Authorized by Vanguard Investments Canada Inc. for investor use.
Vanguard’s principles for investing success
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About Vanguard
The Vanguard Group, Inc.
• Founded: 1975
• Corporate headquarters: Valley Forge,
Pennsylvania, United States
• Total assets: $5.7 trillion worldwide
• Number of products: More than 350
mutual funds and ETFs worldwide
Vanguard Investments Canada Inc.
• Founded: December 2011
• Headquarters: Toronto, Ontario, Canada
• Total assets: $11.0 billion
• Number of products: 33 ETFs listed on
Toronto Stock Exchange
Source: The Vanguard Group, Inc. as of March 31, 2017.
Note: All assets are in CAD.
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Our core purpose:
To take a stand for all investors, to treat them fairly
and to give them the best chance for investment success.
What makes us different
Long-term
thinking
Client
focus
Low-cost
investing
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Vanguard’s principles for investment success
Goals Balance
Cost Discipline
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• Recognizing constraints is essential to developing an investment plan
• A basic plan will include specific, attainable expectations about
contribution rates and monitoring
• Discouraging results often come from chasing market returns, an
unsound strategy that can seduce investors who lack well-grounded
plans for achieving their goals
• Without a plan, investors can be tempted to build a portfolio based on
transitory factors such as fund ratings—something that can amount to a
“buy high, sell low” strategy
Create clear, appropriate investment goals
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Example of a basic framework for an investment plan
Define the goal and constraints
Objective Save $1,000,000 for retirement, adjusted for inflation
Constraints 30-year horizon
Moderate tolerance for market volatility and loss; no tolerance for nontraditional risk
Current portfolio value $50,000
Monthly net income of $4,000; Monthly expenses of $3,000
Consider impact of taxes on portfolio allocations and returns
Saving or spending target Ability to contribute $5,000 in first year
Intention to raise contribution by $500 per year, to a maximum of $10,000 annually
Asset allocation target 70% allocated to diversified stock funds; 30% allocated to diversified bond funds
Rebalancing methodology Rebalance annually
Monitoring and evaluation Periodically evaluate current portfolio value relative to savings target, return expectations and
long-term objective
Adjust as needed
This example is completely hypothetical. It does not represent any real investor and should not be taken as a guide. Depending on an actual investor’s circumstances, such a plan or
investment policy statement could be expanded or consolidated. For example, many financial advisors or institutions may find value in outlining the investment strategy, i.e. specifying
whether tactical asset allocation will be employed, whether actively or passively managed funds will be used and the like.
Source: Vanguard.
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Investors tend to buy highly rated funds even as they underperform
Without a plan, many invest bottom up
Median performance of funds versus style benchmarks
over the 36 months following a Morningstar rating
Cash flows for Morningstar-rated funds in periods after the ratings
were posted
Notes: Data cover the period from January 2002 to December 31, 2016. Morningstar changed its rating methodology during this period, but there was no material
impact on our analysis. The analysis includes all share classes of Canadian equity funds, both live and obsolete. To be included, a fund had to have a Morningstar
Rating and 36 months of continuous performance following the rating date. Fund returns are net of expenses, but not of any loads. The results are relative to the
funds’ category benchmark as defined by Russell, however similar results were achieved relative to MSCI and Standard and Poor’s indexes as well.
Sources: Data on cash flows, fund returns and ratings were provided by Morningstar. Index data to compute relative excess returns were provided by Thomson
Reuters Datastream. More information is available in the Vanguard research paper Mutual Fund Ratings and Future Performance (Philips and Kinniry, 2010).
