Couple of Vanguard Questions

[ksr]

From reading the threads, I've noticed that certain funds seem popular and/or mentioned frequently. I've recently moved a significant portion of my investments to Vanguard (essentially took my old 401(k) and moved it into a Vanguard IRA) and now am questioning some of my fund selections.

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?

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.

I'm just looking for honest opinions of what makes some of the funds more popular and what factors into your decisions. I know more about stocks in general than bonds, so figure it's time to ramp up my knowledge of bonds and bond funds. Thanks for any input.

 

[easysurfer]

I think that there is probably a lot of talk about VBMFX because many of the folks here are passive investors (myself included) and choose to follow the index.

I used to have Vanguard bond funds for various durations (short, long, and the medium that you mentioned), but felt it was too much work for me and I really wasn't doing any better than just following the whole index.

 

[LOL!]

For me, I know what I want for my asset allocation, so I pick ETFs and funds that fulfill that asset allocation in a more or less pure way.

I do not want balanced funds because I want to keep all my fixed income in my tax-sheltered accounts and have only tax-efficient equity funds in my taxable accounts.

I want low expense ratio funds that are index funds and passively managed. So some funds are not index funds such as Vanguard GNMA, Vanguard short-term investment grade bonds and Vanguard inflation-protected securities, but they are low expense ratio and more-or-less passively managed.

Some folks need to use balanced funds because they cannot stand to look at the volatility of a separate stock fund and a bond fund. Or they are intimidated by rebalancing. If all your money is in a tax-sheltered account, then tax-efficiency is not a big criteria to use, so a balanced fund or a target-retirement fund can be OK.

Some folks are intimidated by tax-loss harvesting and filling out tax returns, so they sometimes don't do things that I would do. Some folks fall into the behavioral finance trap of loss aversion, so they keep a fund that I would've ditched a long time ago.

Others just buy what others have recommended without giving a thought to what the fund(s) contain. Sometimes they have inherited a fund and cannot bear to sell "Mom's legacy".

Different strokes for different folks. There are a lot of quirks that come to the fore on this forum. Can you figure out mine?

See also: Bogleheads Investing Advice and Info

 

[ksr]

Different strokes for different folks. There are a lot of quirks that come to the fore on this forum. Can you figure out mine?

I'm going to take a guess here: you can't stand to pay any more in taxes than absolutely necessary?

And thanks for the response!

 

[LOL!]

I'm going to take a guess here: you can't stand to pay any more in taxes than absolutely necessary?

Hey, that's not a quirk!

 

[unclemick]

I went Vanguard sooo long ago - does anyone remember Vanguard Trustee's co-mingled International? Anywise bought the first Index 500 when it came availible in my 401k plan. Held Lifestrategy moderate(a 60/40ish fund) first ten yrs of ER and switched to Target Retirement 2015 in 2006 for the big dog on the porch to carry my retirement.

Still have 15% individual stocks on the side - it's a hormonal problem I can't cure but 15% seems to to help keep it under control.

Had a lifecycle fund been availible in 1966 and knowing what I know now - I could have saved a lot of er investment education expense.

heh heh heh -

 

[ksr]

Hey, that's not a quirk!

Well, I'm glad to hear that since I share the same, ummm, characteristic!

Seriously, though, I've picked up some good ideas here that have resulted in improved tax efficiency. And I'm always open to new ideas. I suppose, though, when the tax bill gets down to zero I can stop looking...

 

[FIREd]

One thing to keep in mind about VBMFX is that it has a lot of mortgage backed bonds (40%+) while VBIIX has none. Some people do not like those bonds because of their highly negative convexity and prefer to avoid VBMFX all together. I am not saying one is better than the other, just pointing out an important difference between the two funds.

 

[Texas Proud]

KSR...

Your bond fund is just fine if you only want a slice of the market. Some people (as mentioned) do not... and they do not want to try and guess what is going to happen with interest rates... so they go for the 'whole' market. It is up to you to decide. Your fund is 'diversified' except for time... they do not have any long or short bonds... and will sell them when they get short...

As for Wellsley... this name is bandied about a lot... but I bet if you took a poll on 'do you own Wellsley' or 'do you not own Wellsley', the not will win... not that it is a bad fund, but it just does not fit everybodys needs. Again, it is a fund where you do not have to do much work... the Popel 'set it and forget it' kind... (am I spelling all this correctly It just does not look right to me, but then again, having a so so day)...

 

[antmary]

Hello KSR,
When I had some questions, I went over to the Boglehead forum, and they helped me a lot. We had been in Target Retirement 2015 and Vanguard's Lifestrategy fund (aggressive). There were several issues I had to decide:

1. Asset allocation - What percentage goes into stocks and what percentage into bonds. This is dependent on age and risk tolerance.

