WEEKLY BRIEF | Climbing Markets, Falling Fees

Hello, and welcome to the IVA Weekly Brief for Wednesday, August 5.

There are no changes recommended for any of our Portfolios.

The U.S. economy grew 0.4% in the second quarter after inflation. Real GDP—that is, Gross Domestic Product adjusted for inflation—rose $90 billion to a record $24.3 trillion. Over the past 12 months, real GDP has increased 2.1%—right in line with the average over the past two decades. 

In short, economic growth has been average—not spectacular, not recessionary.

But GDP is a rearview-mirror measure. It tells us where we’ve been, not where we’re going. The takeaway: The economy absorbed the tariff disruptions and the Iran war without slipping into recession—but it’s not firing on all cylinders either.

With the economy growing at a reasonable pace, the stock market continues to deliver better-than-reasonable returns.

Yesterday, the S&P 500 index notched its 27th record high of the year—its first since June 2. If we count dividends—and we should—500 Index (VFIAX) is up 13.7% this year, on pace for a 24.2% gain for the calendar year. Not a bad result if it holds.

Today’s lesson is that there are always good reasons to avoid the stock market. A massive shift in tariffs and a war in the Middle East certainly sounded like plausible ones. But long-term investors should tune out the noise and spend time in the market. More often than not, and over time, stocks compound your wealth.

This doesn’t mean there won’t be corrections and bear markets to contend with. It also doesn’t mean you must only own stocks, either. Spending time in the market is about finding the right portfolio for you—one that lets you compound your wealth without getting jostled off course by every bump in the road.

No-Load at Last

Yesterday, Vanguard effectively eliminated purchase and redemption fees—“loads,” by another name—for the average investor.

Vanguard has long charged purchase and/or redemption fees on seven of its index mutual funds, even though investors could sidestep those fees entirely by using the funds' ETF share classes instead. Now, for all seven funds, the ETF and mutual fund share classes sit on a level playing field.

The last fee standing is on the institutional share classes of Extended Duration Treasury ETF (EDV)—though Vanguard cut it from 0.50% to 0.25%. Those share classes require a minimum investment of $5 million or $100 million, so the change won't affect most of us. And as “retail” investors, you and I were never on the hook for that fee—or those minimums—in the first place; we could simply buy the ETF share class. Whether you should own Extended Duration Treasury ETF at all is a separate question for another day.

Eliminating these fees was long overdue, in my view. But it’s another signpost that, despite all the changes in Vanguard’s leadership (see here, for example), the firm hasn’t lost focus on lowering costs.

Our Portfolios

Our Portfolios are showing solid returns for the year through Tuesday. The Aggressive Portfolio is up 16.1%, the Aggressive ETF Portfolio is up 13.9%, the Growth Portfolio is up 14.2%, the Moderate Portfolio is up 13.7% and the Conservative Portfolio is up 8.2%.

This compares to a 14.2% return for Total Stock Market Index (VTSAX), a 15.2% gain for Total International Stock Index (VTIAX), and a fractional drop for Total Bond Market Index (VBTLX). Vanguard’s most aggressive multi-index fund, Target Retirement 2070 (VSNVX), is up 13.3% for the year, and its most conservative, LifeStrategy 20/80 (VASIX), is up 3.2%.

IVA Research

Yesterday, I explained why PRIMECAP (VPMCX) is trading like a momentum fund right now—and why that's not actually what's going on—with Premium Members.

Until my next IVA Weekly Brief, have a safe, sound and prosperous investment future.