5-star
4-star
3-star
2-star
1-star
-0.7%
-0.9%
-1.0%
-1.6%
-2.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
5-star 4-star 3-star 2-star 1-star
Annualiz
ed 3
6-m
onth
fund p
erf
orm
ance
rela
tive to b
enchm
ark
-15
-10
-5
0
5
10
1Yr 3Yr 5Yr
Cum
mula
tive c
ash flo
ws (
$ b
illio
ns)
5-star 4-star 3-star 2-star 1-star
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• Define goals clearly
• Approach planning with a level head
• Create a detailed, specific plan
Key takeaways
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• A diversified portfolio’s proportions of stocks, bonds and other
investment types determine most of its return as well as its volatility
• Attempting to escape volatility and near-term losses by minimizing
stock investments exposes investors to other types of risk, including
the risks of failing to outpace inflation or falling short of an objective
• Realistic return assumptions—not hopes—are essential in choosing
an allocation
• Leadership among market segments changes constantly and
rapidly, so investors must diversify both to mitigate losses and to
participate in gains
Develop a suitable asset allocation using broadly diversified funds
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Returns for the 95th and 5th percentiles and on average for various equity/fixed income allocations, 1901–2016
The mixture of assets defines the spectrum of returns
For illustrative purposes only. The hypothetical portfolios do not represent the return on any particular investment.
Notes: Equities are represented by the DMS Canada Equity Index from 1901 to 1984, and the S&P/TSX Composite Index thereafter. Fixed income is represented by the DMS Canada
Bond Index from 1900 to 1984, the Citigroup World Government Bond Index from 1985 through 2001 and the Bloomberg Barclays Canadian Issues 300MM Index thereafter. Data are
through December 31, 2016.
Sources: Vanguard, using data from Morningstar, Inc. and Barclays.
19.3% 17.6% 16.4% 17.5% 19.3% 21.3%23.7%
26.8%29.9%
33.0%36.1%
4.7% 5.3% 5.8% 6.3% 6.8% 7.2% 7.6% 8.0% 8.3% 8.7% 8.9%
-4.5% -3.7%-4.5% -5.2% -6.7% -7.3%
-9.7% -11.3%-13.6%
-16.4%-19.1%
-30%
-20%
-10%
0%
10%
20%
30%
40%
100%
0%
90%
10%
80%
20%
70%
30%
60%
40%
50%
50%
40%
60%
30%
70%
20%
80%
10%
90%
0%
100%
Portfolio allocation
Annual returns
Fixed income
Equity
Average
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Investment outcomes are largely determined by the long-term mixture of assets in a portfolio
The importance of asset allocation
Note: Calculations are based on monthly returns for 303 Canadian funds from January 1990 to September 2015. For details of the methodology, see the Vanguard research paper The
global case for strategic asset allocation and an examination of home bias (Scott et al., 2016).
Sources: Vanguard calculations, using data from Morningstar, Inc.
86% Asset allocation
14% Security selection and market timing
Percent of a portfolio's movements over time explained by:
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The ten worst and best stocks in the S&P/TSX Index in 2008
Diversification can protect against catastrophic loss
Worst performers Return (%) Best performers Return (%)
Nortel Networks Corp. -89.99 Fording Candadian Coal Trust 135.77
Uranium One Inc. -88.45 Eldorado Gold Corp. 65.52
Teck Resources Ltd. -82.83 Celestica Inc. 51.64
Nova Chemicals Corporation -81.53 Metro Inc. 43.06
Lundin Mining Corp. -81.13 Fairfax Financial Holdings Ltd. 38.25
Opti Canada Inc. -80.66 Kinross Gold Corp. 23.46
First Quantum Minerals Ltd. -79.09 Agnico-Eagle Mines Ltd. 15.63
Sherritt International Corp. -75.70 Goldcorp Inc. 14.21
Inmet Mining Corp. -75.53 George Weston Ltd. 13.89
Ivanhoe Mines Ltd. -69.72 Open Text Corp. 13.13
Sources: FactSet and Vanguard as of December 31, 2008.
For illustrative purposes only. Please note that this example reflects the financial crisis and, in particular, the fact that the majority
of the decline in stock prices occurred in 2008.
Examples of underlying securities mentioned in this material should not be construed as a recommendation to buy, sell or hold the securities.
