50% Wellesley/50 % Wellington - So Simple Why didn't I do it?

[Tiger]

Tiger, I just ran the numbers for Wellsi/Welltn from 1/1/91 to today and I get a return (per Quicken) of 9.8% I'm not sure exactly what that shows (if anything) but there your are

Loomis Sayles Institutional Class return since 11/1/91 is 10.68%
Looms Sayles Bond Fund Retail class return since 12/31/96 is 10.4%

 

[ejman]

Loomis Sayles Institutional Class return since 11/1/91 is 10.68%
Looms Sayles Bond Fund Retail class return since 12/31/96 is 10.4%

Wellsi/Welltn since 1/1/88 was 10%

Wellsi/Welltn since 3/1/00 is 8%

Ain't this fun?

 

[Tiger]

What about since 12/31/96?

 

[cute fuzzy bunny]

This sort of dialog seems unproductive.

To directly answer your original question, a portfolio of this fund, an international fund and a tips fund compared to a 50/50 blend of wellesley and wellington would provide:

- Far more international stock and bond exposure
- More risk of principal loss
- Some protection from US currency fluctuations
- Higher fund expenses
- Potentially very high volatility from all three components
- Moderate protection from inflation

I would not recommend such a mixture for a mildly risk averse early retiree looking for good income, low costs, low volatility and a good potential for maintaining pace with inflation. It might be fine for a retiree looking for total return that isnt concerned about fund costs, volatility and a fair degree of tolerance for capital loss.

Was there something else you were looking for?

 

[Tiger]

Was there something else you were looking for?

Yes, an answer from ejman to my last question to him.

 

[cute fuzzy bunny]

Oh.

In that case, the yankees suck.

GO SOX!

 

[Helen]

I love the simplicity of the two funds but my concern would be in the withdrawal phase. If the markets are way down, I would want to pull money from my bond fund. If the markets are way up (hey, it could happen) I would want to pull from my stock funds.

I think balanced funds are great in the accumulation phase, but not so much in the withdrawal phase.

 

[cute fuzzy bunny]

I'd always recommend them (them being any of the above) as a partial holding with other funds fleshing out an asset allocation.

For dead-bang stupid the two fund wellesley/wellington should do. But I'd add some international, some cash/cd's, some smaller allocations to rocket rides like reits, precious metals, emerging markets and perhaps some core stock/bond holdings like TIPS, short term investment grade, TSM, S&P500, etc.

Some folks like their foundation to be pretty solid and something they dont think about while they fiddle around with the shutters and trim paint.

Some folks will drop a mobile home on a pile of sand and buy lots of pink flamingos.

 

[ejman]

Helen, I have a variety of funds (7 actually ) in my non retirement basket ( 2 of which are Wellsi/Welltn) and they provide a good retirement income. Like I said at the beginning of this thread, I wish this pot was mostly if not all in the Wellsi/Welltn combo. I'm not sure I follow your logic in this not beong desirable in the withdrawal phase.

CFB Agree, diversified portfolio increases portfolio survavility MPT and all that but I hate the complexity.

Tiger, My comments on rates of return before were intended in a humorous vein and I'm not sure if that's how they were taken so I'm not playing no more...

 

[Helen]

Hi EJMAN,

Well, with a blend fund, which mixes stocks and bonds together, if I wanted to sell some bonds and leave the stocks alone I wouldn't be able to do it. In a case like this year, I think I'd rather sell bonds and live off the proceeds then sell stocks.

I suppose I could have laddered CDs to use during years when the markets are in the tank.

-helen

 

[ejman]

Helen, I see - we have a different withdrawal philosophy. I prefer not to sell at all and live off the distributions only. By selling bonds and or/stocks depending on your read of the markets you are practicing a form of market timing and it can work very well if you are good at it. Unfortunately I am not so I don't do it. I do sell and exchange occasionally to rebalance my portfolio to my desired asset allocation but I do that only in the retirement bucket.

