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Old 07-24-2008, 10:34 AM   #21
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Sorry, you are right Wellsi/Welltn only dividends and CG distributions was 6.7% last year for my accounts. My short term reserves drags down the return but I sleep very soundly so good trade off for me

Thanks for your help. I was thinking of doing the same thing at some point.
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Old 07-24-2008, 11:30 AM   #22
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That's true if you are in the accumulation phase. Since I'm retired, I actually use the dividends and CG's to live on and true am taxed on these but I haven't quite figured out how to totally eliminate taxes other than the ultimate solution and 6 ft under sounds a mite drastic as a tax avoidance option....
I paid off my mortgage and other debt and the portfolio reduction made the wellesley/wellington dividend throw off small enough such that after deductions, I paid no income taxes. The smaller dividend payout was fine because all I had to pay was my monthly bills and food.

At that point the NAV of both funds was pretty much irrelevant, at least up to a point. No taxes, no big mandatory monthly payments, lots of budget flexibility.

And yeah, having a bunch of good income producing funds in your IRA when you're an early retiree not planning on doing a 72t doesnt really do you a whole lot of good.
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Old 07-24-2008, 03:31 PM   #23
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I paid off my mortgage and other debt and the portfolio reduction made the wellesley/wellington dividend throw off small enough such that after deductions, I paid no income taxes. The smaller dividend payout was fine because all I had to pay was my monthly bills and food.
Agree. I've followed a very similar approach and although my taxes are not zero, they are very low. But my thinking is that putting taxes in the drivers seat does not lead me to the right destination. I'd rather have a good investment with taxes as a secondary consideration than the other way around.
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Old 07-24-2008, 05:21 PM   #24
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Absolutely. But all things being equal, I'd rather stiff the IRS.
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Old 07-26-2008, 12:29 AM   #25
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Spending dividends/interest as an ER proxy for SWR may make sense,but spending dividends/interest and Capital Gains makes less sense, as the Cgains distributions are really fairly random, and a function largely of the trading strategies of the mutual fund over the course of a bull market and not much else.

Also, all the SWR studies assume all those capital gains stay invested, so spending them along with dividends is not really as bullteproof as it might seem in terms of preserving a spending standard of living over the long haul from your assets. I'm guessing those who use this approach know all this, but I wouldn't want others to be lured into some sort of new approach to spending money in ER.

Anyway, this approach will give a lot less to spend this year or next year, if current market conditions continue. I suspect few capital gains distributions from funds over the next few years as a result of all the losses in stock indexes. Of course all that could change by year-end.
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Old 07-26-2008, 06:25 PM   #26
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Spending dividends/interest as an ER proxy for SWR may make sense,but spending dividends/interest and Capital Gains makes less sense, as the Cgains distributions are really fairly random, and a function largely of the trading strategies of the mutual fund over the course of a bull market and not much else.

Also, all the SWR studies assume all those capital gains stay invested, so spending them along with dividends is not really as bullteproof as it might seem in terms of preserving a spending standard of living over the long haul from your assets. I'm guessing those who use this approach know all this, but I wouldn't want others to be lured into some sort of new approach to spending money in ER.

Anyway, this approach will give a lot less to spend this year or next year, if current market conditions continue. I suspect few capital gains distributions from funds over the next few years as a result of all the losses in stock indexes. Of course all that could change by year-end.
True, Although it's interesting to see that a combination of Wellsi/Welltn results in more uniform distributions than with a lot of other funds. From a practical standpoint, I take the dividends+ CG from my taxable funds only since I'm already paying taxes on those distributions and that's what I live on. My dividends and CG in my retirement funds are reinvested and I don't intend in drawing those out until needed (or RD for my IRA). (Incidentally, my overall withdrawal rate when looking at the pot of both taxable and tax deferred investments is 3.5% Like I said I like to sleep soundly at night)

I see no point on being taxed on my dividend and CG for my taxable funds, reinvesting my CG and then being taxed again on whatever distribution on top of dividends I need to live on. That makes absolutely no sense to me.

Looking at Wellsi/Welltn only the distributions for 2000 - 2007 were as follows

2000 div 4.7% CG 4%
2001 div 4.2% CG 4.2%
2002 div 3.8 %
2003 div 4.3%
2004 div 3.5% CG 1.7%
2005 div 3.9% CG 2.8%
2006 div 3.8% CG 3.9%
2007 div 3.8% CG 2.9%

(all of the above based on $ at the beginning of the year)

Obviously, from the numbers listed above if the desired annual withdrawal rate is say between 4-5 % most of that would come from the dividend portion and only some of the CG would be needed in some years assuming the entire pot is Wellsi/Welltn and its large enough to support one's income requirements.