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• A portfolio’s asset allocation is responsible for its risk and return
• Stocks have the greatest expected return and risk
• Avoiding stocks and their volatility means assuming additional risks
• Diversification can protect against catastrophic loss
Key takeaways
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Sub-asset allocation
What
Remain diversified
over broad market
but overweight
or underweight
market segment
Why
May add value
When
Suitable for less
risk-averse
investors
who are comfortable
with additional
sector risk but
who do not want to
deviate significantly
from a market-cap-
weighted equity
portfolio
Risks
Possible
underperformance
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Sub-asset allocation case study
Background
An investor’s
U.S. equity portfolio
has a risk profile similar
to that of the broad
U.S. stock market
Goal
Investor believes that
a bias toward value
or small-cap stocks
can enhance
long-term returns
Solution
Overweight the desired
sector using value,
small-cap and/or
small-cap value ETFs
Want small-cap value tilt Buy small-cap value ETFMarket-like portfolio
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Asset classes
Stocks
Stocks represent
shares of ownership in
a company. Canada
stock funds have
historically provided the
highest long-term
returns – typically an
average of about 8.4%
per year.
Bonds
In essence, bonds are
loans to a government
or a company. Over the
long term, Canada
bond funds have
provided average
annual returns of about
7.6% and have
generally been less
volatile than stocks.*
Cash
Guaranteed Investment
Certificates (GICs),
treasury bills and
money market funds
are all considered cash
investments. All, or
nearly all, of the returns
from cash investments
come from interest.
* Source: Stocks are represented by the S&P/TSX Composite Index. Bonds are represented by the Citigroup World Government Bond Index from 1985 through 2001and the
Barclays Canadian Issues 300MM Index thereafter. Data are from December 31, 1985, through December 31, 2013.
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• The attempt to escape market risk by investing in stable, lower-
returning assets can expose a portfolio to other longer-term risks
• Cash or short-term bonds can come with opportunity cost or
“shortfall risk”
• Over a 30-year horizon a 3% inflation rate reduces a portfolio’s real
value by 50%
• For investors with longer horizons, inflation risk may outweigh
market risk, often necessitating a sizable allocation to investments
such as stocks
Stocks are risky—and so is avoiding them
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Annual returns for various investment categories ranked by performance, best to worst: 2006-2016
Diversify to manage risk
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
41.46% 18.55% 12.00% 62.38% 35.10% 10.00% 28.53% 31.57% 23.73% 21.47% 38.48%
32.08% 9.83% 7.10% 52.03% 17.61% 9.62% 16.00% 12.99% 14.20% 20.24% 21.08%
26.38% 5.02% 6.63% 35.05% 12.97% 9.54% 15.33% 8.54% 10.55% 19.46% 7.90%
17.26% 4.51% 5.73% 14.72% 12.39% 6.33% 15.28% 7.60% 9.03% 3.71% 7.74%
11.61% 3.96% -19.51% 13.99% 10.73% -6.15% 7.19% 4.29% 8.59% 3.65% 6.08%
9.54% 0.90% -28.78% 12.49% 6.95% -8.71% 6.55% 2.31% 7.46% 2.42% 3.73%
4.01% -1.43% -33.00% 5.04% 6.88% -9.55% 3.27% 0.62% 7.03% 1.61% 1.44%
3.54% -5.33% -36.55% 3.62% 6.18% -11.17% 2.19% -1.59% 4.12% -8.32% -0.34%
2.58% -10.81% -41.44% 0.98% 5.04% -16.15% -2.23% -2.28% -2.34% -9.64% -0.40%
1.68% -17.48% -45.49% -1.71% 2.56% -16.43% -3.25% -3.45% -9.53% -13.31% -2.00%
Notes: Benchmarks reflect the following asset classes—for large-capitalization Canadian equity, the S&P/TSX Composite Index; for small-cap Canadian equity, the S&P/TSX
SmallCap Index; for developed international equity markets, the MSCI EAFE Index, for emerging markets, the MSCI Emerging Markets Index; for commodities, the Bloomberg
Commodity Index; for real estate, the MSCI ACWI Real Estate Index; for Canadian government fixed income, the Citigroup WGBI Canada All Maturities; for Canadian investment-
grade fixed income, the Bloomberg Barclays Canadian 300MM Index; for international fixed income, the Bloomberg Barclays Global Aggregate Bond Index (CAD-hedged); and for
emerging market fixed income, the Bloomberg Barclays Emerging Market USD Aggregate Bond Index.
