100% in Wellesley? 2035?

[Breitling]

Anyone keep it real simple by going 100% into any individual fund? Is it simply to risky?

I have ~$500k in an after-tax retirement account that I would like to draw monthly income out of. The current yield (4.45%) will pay for all my basic expenses.

In addition to that account, I have $88k in a solo 401k plan that has around 30 years to grow before I plan on pulling anything out of that. Is going 100% with one of the Vanguard Target Retirement accounts an acceptable solution? I'm thinking the 2035 fund has a rather attractive allocation for my goals.

I guess when all is said, my total allocation between all accounts would look something like this:

$500k - After tax acct
$88k - Solo 401k
$20k - Emergency Cash (Fidelity MM currently)

I'm only 29yrs and like the idea of floating around from fun job to fun job when I need the money. Having my expenses covered via the Wellesley yield would give me a bit of piece of mind when I decide I don't want to work for a year or two...

 

[MasterBlaster]

Well Wellesley is certainly a diversified mutual fund. I wouldn't worry about them going broke or of the investments going to zero or anything like that. Wellesley has a very long history of consistant income.

What I might be concerned about is that Wellesley is an income fund. It is structured to be very conservative so that people (like retirees) can count on the income stream that it produces. It just might be a bit too conservative for a 29 year old. On the other hand, if you need current income then that is one great fund to be in. But know going in, if you choose an income fund, that your stash just might grow a little bit slower than some of your peers stash. Are you OK with that ?

The other issue I have with an after tax income fund is... The income. Have you thought about taxes ? So if you decide to work for awhile you'll pay current income taxes on both your earned income and your Wellesley income income. Some people, especially young people, usually like the income (or investment gains) to snowball. They usually don't want to pay income taxes on their money until they are ready to spend it. Income funds in after tax accounts are not very good at deferring taxes.

 

[FIREd]

I would definitely consider putting 100% of my money in Wellesley... but only when I retire! I think that investment is a bit too conservative for somebody your age. If you spend the dividends each year, Wellesley should produce just enough return to pretty much maintain your portolio value (on an inflation-adjusted basis), that is your real return will be near zero (in other words, your money won't really grow, it'll just keep up with inflation). I would be looking at other balanced funds that are perhaps more growth oriented but that still throw a fair amount of dividends (for current income when you are in-between jobs). Wellington could fit the bill, but there are others. Off course as MasterBlaster said, beware of the tax liability when you invest in income or balanced funds. Most of the dividends produced by Wellesley do not qualify for the lower dividend tax rate, they are considered income and will be taxed as such.

 

[Peter]

Wellesley has certainly done pretty well since the early '80s. However this is a time period when interest rates have been falling consistently from rather high levels. So you might expect a fund heavy on bonds to do well.

Not clear to me that you can rely on the NAV keeping pace with inflation from this point on.

Peter

 

[soupcxan]

You might also consider a two-fund portfolio of Vanguard's Total bond index (VBMFX) and their equity income fund (VEIPX) which would give you a similar risk profile to Wellsely and current income, but more flexibility to adjust the ratio of stocks/bonds depending on your risk profile and tax situation which will likely change over time.

Given your age I would add a little bit of diversification with some small/mid-caps (VEXMX) and international (VFWIX).

 

[JohnEyles]

I would definitely consider putting 100% of my money in Wellesley... but only when I retire! .

As I just posted in another thread, but it seems more appropriate
here: The share price of Wellesley doesn't really look to me like
it keeps pace with inflation, historically. So although you get 4+%
yield and preservation of capital, that 4% probably will become
worth less and less as the years go by. Correct me if I'm wrong ...

 

[FIRE'd@51]

The share price of Wellesley doesn't really look to me like it keeps pace with inflation, historically. So although you get 4+% yield and preservation of capital, that 4% probably will become worth less and less as the years go by. Correct me if I'm wrong ...

You can't really tell this by looking at the share price alone. Wellesley makes a lot of ST and LT capitals gains distributions. If you reinvested those, your principal would actually have outpaced inflation. If you look at the total return historically

Wellesley Total Return

you will see that Wellesley has returned nearly 6% (after inflation) annually since it's inception in 1970. So the 4% dividend/interest yield is applied to an increasing share base as the years go by. This has allowed both the cash flow (dividends/interest) and the principal to outpace inflation historically.

 

[Brat]

Forbes 2007 Mutual Fund Report is now on line. They rank balanced funds for up and down markets. Worth a look.

 

[FinanceDude]

You can't really tell this by looking at the share price alone. Wellesley makes a lot of ST and LT capitals gains distributions. If you reinvested those, your principal would actually have outpaced inflation. If you look at the total return historically

Wellesley Total Return

you will see that Wellesley has returned nearly 6% (after inflation) annually since it's inception in 1970. So the 4% dividend/interest yield is applied to an increasing share base as the years go by. This has allowed both the cash flow (dividends/interest) and the principal to outpace inflation historically.

Is that all this fund did? Doesn't seem that stellar to me??

 

[FIRE'd@51]

Is that all this fund did? Doesn't seem that stellar to me??

Bear in mind, that's Wellesley is about 40/60 equities/bonds.

 

[FinanceDude]

Bear in mind, that's Wellesley is about 40/60 equities/bonds.

Is that a constant allocation? Then, it's a pretty good return.

 

[FIRE'd@51]

Is that a constant allocation? Then, it's a pretty good return.

Pretty much. You can read about it here:

Wellesley

The equity portion used to be managed by John Neff (as in The Windsor Fund) before he retired. It's still being managed by Wellington Management.

 

[FinanceDude]

Pretty much. You can read about it here:

I still like balanced funds more, with a higher allocation to equities. I'm happy with my balanced fund, it's done well for 15 years.......

 

[FIRE'd@51]

I still like balanced funds more, with a higher allocation to equities. I'm happy with my balanced fund, it's done well for 15 years.......

I'm not trying to push it - I was just answering JohnEyles' post. I don't own it myself, for the same reason as you - I am about 75% equities. However, for someone who wants that type of exposure with a 4.5% yield, IMO, it is an excellent fund with a very good track record.

 

[REWahoo]

Age 60 and FIRED, I'm ~40% Wellesley. It's (been) a great fund, but I want a bit more equity and international exposure, plus more diversification. That's why I also have ~25% in D&C Balanced, and ~10% in D&C International.

 

[Breitling]

Thanks for the replies! I'll let you know what I decide to do after I figure it all out.