Crisis at Vanguard: Part II

Vanguard Closes Wellington Advisory, Institutional and Advisory Shares to New Investors

No, it is not the end of the world, but if you are a loyal Vanguard investor, as am I, having one of the few mutual funds in the world I advise for purchase close is a “Vanguard Crisis” for me as well as for many individual investors.

How is this “Crisis at Vanguard” going to play out for the individual investor?

I have been anticipating this “Crisis at Vanguard” for a long time. And it is going to become a broadening industry crisis, not just a “Crisis at Vanguard.” The handful of big mutual funds suitable for my subscribers and management clients are facing the imminent risk of closing to new investors.

Why is there high risk of closings among the worthy funds available to conservative, retirement-oriented, seasoned investors?

The acceptable funds have simply grown too big. Increasingly, fund managers are finding that the field of securities suitable, given a particular fund’s strategy mandate, is shrinking below a satisfactory level that allows investing options. The well is running dry.

When a well runs dry, there is no more water. In the case of Vanguard Wellington, the day of the dry well has arrived. The flow of suitable securities options for fund managers no longer exists.

Now What?

I long ago developed a strategy ladder to deal with the “dry well.” My strategy ladder has a two-rung approach.

First: My family management accounts are not super-fund sized. Meaning, I have a multitude of securities options available for all my accounts. My management clients do not suffer from size constraints.

Second: I have the luxury at Richard C. Young & Co., Ltd. (sign up here for the Richard C. Young & Co., Ltd. client letter, delivered free even to non-clients) of being able to select from a field of securities where market capitalization levels are small enough that any big fund would be excluded from the start. I can stay under the big fund radar and feel no repercussion from big fund closings.

Investing in mutual funds at all could actually become a narrowing process.

On many fronts, the tide for the mutual fund industry is moving out.

I recently was involved in an exclusive interview series in which I explain how investors can transition away from this dying breed of financial beast. The interview series should be available this fall.