Source: Vanguard illustration using data from Standard & Poor’s, MSCI, Bloomberg and Citi.
Canadian equity
S&P/TSX
Composite Index
S&P/TSX
SmallCap Index
Non-Canadian equity
MSCI EAFE Index
MSCI Emerging
Markets Index
MSCI ACWI Real
Estate Index
Canadian fixed
income
Bloomberg
Barclays Canadian
300MM Index
Citigroup WGBI
Canada All
Maturities
Non-Canadian fixed
income
Bloomberg Barclays
Emerging Market
USD Aggregate
Bond Index
Bloomberg Global
Aggregate Bond
Index (CAD-hedged)
Other
Bloomberg
Commodity Index
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Home bias
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Most country investors are far away from lowest risk equity portfolioRisk and returns for various equity portfolios (January 1, 1988–December 31, 2011)
Home bias—we all have it
4%
5%
6%
7%
8%
9%
10%
10% 11% 12% 13% 14% 15% 16% 17% 18% 19%
Avera
ge a
nnua
l re
turn
Average annual standard deviation
100% U.K.
100% World ex-U.K.
100% U.S.
100% World ex-U.S.100% World ex-AUS
100% AUS
100% CAN
100% World ex-CAN
70% ex-Canadian assets
Source: Vanguard calculations using Thomson Reuters Datastream.
Note: Domestic returns are represented by the MSCI USA Index, MSCI UK Index, MSCI Australia Index, and MSCI Canada Index. Foreign ex domestic returns are represented by
MSCI All Country World Ex-Country Indices for the US, UK and Australia. Because a comprehensive index for global equities ex Canada is not available from Thomson Reuters, we
spliced the MSCI EAFE index (CAD) with the MSCI Emerging Markets Index (CAD) and the MSCI USA Index (CAD). All returns denominated in domestic currencies.
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Bond correlation over time is less than one
Correlation of the monthly change in each country's 10-year government bond yield to that of Canada, Jan 1998–Nov 2013
Bonds: Why go global?
0.5
0.40.4
0.6
0.1
0.3
0.5
0.1
0.3
0.50.6
0.6
0.00
0.25
0.50
0.75
1.00
Australia Belgium France Germany Italy Japan Netherlands SouthKorea
Spain Sweden UK US
Source: Vanguard, based on data from Thomson Reuters Datastream.
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Rank Country 12/31/2012 2/28/2014 Change
1 United States 45.05 49.06 4.01
2 United Kingdom 8.05 7.95 –0.10
3 Japan 6.90 7.64 0.74
4 Canada 4.26 3.58 –0.68
5 France 3.54 3.44 –0.10
6 Germany 3.03 3.27 0.24
7 Switzerland 2.93 3.17 0.24
8 Australia 3.32 2.71 –0.61
9 China 2.38 1.92 –0.46
10 Korea 2.20 1.59 –0.61
Canadian equities account for only 4% of world capitalizationBut Canada’s stock market ranks No. 4 compared with its GDP (No. 11) and population (No. 35)
Country stock market as a percentage of world market cap
Source: Vanguard – MSCI country weights in Total World Stock Market Index.
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23%
39%
54%
67%
-10%
0%
10%
20%
30%
40%
50%
60%
0% 25% 50% 75% 100%
Weig
ht in
glo
bal m
ark
et
Domestic allocation to domestic equities
Market
proportional
allocationLocal
market
overweight
52%
53%
85%
84%
-10%
0%
10%
20%
30%
40%
0% 25% 50% 75% 100%
Weig
ht in
glo
bal m
ark
et
Domestic allocation to domestic fixed income
Local market
overweightMarket
proportional
allocation
Home bias in domestic fixed income marketsHome bias in domestic equity markets
Home bias in stocks and bonds
Source: International Monetary Fund Coordinated Portfolio Investment Survey, Dec. 31, 2012, Barclays and Thomson Reuters Datastream.