As indicated at the start of the thread, I now wish all of my money had gone into a 50/50 Wellsi/Welltn pot instead of the 15 different funds I'm now wrestling with
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Old 07-26-2008, 09:37 PM   #27
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My dividends and CG in my retirement funds are reinvested and I don't intend in drawing those out until needed (or RD for my IRA). (Incidentally, my overall withdrawal rate when looking at the pot of both taxable and tax deferred investments is 3.5% Like I said I like to sleep soundly at night)
Two+ bucket strategy, its a little incoherent to the traditionalists and the tax freaks but I get it.

Dang good way to get predictable results with excellent 8 hour sleeping patterns.

We're going the same way. First bucket is a lot of yield with some related music towards holding on to capital value but with an intention towards some principal consumption and low volatility. Second bucket is a whole bunch of capital appreciation and I'll revisit it again in 2020. Third bucket is balls to the wall. We'll talk about that in 2040.
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Old 07-26-2008, 09:49 PM   #28
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CFB: right on!
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Old 07-26-2008, 09:52 PM   #29
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I got your back, man. Sometimes obscure good things can make for exceptionally happy times...
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Old 07-26-2008, 10:56 PM   #30
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TFrom a practical standpoint, I take the dividends+ CG from my taxable funds only since I'm already paying taxes on those distributions and that's what I live on. My dividends and CG in my retirement funds are reinvested and I don't intend in drawing those out until needed (or RD for my IRA). (Incidentally, my overall withdrawal rate when looking at the pot of both taxable and tax deferred investments is 3.5% Like I said I like to sleep soundly at night)

I see no point on being taxed on my dividend and CG for my taxable funds, reinvesting my CG and then being taxed again on whatever distribution on top of dividends I need to live on. That makes absolutely no sense to me.

L
Completely agree re: taxes and I do the same thing. If the cash shows up in your account, from wherever, then go ahead and spend it. Top up those asset classes later at rebalancing time if need be.

The key is to keep your overall withdrawals from the portfolio within the safe range(4-5% in my research).

I don't have dividends and capgains reinvested in my taxable funds any more but funnel them all into the Money Market fund for spending. My original comment was in case anybody reading your post was thinking it was OK to have, for example, a single mutual fund for their portfolio, spend all the distributions from it, and have a guaranteed 'safe' plan because they were only spending distributions. Inflation will nail you if nothing else.
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Old 07-27-2008, 12:02 AM   #31
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Completely agree re: taxes and I do the same thing. If the cash shows up in your account, from wherever, then go ahead and spend it. Top up those asset classes later at rebalancing time if need be.

The key is to keep your overall withdrawals from the portfolio within the safe range(4-5% in my research).

I don't have dividends and capgains reinvested in my taxable funds any more but funnel them all into the Money Market fund for spending. My original comment was in case anybody reading your post was thinking it was OK to have, for example, a single mutual fund for their portfolio, spend all the distributions from it, and have a guaranteed 'safe' plan because they were only spending distributions. Inflation will nail you if nothing else.
Thanks for the clarification. I now understand your comment and agree. For myself I actually feel more comfortable if my overall withdrawal rate is below 4% but even then, as Luis R used to say no guarantees from the management...

It is nonetheless interesting to see that even taking as income all div/CG distributions from my taxable pot the basket size is still 1/3 greater than it was when I retired 6 years ago. Of course, if the market drops another 25-50% that'll take care of that....
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Old 07-27-2008, 11:15 AM   #32
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I also like simplicity and plan on moving to mostly Welles/Welli once I roll over my 401k in 20 months on RE. We've held them both for 5 years now and I wish I'd been using them much longer.

