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Bonds and Wellesly
Old 11-23-2009, 07:11 PM   #1
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Bonds and Wellesly

I have some CD's maturing and the new rates are pretty disappointing. I've been thinking about moving the cash into Vanguard Wellesly. I already have some invested in Vanguard Wellington. My concern is that interest rates are at an all time low. Almost nowhere to go but up. Since Wellesly is 60% bonds, doesn't that promise that buying in now is almost guaranteed to lose money in the near future when/if rates start back up?

What's a better investment? I'm only a year or two away from retirement, and I'm getting really conservative in investing.

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Old 11-23-2009, 07:44 PM   #2
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I believe Wellesly would be a better choice in tax advantaged and Wellington in taxable.

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Old 11-23-2009, 07:53 PM   #3
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Unfortunately, I don't have the option of holding them in tax advantaged accounts at this point. However, those are good suggestions.
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Old 11-23-2009, 08:13 PM   #4
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If you don't need the money for 5 years or so, just buy Wellesley if that's what you want. If you may need the money sooner, short term bonds might be a better choice.

Just my opinion.
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ESR'd March 2010. FIRE'd January 2011.

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Old 11-23-2009, 08:18 PM   #5
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Based on the concern stated in your question you might want to understand this concept before deciding-

"Key Bond-Fund Terms
Duration: A precise look at a fund's sensitivity to interest rates, factoring in when interest payments are made as well as the final payment. For every 1% change in interest rates, the value of your bond fund will change by the duration of that fund."

Vanguard website probably has more info on this.
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Old 11-23-2009, 08:44 PM   #6
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I like Wellesley and use it myself. Remember that even though a rise in interest rates will cause a drop in bond value, eventually the increased income will offset the drop in value. This point is called the duration of the bonds held by Wellesley. I don't recall the exact "duration" but Wellesley invests in intermediate term bonds. For the sake of argument, assume the duration is 7 years. This means you would breakeven in
7 years and it is all gravy after that. If you don't need the money for 7 years, you would be good to go for this illustration.


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Old 11-23-2009, 08:49 PM   #7
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Charlie, according to Vanguard the current average duration of Wellesley bonds is 5.8 years.
Numbers is hard.

Retired in 2005 at age 58, no pension

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Old 11-24-2009, 04:09 PM   #8
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I'm keeping my Cash $ in ST bonds-VFSTX +14% YTD
They have done great this yr and expect them to continue into next.. and the way I figure it? Even if they do loose -5 % ave. in 2010, as in 08', they're already up 14% and others more.. and end up +8.3% for the 2 yrs ending 2010.. or 4.1% yr for the 2 yrs..

If Preservation of Principal is you 1st goal..and Interest comes 2nd?

Putting your Cash Money from CD's into a Bal Fund of 40% equities is not a Mentally wise move, your used to that $ being there at all times and it won't be 100% of the time in a Bal. Fund, unless you go with a 20/80 bal Port or a fund like a HSTRX and even then, there is no guarantees...

If your 0 Risk Tolerance , I'd either stick to your ST bond funds like VFSTX, VSGBX, VBISX or other's like them or Ladder your CD's again until Mid next yr at the earliest..

On the otherhand? The Fed just said they don't expect to have to start raising rates for the near future and beyond, impliyng not till probably 2011..

Add that to how long it took for the last Bear to start to recover ( 2nd qtr of 03' ) or over 3 yrs.. and it took another 2- 3 yrs after that for most Indexes to break even.. If it happens sooner this time? Great, but I'm not planning on it..

And FEAR is driving Bonds , Fundementals are not.. and when people get their meager Rtn. reports on their Savings , by early next yr, many are going to be forced to Invest into Equities..especially while watching Equites rtning 10-30%, the Bond Nav's will drop as the equities continue to climb..
History Does reppeat itself , over and over's Human Nature.. It's the Fed that is goofing things up from allowing the markets correct itself ..

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