Note: The IMF Coordinated Portfolio Investment Survey was used in conjunction with market capitalization information to determine domestic and foreign investment. The MSCI All
World All Country index is used to represent the world equity market portfolio. Country weights for domestic equities are represented by the MSCI USA Investable Market Index, the
MSCI UK Investable Market Index, the MSCI Australia Investable Market Index and the MSCI Canada Investable Market Index. The fixed income market capitalization for the world
and each individual country is provided by the Bank for International Settlements (BIS). We use market-cap data from the BIS because the data is generally more comprehensive and
covers all domestic and foreign issuances whereas data from index providers such as Barclays generally cover only the investable portions of the market. Central bank holdings of
domestic bonds were excluded from our calculations as they represent closely held or unavailable securities. The investment holdings data for a given country can be categorized as
either “foreign investment by domestic investors” or “domestic investment by domestic investors”. The sum of these equals “total investment by domestic investors”. The percentage
allocated to domestic securities divides “domestic allocation by domestic investors” by the “total investment by domestic investors”.
US Equities UK Equities
Canadian Equities Australian Equities
US Equities UK Equities
Canadian Equities Australian Equities
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Factors affecting the foreign asset allocation decision
How much should go outside the home market?
Favour
LocalMarket
Favour
GlobalMarket
0%
international
Market
proportional
Historical risk/return
allocation to international
No deviation High deviationDomestic sector variation from
world market
Diverse Highly concentratedDomestic issuer concentration
Low HighDomestic transaction costs
High PoorDomestic liquidity
Advantages DisadvantagesDomestic asset taxes
No Impact Significant risksOther domestic risk factors?
Additional considerations
Regulatory limits and liability matching systems
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Canada has some major differences in sector exposure
Sector differences are large relative to the global economy
Sector differences vs. MSCI ACWI IMI
Sectors MSCI USA IMI MSCI UK IMI MSCI Australia IMI MSCI Canada IMI
Consumer Discretionary 0.8 –2.6 –8.8 –6.6
Consumer Staples –0.4 5.2 –0.8 –5.7
Energy 0.4 6.1 –3.3 16.5
Financials –4.5 –0.1 25.8 13.7
Health Care 2.6 –2.4 –5.4 –6.8
Industrials –0.4 –2.9 –5.5 –3.8
Information Technology 5.7 –10.3 –11.8 10.9
Materials –2.6 2.5 12.6 6.3
Telecommunication Services –1.6 3.8 –1.6 –1.3
Utilities –0.1 0.7 –1.4 –1.4
Sum of absolute deviations 19.1 36.6 76.8 72.9
Yellow shading denotes deviations between 5% and 9.99%.
Red shading denotes deviations 10% or greater.
Source: Vanguard calculations based on FactSet data. Note: Data as of 12/31/2013
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Home bias is significant in Canada
and everywhere else too
What to do about it?
Diversify globally, based on local factors
Home bias exists in bonds too
Hedging is key to bringing bond volatility down
In conclusion
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• Higher costs can significantly depress a portfolio’s growth over long periods
• Costs create an inevitable gap between what the markets return and what investors
actually earn—but keeping expenses down can help to narrow that gap
• Lower-cost mutual funds have tended to perform better than higher-cost funds over time
• Indexed investments can be a useful tool for cost control
Minimize cost
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100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
550,000
600,000
5 10 15 20 25 30
Port
folio
valu
e,
$
Years
The long-term impact of investment costs on portfolio balances
Assuming a starting balance of $100,000 and a yearly return of 6%, which is reinvested
Why cost matters
Note: The portfolio balances shown are hypothetical and do not reflect any particular investment. The final account balances do not reflect any taxes or penalties that might be due
upon distribution. The Management Expense Ratoio (MER) is used for the expense ratio. MER is the sum of the management expenses incurred by the fund expressed as a
percentage of the average net assets throughout the year.
Source: Vanguard calculations using data from Morningstar.
$532,899 0.25% annual cost
$574,349 No costs
$378,923 1.40% annual cost
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Average annual returns over the ten years through 2016
Reduce cost to help improve return
Notes: All Canada-domiciled mutual funds in each Morningstar category were ranked by their expense ratios as of December 31, 2016. They were then divided into four equal groups,
from the lowest-cost to the highest-cost funds. The chart shows the ten-year annualized returns for the median funds in the lowest-cost and highest-cost quartiles. Returns are net of
expenses, excluding loads and taxes. Both actively managed and index funds are included, as are all classes with at least ten years of returns.
