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

[ejman]

I started investing in mutual funds in 1987 and quickly acquired a large stable of pick of the month mutual funds that eventually worked its way up to about 35 funds which periodically rotated with more pick of the month choices ( from the various monthly financial publications), . Even with this large number (I guess actually a closet index fund with God knows what bias but certainly much higher costs than index funds) I actually managed to ER on my investments only in January of 2003 which I tought at the time was really not bad after 16 years of investing and directing about 15 % of my income to the mutual funds.

Imagine my surprise when I actually ran what if numbers on what it would have been if I'd only bought 50% Welleslley/50 Wellington and nothing else:

1/1/03 to today (per quicken) my basket 9.4% Wellsi/Welltn 8.1%

1/1/00 to today - my basket 2.3 % Wellsi/Welltn 7.2%

1/1/88 to today my basket 8.2 % Wellsi/Welltn 10%

Jeez! I could have gone fishin instead of putting all that time into reading all those books and financial publications and slicing and dicing!

 

[ESRBob]

Yep.
You've had your first enlightenment moment on the path to being a craven asset allocatin' slicer dicer.

I spent a whole lot of years losing a lot of sleep, brokerage commissions, self-esteem (the 50% or so of the time I got it wrong) as well as money before I reached investing Nirvanah...

In fairness I'm not a Wellesley-Wellington-only person, but I own both funds and put together something that acts about the same only is more complicated. Just goes to show, getting yourself to investing simplicity is really hard!

 

[Marquette]

In fairness I'm not a Wellesley-Wellington-only person, but I own both funds and put together something that acts about the same only is more complicated. Just goes to show, getting yourself to investing simplicity is really hard!

Boy, that chapter would have been short!

 

[audreyh1]

Getting yourself to invest simply is really hard! - LOL! That's a GREAT line!

A couple of years ago I wished I had just thrown all my money into DODBX in the first place because I hadn't been able to beat it as a benchmark for many, many years.

And though I seriously considered switching to all DODBX two years ago, the tax hit was too great to overcome. So I stayed put.

Now I'm glad I didn't - because I would have been switched right at the inflection point! For the last two years my more diversified asset allocation portfolio has soundly beaten DODBX - especially this year!

So, simpler is better, but maybe sticking to your plan once you have it in place is good too.

Audrey

 

[REWahoo]

So, simpler is better, but maybe sticking to your plan once you have it in place is good too.

Best of all is being lucky.

I've been in DODBX for 15 years, gradually ramping up my allocation until it reached 50% when I retired 3 years ago. It was a solid, consistent performer for me but I cut back to 20% when I rolled over my 401k, seeking a little more diversification. Sure glad I did.

 

[CitricAcid]

Best of all is being lucky.

I've been in DODBX for 15 years, gradually ramping up my allocation until it reached 50% when I retired 3 years ago. It was a solid, consistent performer for me but I cut back to 20% when I rolled over my 401k, seeking a little more diversification. Sure glad I did.

Market timing sucks when it hurts you.

But it is absolutely awesome when it helps you.

 

[FANOFJESUS]

I started investing in mutual funds in 1987 and quickly acquired a large stable of pick of the month mutual funds that eventually worked its way up to about 35 funds which periodically rotated with more pick of the month choices ( from the various monthly financial publications), . Even with this large number (I guess actually a closet index fund with God knows what bias but certainly much higher costs than index funds) I actually managed to ER on my investments only in January of 2003 which I tought at the time was really not bad after 16 years of investing and directing about 15 % of my income to the mutual funds.

Imagine my surprise when I actually ran what if numbers on what it would have been if I'd only bought 50% Welleslley/50 Wellington and nothing else:

1/1/03 to today (per quicken) my basket 9.4% Wellsi/Welltn 8.1%

1/1/00 to today - my basket 2.3 % Wellsi/Welltn 7.2%

1/1/88 to today my basket 8.2 % Wellsi/Welltn 10%

Jeez! I could have gone fishin instead of putting all that time into reading all those books and financial publications and slicing and dicing!

What you say is true but keep in mind that during that time bonds did well. I think we are going into a new time when bonds may not do so well. I would only go into short term bonds at this point.

 

[NW-Bound]

1/1/88 to today my basket 8.2%.

It could have been a lot worse. Not all mutual funds do that well. I remember a financial article where its author half-jokingly wrote

"I invest in mutual funds. Lots of them. This is how they work. When the market goes down, they go down a lot. When the market goes up, they go down a little."

 

[NW-Bound]

Best of all is being lucky.

