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Vanguard newsletter writer and investor Dan Wiener hates indexing

He doesn’t just talk Vanguard; he owns every one of its funds.

Daniel P. Wiener, co-founder of Adviser Investments, is an expert on Vanguard mutual funds.

Daniel P. Wiener, co-founder of Adviser Investments, is an expert on Vanguard mutual funds
ERIN E. ARVEDLUND, INQUIRER STAFF WRITER

Daniel P. Wiener makes a living both as a cheerleader and a critic of Vanguard, the $3 trillion Malvern-based investment firm. His company advises $3.5 billion in investor assets, much of it in Vanguard funds, but he does not advocate low-cost indexing.

Instead, he prefers actively managed Vanguard mutual funds – especially in his own retirement fund.

“I believe you can and should buy active managers,” says Wiener, who lives in Brooklyn but has “a ton of clients” in the Philadelphia area. “Buying Vanguard index funds isn’t my idea of how to make money.”

That sounds like heresy to Bogleheads, as fans of Vanguard are known. Founder John Bogle made indexing famous as a cheap way for Americans to gain exposure to the stock market.

 As CEO of Adviser Investments and editor of the Independent Adviser for Vanguard Investors, Wiener argues that his way works better than indexing. His firm’s long-term performance record is 2 percent higher annually than the S&P 500.

Adviser Investments started as a newsletter, then Wiener and partners began recommending actively managed mutual funds run by Vanguard, and later others from Fidelity, BlackRock, Primecap Management, Polaris Capital Management, and Wellington Management.

What does Wiener own personally? In his Individual Retirement Account, every Vanguard mutual fund and every exchange-traded fund.

“I eat my own cooking, because I have to. I want to read all the shareholder communications for running my business. I own more Vanguard funds than any of the fund directors do. And they get paid $250,000 a year to serve on the board! It’s ridiculous,” he says, that so few mutual fund directors at Vanguard own the funds on which they sit.

“When I read [in shareholder letters] that a director has put $10,000 into a fund, it makes me crazy. Is that just so they can say they own it? Because they have a responsibility to the shareholders as a director. They don’t have enough money in the funds to have skin in the game.”

In his personal retirement account, Wiener has an extremely large allocation to equities, roughly 95 percent of his portfolio. At age 59, he can tolerate more risk than most of his clients, his wife, and children, for whom he invests more conservatively. Though he has a succession plan in place, Wiener plans to be working for a very long time.

Among his holdings: Fidelity Low-Priced Stock fund (8 percent); PIMCO All Asset (4 percent); Vanguard Short-Term Investment Grade (5 percent); Fidelity International Growth (9 percent); Fidelity Mega Cap Stock (19 percent); Hartford HealthCare (6 percent); Primecap Odyssey Aggressive Growth (15 percent); Primecap Odyssey Growth (15 percent); and Vanguard Dividend Growth (18 percent). Numbers are not exact due to rounding.

“Some like the Primecap Odyssey fund I purchased because it is overseen by managers who run money for Vanguard,” also known as sub-advisers, he said.

He likes to get in funds early, such as when Primecap Odyssey was small and “didn’t get the attention early on that the Vanguard funds would.”

For clients, Wiener generally recommends a lower allocation to stocks – that is, less aggressive and with less risk.

“Especially if someone is older, their range is 60 percent to 80 percent in equities. On the other hand, we have a 92-year-old client, and the bulk of her money is invested for her teenage grandchildren, so 85 percent of the money is invested in equities” for long-term growth, he says.

With clients approaching retirement, Wiener’s team asks questions about their emotional response to markets.

“It’s good to live within your means, save as much as you can, and go through all the worksheets about spending habits. But we also ask if they get nervous when markets go down or giddy when they go up, or are they well-centered? Do they understand diversification and staying invested long term?”

Wiener doesn’t believe in retirement by robo-adviser – the latest iteration of computerized investing.

“Robo-advisers can’t understand how investors react in markets like 2008, or how they will react,” Wiener says.

To clients who need to live off their portfolios, he says this: Don’t fret over whether gains come from income.

“Income misses the point – you want gains, whether those gains come from dividends, interest or capital gains. From a tax standpoint, I’m much happier generating capital gains.”


earvedlund@phillynews.com

215-854-2808

@erinarvedlund

Read more at http://www.philly.com/philly/business/20150614_Skin_in_the_Game.html#lCjdrruBCwV256TZ.99

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