Source: Vanguard calculations, using data from Morningstar, Inc.
0
1
2
3
4
5
6
7
8
9
10
Large-cap Mid-cap U.S. equity Intermediate-term Short-term
Avera
ge a
nnual re
turn
for
ten y
ears
thro
ugh 2
016
Equity Fixed income
Median fund in lowest-cost quartile
Median fund in highest-cost quartile
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Asset-weighted expense ratios of active and indexed investments
Indexing can help minimize cost
Notes: “Asset-weighted” means that the averages are based on the expenses incurred by each invested dollar. Thus, a fund with sizable assets will have a greater impact on the
average than a smaller fund. Analysis includes all share classes of funds available for sale in Canada.
Source: Vanguard calculations, using data from Morningstar, Inc.
Average expense ratio as of December 31, 2016
Actively managed funds Index funds Difference
Canadian equity 1.10% 0.26% 0.84
International equity 1.11% 0.42% 0.69
U.S. equity 1.37% 0.34% 1.03
Canadian fixed income 0.59% 0.33% 0.26
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22%
44% 42%
28%32%
8%
22% 20%16% 16%
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Large-cap blend Small-cap blend International equity:Developed markts
International equity:Emerging markets
Diversified U.S. fixedincome
Percentage of active funds outperforming the average return of low-cost index funds over the ten years through 2016
Low-cost indexing can improve returns
Notes: Data cover the ten years ended December 31, 2016. The actively managed funds are those listed in the respective Morningstar categories.
Sources: Morningstar and Vanguard.
Based on funds surviving after ten years
Based on survivors plus funds closed or merged
Morningstar category
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• Investors cannot control markets, but they can control what they pay to invest
• The lower your costs, the greater your share of an investment’s return
• Lower-cost investments have tended to outperform higher-cost alternatives
Key takeaways
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• Enforcing an asset allocation through periodic rebalancing can help
manage a portfolio’s risk
• Spontaneous departures from such an allocation can be costly
• Attempts to outguess the market rarely pay
• Chasing winners often leads to a dead end
• Simply contributing more money toward an investment goal can be a
surprisingly powerful tool
Maintain perspective and long-term discipline
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Market timing versus a market benchmark: A spotty record
Performance of flexible-allocation funds compared with a 60% stock/40% bond benchmark, January 1997-December 2016
Ignore the temptation to alter allocations
Notes: The balanced benchmark consists of the MSCI US Broad Market Index (42%), the MSCI All Country World Index ex USA (18%) and the Barclays U.S. Aggregate Bond Index
(40%). Flexible-allocation funds are those defined by Morningstar as having “a largely unconstrained mandate to invest in a range of asset types.”
Source: Vanguard, using data from Morningstar.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Bull Market 1/1/97 -8/31/00
Bear Market 9/1/00 -2/28/2003
Bull Market 3/1/03 -10/31/07
Bear Market 11/1/07 -2/28/2009
Bull Market 3/1/09 -12/31/16
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40%
45%
50%
55%
60%
65%
70%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Allo
cation t
o s
tocks
The importance of maintaining discipline: Failure to rebalance can increase an investor’s exposure to risk
Changes in equity exposure for a rebalanced portfolio and a “drifting portfolio,” 2006–2016
The case for discipline
Target Allocation
Equity Allocation: Semi-annual Rebalance Portfolio
Equity Allocation: “Set and Forget Portfolio
Notes: The initial allocation for both portfolios is 30% Canadian equities, 30% international equities and 40% Canadian fixed income. The rebalanced portfolio is returned to this
allocation at the end of each June and December. Returns for the Canadian equity allocation are based on the S&P/TSX Composite Index. Returns for the international equity
allocation are based on the MSCI EAFE, MSCI USA and MSCI Emerging Markets Indexes allocated at their historic market weights. Returns for the fixed income allocation are based
on the Citigroup World Government Bond Index—Canada All Maturities. This hypothetical illustration does not represent the results of any particular investment.
Source: Vanguard, using data provided by Thomson Reuters Datastream.