However I plan to continue keeping 15% of our stock allocation to international as I believe that global markets will continue to be important going forward. DW ESR'ed a few years ago and rolled her 401k and pension lump sum to Fidelity where we use the Fidelity Spartan International Index to hold our 15% allocation to international.
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Old 07-27-2008, 10:34 PM   #33
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Alan,
20 months -- that's almost soon enough to set up one of those little ticker things to count down the days. Good luck and hope Mr Market doesn't pull any unpleasant tricks out that delays that too much.
Agree on the need for international -- not sure if 15% is the right number, but the more I see of the US$ underpinnings, the more I feel it's essential to diversify into other currencies, both stock and bond (and maybe other investments like real estate -- just bought our first foreign REIT during the last rebalancing)
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Old 07-27-2008, 10:48 PM   #34
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However I plan to continue keeping 15% of our stock allocation to international as I believe that global markets will continue to be important going forward. DW ESR'ed a few years ago and rolled her 401k and pension lump sum to Fidelity where we use the Fidelity Spartan International Index to hold our 15% allocation to international.
Good point. I wonder if there is an international/global market fund comparable in concept to Wellsi/Welltn that owns a relatively fixed proportion of stocks to bonds at very low cost while furnishing substantial dividends. Is Fidelity Spartan along those lines?
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Old 07-28-2008, 02:51 PM   #35
 
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I find the Wellington/Wellesley combo intriguing and I checked some numbers and found that LSBRX (Loomis Sayles Bond Fund) has outperformed the combo on a 3, 5 and 10 year basis.

10 yr returns
LSBRX - +8.30%
Wells/Welli - +6.45%

Last Bear Mkt (3/31/02 - 4/30/03
LSBRX - +22.76%
Wells/Welli - -3.08%

What do you think of a portfolio made up of only LSBRX an Intn'l fund & a TIPS fund.

I am retired and all of my funds are in IRAs.
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Old 07-28-2008, 04:48 PM   #36
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I find the Wellington/Wellesley combo intriguing and I checked some numbers and found that LSBRX (Loomis Sayles Bond Fund) has outperformed the combo on a 3, 5 and 10 year basis.

10 yr returns
LSBRX - +8.30%
Wells/Welli - +6.45%

Last Bear Mkt (3/31/02 - 4/30/03
LSBRX - +22.76%
Wells/Welli - -3.08%

What do you think of a portfolio made up of only LSBRX an Intn'l fund & a TIPS fund.

I am retired and all of my funds are in IRAs.
I am not familiar with the LSBRX fund specifically but I would imagine that's probably not too hard to find a whole raft of funds that have better 3/5/10 returns than a Wellsi/Welltn combo. The point of the Wellsi/Welltn combo is that they show low volatility, good dividends, tend not to follow flavor of the day investment themes, have very low expenses and have long term history (Welltn all the way back to 1929!)
How does LSBRX compare in these areas?
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Old 07-28-2008, 05:16 PM   #37
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Alan,
20 months -- that's almost soon enough to set up one of those little ticker things to count down the days. Good luck and hope Mr Market doesn't pull any unpleasant tricks out that delays that too much.
Agree on the need for international -- not sure if 15% is the right number, but the more I see of the US$ underpinnings, the more I feel it's essential to diversify into other currencies, both stock and bond (and maybe other investments like real estate -- just bought our first foreign REIT during the last rebalancing)
thanks Bob, I'm certainly counting down the months and come 2009 I'll be counting down the weeks. Since I am only in Stocks as 40% of total the international portion is only ~6% of total so I don't feel over-exposed. Only time will tell.
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Old 07-28-2008, 06:13 PM   #38
 
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I am not familiar with the LSBRX fund specifically but I would imagine that's probably not too hard to find a whole raft of funds that have better 3/5/10 returns than a Wellsi/Welltn combo. The point of the Wellsi/Welltn combo is that they show low volatility, good dividends, tend not to follow flavor of the day investment themes, have very low expenses and have long term history (Welltn all the way back to 1929!)
How does LSBRX compare in these areas?
LSBRX is a multi-sector bond fund. It started in 1991. The fund's yield is 6.72%.
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Old 07-28-2008, 06:53 PM   #39
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In a nutshell, LSBRX invests a sizable (more than 1/3) amount in junk bonds, has 20% in preferred stocks, and charges a .95% expense ratio.

Kinda expensive, and certainly a good bit more credit risk is inherent, but in the ten years its been in existence its done well enough.
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Old 07-28-2008, 07:17 PM   #40
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In a nutshell, LSBRX invests a sizable (more than 1/3) amount in junk bonds, has 20% in preferred stocks, and charges a .95% expense ratio.

Kinda expensive, and certainly a good bit more credit risk is inherent, but in the ten years its been in existence its done well enough.
Thanks CFB. My computer decided to freeze up when I tried to look up LSBRX so I couldn't access the data (Hum maybe my computer is trying to protect me ) Anyway, this is a good illustration of the danger of looking just at returns 1/3 junk bonds Jeez! That would really interfere with my sound spleeping program.
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