I've been in DODBX for 15 years, gradually ramping up my allocation until it reached 50% when I retired 3 years ago. It was a solid, consistent performer for me but I cut back to 20% when I rolled over my 401k, seeking a little more diversification. Sure glad I did.

I got some other old-fashioned value oriented MFs. They went down just like DODBX. Guess what? All these managers got lured in by dividends from financials.

So, what did you diversify to, if you care to share?

 

[ejman]

What you say is true but keep in mind that during that time bonds did well. I think we are going into a new time when bonds may not do so well. I would only go into short term bonds at this point.

Well yes, capital appreciation from the bond portion of Wellsi/Welltn would be hit as rates go up. But now that I'm retired, wouldn't the bond portion of Wellsi/Welltn result in greater income to me?

I've read I should be looking at total return but in practice I live off the declared dividends and CG of my funds and do not actually sell any shares. Although there is some year to year fluctuation I find I can live with that - going on 6 years now.

 

[audreyh1]

Best of all is being lucky.

I've been in DODBX for 15 years, gradually ramping up my allocation until it reached 50% when I retired 3 years ago. It was a solid, consistent performer for me but I cut back to 20% when I rolled over my 401k, seeking a little more diversification. Sure glad I did.

WOW! Talk about LUCKY!

That's what always struck me about DODBX - it's not that diversified. So it sure bamboozled me that from 2000-2006 it beat my much more diversified asset allocation. Finally, 2007-2008 shows that the broader diversification does indeed pay off over the long run.

Definitely lucky is the best. I wouldn't be RE if it weren't for some really good luck.

Audrey

 

[NW-Bound]

Definitely lucky is the best. I wouldn't be RE if it weren't for some really good luck.

Audrey

Yes. That's why during years when I did well, I tried hard not to gloat. I believe in this principle, which I call the "Conservation of Luck".

 

[CitricAcid]

Yes. That's why during years when I did well, I tried hard not to gloat. I believe in this principle, which I call the "Conservation of Luck".

I always have believed in this and swore by it, but I usually use it in reference to sports (mostly baseball). Oh, he is tearing the cover off the ball right now, but over the long haul of the season most of the luck balances out.

 

[FANOFJESUS]

Well yes, capital appreciation from the bond portion of Wellsi/Welltn would be hit as rates go up. But now that I'm retired, wouldn't the bond portion of Wellsi/Welltn result in greater income to me?

I've read I should be looking at total return but in practice I live off the declared dividends and CG of my funds and do not actually sell any shares. Although there is some year to year fluctuation I find I can live with that - going on 6 years now.

That's true, sounds like you have a great plan. What percent of the total investment to they kick off each year? I know the yield is around 3.5% but with the capital gains and everything I am guessing at least 6%. If you take all the money they kick off.

 

[ejman]

That's true, sounds like you have a great plan. What percent of the total investment to they kick off each year? I know the yield is around 3.5% but with the capital gains and everything I am guessing at least 6%. If you take all the money they kick off.

Last year it was 5.2% - with my particular AE of about 55% stocks 25% bonds 20% short term reserves

 

[FANOFJESUS]

Last year it was 5.2% - with my particular AE of about 55% stocks 25% bonds 20% short term reserves

I should have made my question more detailed. I was thinking just about the Wellesley-Wellington only. But I guess that too would be 5 to 6% for everything. But other than that 20% short term reserves you have about a Wellesley-Wellington mix with those numbers.

Thanks

 

[LOL!]

Balanced funds are particularly tax inefficient, so they should not be held in a taxable account. But I don't have to tell folks who own DODBX, Wellesley and Wellington in a taxable account: they should be able see how their returns are diminished significantly by the taxes the pay.

 

[ejman]

Balanced funds are particularly tax inefficient, so they should not be held in a taxable account. But I don't have to tell folks who own DODBX, Wellesley and Wellington in a taxable account: they should be able see how their returns are diminished significantly by the taxes the pay.

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....

 

[ejman]

I should have made my question more detailed. I was thinking just about the Wellesley-Wellington only. But I guess that too would be 5 to 6% for everything. But other than that 20% short term reserves you have about a Wellesley-Wellington mix with those numbers.

Thanks

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

 

[REWahoo]

So, what did you diversify to, if you care to share?

Nothing exotic - most was moved to Wellesley but I also bought more DODFX to bring international up to 15% of my total.

 

[FANOFJESUS]

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.

 

[cute fuzzy bunny]

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.

 

[ejman]

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.

 

[cute fuzzy bunny]

Absolutely. But all things being equal, I'd rather stiff the IRS.

 

[ESRBob]

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.