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Old 11-13-2009, 03:13 PM   #21
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Originally Posted by ksr View Post
Bond fund - I saw recently a lot of talk about VBMFX (Total Bond Market Index). Is this what a lot of people like for a diversified bond allocation and, if so, what is it you like about it? I happened to select VBIIX (Intermediate-Term Bond Index). In comparing the two, I see that VBMFX has shorter average maturity and average duration - maybe that will help keep prices from falling as much if/when interest rates eventually rise? Also VBMFX has 3000+ bonds whereas VBIIX has 1000+ bonds so VBMFX is better diversified. Are there other considerations here?
The extreme "pure index" approach would simply try to invest in every bond and equity in the world in proportion to its market cap. The US centric version of that would invest in Vanguard Total Bond and Vanguard Total Stock indexes. A cost conscious pragmatist would add a Vanguard international equity fund and say close enough.

Less extreme passive investors still generally believe that all else being equal broad diversification is a good idea. Which pushes those passive investors who do not want to make interest rate bets towards a very broad index fund like Total Bond Market Index.

On the other hand, some of the modern portfolio theory research suggests you can have a higher expected return with lower expected volatility by increasing your equity percentage, and the small/value tilt of those equities, while holding the total portfolio's expected volatility constant by shifting your bond allocation to shorter maturities.

In my personal case, in my 401k Vanguard Total Bond Market is the only cheap bond index fund available, so I hold some of it. Outside of my 401k I prefer Vanguard's TIP fund, Vanguard's Short-Term bond funds, and a 5 year ladder of individual TIPs purchased at auction.

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Wellesley (VWINX) - Is this some sort of holy grail of mutual funds? Seriously, I see a lot of talk about this one and am just wondering why. I found that it is a balanced fund of about 60% bonds/40% stocks.
If you can not bring yourself to index everything, Wellesley, based on its historical record [Disclaimer: Past performance...] and its very low expense ratio for an actively managed fund, appears to be a very attractive fund choice for an investor with a low tolerance for volatility. Volatility is a much larger problem while drawing down a portfolio than while building up a portfolio.

I do not personally hold any Wellesley shares. Partially because I am still in the build portfolio stage with a relatively high tolerance for volatility, and partly because I feel much more comfortable with passively managed funds. I like to eliminate as much manager risk as possible.

However, if someone is certain they want to invest in actively managed funds, the best advice I've read on this board is "Psst: Wellesley". [Disclaimer: That advice may by now have been copyrighted and/or patented. ]
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Old 11-14-2009, 10:23 AM   #22
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Pssst Wellesley copyrighted? Nah I certainly hope not.

Wellington, inception 1929 and Wellesley 1970 are my bench mark poster children for value stock tilt balanced with bonds - low cost active funds(they predated index funds 1976?). The SEC yield of these funds were evidence of 'bird in hand' style investing. I remember way back running across mixtures of Wellington/Wellesley recommended to get a desired stock/bond mix - most often the Ben Graham 50/50 defensive investor ala his book.

The 'value premium', small cap tilt, and low book value debates probably deserve their own threads.

heh heh heh - my big holding of Wellesley was back in the 1980's - my slice and dice days. .

P.S. Since ER I have always struggled to keep my overall portfolio SEC yield above 3% - hence my Norwegian widow myth - actually there was a real Norwegian widow on my street growing up waiting by the mailbox for her 'bird in hand' dividend checks.
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Old 11-14-2009, 04:09 PM   #23
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Fnmix

Has anyone looked into Fidelity's FNMIX fund. It pays 5.77% dividend (on monthly basis). It is up ~44%. So I am not sure if it is good time to get into it. Your comments will be appreciated.
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Old 11-14-2009, 04:26 PM   #24
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Has anyone looked into Fidelity's FNMIX fund. It pays 5.77% dividend (on monthly basis). It is up ~44%. So I am not sure if it is good time to get into it. Your comments will be appreciated.
ytd 44%, 12 month performance 55%, sounds like a good way to buy High to me, particularly since it is a bond fund and interest rates are at historic lows. (although I don't have a clue what the interest rates have been doing in the emerging markets the fund invests in, I would guess they have been falling for the fund to have done so well in this last year).
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Old 11-15-2009, 08:04 AM   #25
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Anybody have any recommendations on a "International Wellesley" type fund ? Preferably Vanguard. Wellesley looks like about 7% of stock portion is international.

Would like something like Wellesley but primarily global.

Thanks.
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Old 11-15-2009, 11:35 AM   #26
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ytd 44%, 12 month performance 55%, sounds like a good way to buy High to me, particularly since it is a bond fund and interest rates are at historic lows. (although I don't have a clue what the interest rates have been doing in the emerging markets the fund invests in, I would guess they have been falling for the fund to have done so well in this last year).
Agree on the 'buy high' comment, but I believe the stellar performance is more tied to the falling US dollar. FNMIX doesn't hedge currency exposure.
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