returns.


5 Year
Ann. Return

10 Year
Ann. Return

15 Year
Ann. Return

-Vanguard Extended Market Idx (VEXMX)

Mid-Cap Blend




-Vanguard Small Cap Growth Idx (VISGX)

Small Cap Growth




-Vanguard 500 Index (VFINX)

Large Blend




-Vanguard Pacific Index (VPACX)





-Vanguard International Growth (VWIGX)





-Vanguard Europe Idx (VEURX)





-Vanguard Emerging Markets Idx (VEIEX )





-Tweedy, Browne Global Value (TBGVX )





-Vanguard Equity Income (VEIPX)

Large Value




-Vanguard Windsor II (VWNFX)

Large Value




-Vanguard Energy (VGENX)





-Vanguard Growth Idx (VIGRX)

Large Cap Growth




Bond Funds

Note: I live in California so my bond investments in my taxable portfolio are exclusively in a state and Federal tax-free California muni fund; non-California residents would select either a fund specific to their state or, if not available, a national muni fund. Of course, a tax-free return is better than an equivalent taxable one, depending on your tax bracket.


5 Year
Ann. Return

10 Year
Ann. Return

15 Year
Ann. Return

-Vanguard California Interm-Term Tax-Exempt (VCAIX)

Muni Intermediate




-PIMCO Total Return Instl (PTTRX)





-Vanguard Total Bond Market Index (VBMFX)





-Vanguard High Yield (VWEHX)

High Yield




-Vanguard Short-Term Investment-Grade (VFSTX)





-PIMCO International Bond Adm (PFRAX)





-Vanguard Total International Bond Index (VTIBX)





Growth of $10,000 After Gaining 8% Each Year

Note: See this website to calculate how much an investment grows.

Year    Accumulated
Start 10,000
1 10,800
2 11,664
3 12,597
4 13,605
5 14,693
6 15,869
7 17,138
8 18,509
9 19,990
10 21,589
11 23,316
12 25,182
13 27,196
14 29,372
15 31,722

With $10,000 growing to $31,722, you can see that the investment would now be worth 3 times the original amount after 15 years.

Of course, funds don't produce exactly the same return every year as the above example shows. But if the average annualized return is 8%, you will probably earn a return close to what is shown.

Fifteen years is a pretty long time to hold your funds and I suspect some winnowing of your choices will be necessary. But the above compounding effect is probably the most important factor in achieving sizeable gains with funds. Even my worse of the above funds (VEURX) more than doubled over 15 years.

Note: If due to your circumstances, you feel you may not have 15 years to wait, consider five or perhaps 10 years as a reasonable alternative. But as you can see from the above tables, there may be considerably more risk in not being able to wait it out - you may even be better off, in some cases, in a good bond fund.

Another Change

Another feature of my Newsletter site has typically been extended articles covering almost every subject imaginable pertaining to mutual funds and ETFs. These articles usually required extensive research. Most, if not all of these articles, are still available to read on my website. All told, there are probably several hundred such articles.

It is now hard to come up with new articles on subjects I haven't already covered. Therefore, it seems best to switch to a format of shorter articles, something perhaps closer to a blog, giving my opinions on various topics rather than extensive research articles. The two brief topics covered below are examples.

Everybody may not be happy with these format changes, and that is understandable. But I have now come to believe that investing is more of a waiting game than it is something that anybody, including me, can profitably predict, no matter how extensive your research is.

Feedback on past or this present Newsletter is always welcome at

Should The Fed Have Raised Rates?

Many investors were apparently forlorn when all 10 out of 10 voting members of the Fed agreed to raise interest rates in late December, and this was apparently an important contributing factor to the December sell-off. Some had envisioned a pause in the regular succession of increases every three months in 2018. Some important economists had argued for such a halt, as well as one non-economist, President Trump.

But the Fed and its also non-economist Chairperson, were not to be deterred. They have been telegraphing the need for rate increases at almost every meeting, citing how well the economy has been doing.

Although the economy may have slowed slightly, and worldwide conditions have definitely deteriorated, the Fed felt the need to restore the US economy to a more normal state of rates, rather than to continue to keep stimulating the economy with the artifically low rates that prevailed as a result of the now distant economic crisis of a decade ago.

It would have been a bad precedent to halt restoring normalcy just to sooth stock market investors. Likewise, the Fed wouldn't want to give the appearance of being pressured by the President. Given that the Fed is supposed to be a totally independent body, recent Presidents have rarely publically tried to influence it, and so the Chairperson said, totally properly, they would not be influenced by "politics."

Perhaps overlooked in the discussion is that one of the most important reasons for raising rates requires an understanding of how the Fed operates. On the opposite side of the coin to raising rates occurs when the economy slows significantly, not really at all like now. In such circumstances, one of the only tools the Fed has is to lower rates to get the economy going again. If rates start out quite low when the economy slows significantly, or even enters a recession, they likely will need to drop rates significantly. With interest rates already so low, historically speaking, there would be little they could do along that line to help stop the decline and re-stimulate the economy, hopefully promoting a return to growth again. So they want rates to be at least at a middle range when that happens, not still at the lower range as at present.

Thus, in spite of the perhaps unpleasant ramifications for investors, and perhaps for sitting Presidents, the Fed has truly done the right thing, at least according to how they function in good times and in bad.

Bull or Bear? What to Do as We Enter 2019?

You might ask what I recommend to do in the face of recent storm clouds over the stock market. Will we drop into a prolonged bear market, hover at current levels, or see a resurgence of the the bull market? Unfortunately, there is no clear answer I can give - I, nor anyone, can know what the future holds for stock prices.

And since everyone's situation and temperament are different, different courses of of action may be appropriate for each investor. Perhaps you have observed, like me, that often stock prices will not go in the direction that the majority of investors expect. Therefore, if one sells thinking that stock prices will drop (further), they often don't. Likewise, when everything appears great, that may be when it is time to be most worried. This suggests that now may not be the time to sell your stocks even if it "feels" like the bottom may be about to drop out.

Nor does it appear to be a particularly good time to buy bonds. It is hard to visualize that bond rates can go much lower, with the greater probability that they will go higher. Higher rates will generate more fund income but might result in capital losses if net asset values (that is, prices) go down. So perhaps only if you want to increase your income and can hold your bond funds in spite of price declines, bonds might be starting to appear more attractive, but otherwise not.

I personally am not selling any stocks, having done so already for the last several years. I believe in the adage - sell stocks when prices are high, and by the same token, buy when prices are low. While prices are lower than they have been for a while, they are not low enough for me to be tempted to buy.

A final piece of related advice: Investors should not get too caught up in the present apparent malaise. Frankly, I remember feeling that during the 2000 to 2002 market doldrums where it seemed many of my up-to-then gains looked like they were rapidly disappearing. In spite of it all, the stock market will always remain your best avenue to wealth accumulation (aside perhaps from a plush job as a corporate CEO). But the price you may have to pay is continuing to stick to a program of well-diversified investments even at times when the market tanks.

Happy New Year to one and all!


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