Year
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Fund leadership is quick to change
Ignore the temptation to chase last year’s winner
270 funds
81% (218) underperformed 19% (52) outperformed
71% (37) underperformed29% (15) out-
performed
January 1, 2003
December 31, 2007
December 31, 2012
Note: The chart is based on a ranking of all actively managed Canadian equity funds covered by Morningstar traditional style categories according to their excess returns versus their
stated benchmarks as reported by Morningstar during the five years through 2007.
Sources: Vanguard and Morningstar.
37Authorized by Vanguard Investments Canada Inc. for investor use.
How investors’ returns lagged their funds’ returns 2002-2016
Market timing and performance chasing can be a drag on returns
Notes: The average difference is calculated based on Morningstar data for investor returns and fund returns. Morningstar Investor Return™ assumes that the change in a fund’s total
net assets during a given period is driven by both market returns and investor cash flow. To calculate investor return, the change in net assets is discounted by the fund’s investment
return to isolate the amount of the change driven by cash flow; then a proprietary model is used to calculate the rate of return that links the beginning net assets and the cash flow to
the ending net assets.
Sources: Morningstar and Vanguard calculations. Data cover the period from January 1, 2002, through December 31, 2016.
-0.33-0.44 -0.47
-0.61 -0.62 -0.62
-1.1 -1.12 -1.15 -1.17
-1.43
-2.14
-2.61
-3
-2.5
-2
-1.5
-1
-0.5
0Balanced International Equity U.S. Equity
DiversifiedEmerging Markets Commodities
Foreign small-cap/mid-cap blend Global Real Estate Alternative Taxable Bond Sector Equity Municipal Bond High Yield Bond
Emerging MarketsBond
Ave
rag
e a
nu
al d
iffe
ren
ce
be
twe
en
in
ve
sto
r re
turn
an
d
fun
d r
etu
rn (
%)
38Authorized by Vanguard Investments Canada Inc. for investor use.
• Because investing evokes emotion, even sophisticated investors should
maintain long-term discipline
• Abandoning a planned investment strategy can be costly
• Often, the most significant derailer is behaviour—failure to rebalance,
the allure of market timing and the temptation to chase performance
Key takeaways
39Authorized by Vanguard Investments Canada Inc. for investor use.
Commissions, management fees, and expenses all may be associated with investments in a Vanguard ETF®. Investment objectives, risks, fees, expenses, and other important information are contained in the prospectus; please read it before investing. ETFs are not guaranteed, their values change frequently, and past performance may not be repeated. Vanguard ETFs® are managed by Vanguard Investments Canada Inc., an indirect wholly owned subsidiary of The Vanguard Group, Inc.
Date of publication: May 25, 2017.
The opinions expressed in this presentation are those of the individual representative and do not necessarily reflect the opinions of Vanguard Investments Canada Inc. No implied or express recommendation, offer, or solicitation to buy or sell any security or to adopt any particular investment or portfolio strategy is made in this material. This presentation is not research, investment and/or tax advice and it is not tailored to the needs or circumstances of any individual investor.
Information, figures and charts are summarized for illustrative purposes only and are subject to change without notice. While this information has been compiled from sources believed to be reliable, Vanguard Investments Canada Inc. does not guarantee the accuracy, completeness, timeliness or reliability of this information or any results from its use. Information regarding third-party investment fund managers is solely for educational purposes.
All investments, including those that seek to track indexes, are subject to risk, including the possible loss of principal. Diversification does not ensure a profit or protect against a loss in a declining market. While Vanguard ETFs are designed to be as diversified as the original indexes they seek to track and can provide greater diversification than an individual investor may achieve independently, any given ETF may not be a diversified investment.
In this presentation, references to "Vanguard" are provided for convenience only and may refer to, where applicable, only The Vanguard Group, Inc., and/or may include its affiliates, including Vanguard Investments Canada Inc.
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© 2017 Vanguard Investments Canada Inc. All rights reserved.
Important information
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*Vanguard Investments Canada Inc. is a wholly owned indirect subsidiary of The Vanguard Group, Inc.
Appendix: Vanguard structure