 

[FANOFJESUS]

Helen, I have a variety of funds (7 actually ) in my non retirement basket ( 2 of which are Wellsi/Welltn) and they provide a good retirement income. Like I said at the beginning of this thread, I wish this pot was mostly if not all in the Wellsi/Welltn combo. I'm not sure I follow your logic in this not beong desirable in the withdrawal phase.

CFB Agree, diversified portfolio increases portfolio survavility MPT and all that but I hate the complexity.

Tiger, My comments on rates of return before were intended in a humorous vein and I'm not sure if that's how they were taken so I'm not playing no more...

We think along the same lines. I have 9 funds in my non retirement basket. I got caught in 2007 with only one fund the Dodge and Cox Balanced fund. For many years it did great but last year was the pitts. Because of this I have become gun shy of only one fund or maybe even two. So right now I have nine. It might be overkill but at least if one has a bad year it will not hurt me to much. But you are right those two are great funds. I have the wellington and the star as two of the nine. My ER is about .90 average for all nine funds which is higher but I do feel safe. I am down about 6% for the year so not to bad for a 60/40 mix.

 

[ejman]

Rec7: good points. My comments on just having the Wellsi/Welltn combo is directed to the simplicity of the idea and the fact that over the past 21 years that combo performed somewhat better than the more complex group of funds I have. But there is obviously a lot of value to diversifying as your experience with DCB showed.

 

[cute fuzzy bunny]

Helen...two things to consider.

One is that the balanced funds lately HAVE been selling bonds to buy stocks so as to maintain their asset allocation.

The other is that in this proposed scenario, you'd be getting roughly a 4% dividend payout by a 50/50 combination of wellesley/wellington. You wouldnt have to sell anything at all to maintain your withdrawal.

You'll probably see a modest capital gain distribution at the end of each year, reinvest it. Between the realized and unrealized capital gains, theres your inflation protection.

At least thats how its worked for the last 40 years.

Granted in many of those years, wellesley threw off 7 or 8% in dividends along with notching up a few percentage points of gains, but inflation was pretty high in those years.

 

[Helen]

Thanks for the explaination, CFB. Once I retire, I plan to roll my TSP account into a Roth at Vanguard. I wouldn't mind using the W/W as a core holding. I want to keep it as simple as possible in case I kick the bucket first. My partner is not interested in learning about investing.

I have some Wellington in a Roth right now.

I'm still 5 - 6 years away from retirement. I need to start thinking more about my withdrawal strategy.

 

[cute fuzzy bunny]

Good news is that there are a lot of easy options these days. Far more than when I retired 7 years ago.

By peanut buttering around to funds like wellesley, target retirement income, lifestrategy income, or the managed payout 3/5/7% funds you can get a lot of diversity, foreign holdings, some value stock, some TIPS, yada yada yada.

All produce a nice 4%ish dividend without a lot of sudden moves and loud noises, are cheap to own, and dont require much manual labor from the investor.

 

[Nords]

Thanks for the explaination, CFB. Once I retire, I plan to roll my TSP account into a Roth at Vanguard.
I'm still 5 - 6 years away from retirement. I need to start thinking more about my withdrawal strategy.

Spouse is contemplating whether to leave her TSP where it is (expense ratio of 0.03%) or roll it over to somewhere else. For that ER, though, we're not sure she could find a better deal. What's behind your thoughts of rolling your TSP over to (a conventional IRA and then converting it to) a Roth?

 

[Helen]

Spouse is contemplating whether to leave her TSP where it is (expense ratio of 0.03%) or roll it over to somewhere else. For that ER, though, we're not sure she could find a better deal. What's behind your thoughts of rolling your TSP over to (a conventional IRA and then converting it to) a Roth?

I don't like the withdrawal options of the TSP, I think they are too limited. Also, the first 3 - 4 years of retirement I'll be living on after tax money only and will probably be in a zero tax bracket. I think it makes sense to roll the TSP money into a (yup, conventional IRA lump sum first then a) Roth IRA up to the 15% tax bracket before I start taking a pension and later Social Security. I'll spread the roll over into the span of several years.

I will miss the G fund and the low expense ratios though.

 

[Nords]

OK, thanks. Spouse has another 13 years to make her decision...