2. I ended up putting our TIPS and Intermediate-term treasuries into our tax-sheltered Roth IRA accounts.

3. We purchased Total Stock Market index fund, and the FTSE All World Ex-US for the taxable funds.

They (the Bogleheads) suggested a reading list, which has helped immensely. Then, they suggested I answer a list of questions to help them to help me. Everything was done by autumn of 2008. We thank the Bogleheads for helping us to be well-positioned; losses were minimal.

They are over at diehards.com (I believe that is the web address)

Hope this is helpful

 

[Lsbcal]

...(snip)... I know more about stocks in general than bonds, so figure it's time to ramp up my knowledge of bonds and bond funds. Thanks for any input.

This sounds like what I would have said about myself in the past. I found it more confusing to understand bonds and bond funds then equities -- and there is less bang for the buck. Nowadays I think of bonds as a safe harbor where you try to get a modest real return. I'd like to buy into intermediate Treasurys further out but right now it just feels like rates are way too low on a historical basis, both nominal and real (TIPS) yields. Looking at even 10yr records is probably not relevent going forward over the next few years. Of course, this is just one opinion.

So for our portfolio I've chosen mostly VG's short term investment grade to complement the Ibonds (older high yields) and TIPS (individual bonds to be held to maturity) we currently have. This fund (VFSTX or VFSUX admiral) has done fine in previous short term geopolitical crisis but less well in a deflationary crisis like we had in 2008. So I'm betting on a gradual improvement in the economy or at least a neutral economy.

 

[REWahoo]

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.

It doesn't appear anyone has responded to this question, at least not directly, so...

We're retired, no pension, living off our portfolio and SS. Roughly 40% of our tax advantaged portfolio is in the Wellesley Income Fund. Note that it is an income fund with the stated objective "... to provide long-term growth of income and a high and sustainable level of current income, along with moderate long-term capital appreciation."

Things I like about Wellesley:
- Quarterly income: currently yielding 3.6%
- Low expense ratio: 0.23% for Admiral shares
- Balanced fund: no need to rebalance
- Low volatility: meets my "sleep at night" criteria
- Long track record of solid performance: Although past performance is no guarantee of future, take a look at the total return (includes dividends and cap gains) for the past 39 years:

2009 YTD +12.6
2008 -9.8
2007 +5.6
2006 +11.3
2005 +5.0
2004 +7.6
2003 +9.7
2002 +4.6
2001 +7.4
2000 +16.2
1999 -4.1
1998 +11.8
1997 +20.2
1996 +9.4
1995 +28.9
1994 -4.4
1993 +14.7
1992 +8.7
1991 +21.6
1990 +3.8
1989 +20.9
1988 +13.6
1987 -1.9
1986 +18.3
1985 +27.4
1984 +16.6
1983 +18.6
1982 +23.3
1981 +8.7
1980 +11.9
1979 +6.2
1978 +3.6
1977 +4.3
1976 +23.3
1975 +17.5
1974 -6.5
1973 -3.6
1972 +9.8
1971 +15.1

Wellesley isn't for everyone, but it has worked well for my needs.

 

[Alan]

Wellesley isn't for everyone, but it has worked well for my needs.

And mine - about 40% of our investments have been in it since 2003.

 

[ejman]

Wellesley - 34% of portfolio here since ER 1/1/2003. Wish it had been higher....

 

[fisherman]

Approx. 30% of tax advantaged funds in Wellesley. Wish it was more!

 

[W2R]

And mine - about 40% of our investments have been in it since 2003.

My portfolio is 30% Wellesley too, though I would agree with REWahoo that it really isn't for everybody.

When I first started investing, I thought there was probably some magic combination of investments that would be right for just anybody, and why didn't someone tell me what it was, doggonit! But now it seems to me that investing really isn't like that. It is very individual and personal, and for me it took some time, study, and thought to figure out what funds I wanted in my portfolio.

 

[audreyh1]

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.

Um - yeah - it is kind of a holy grail of mutual funds!

It's just done extremely well over a long period of time - seeming to keep up with inflation even no distributions reinvested, and so a lot of people swear by it. And it's so simple!

I (retired and living off investments) don't actually own it, as I maintain a higher allocation to stocks and a more broadly diversified portfolio - looking for higher growth. HOWEVER, I definitely consider it an option for when I get older and long-term growth is not as high a priority.

Audrey
P.S. The rest of you want to expand on the "it really isn't for everybody" comments? You might be more specific on what might be the drawbacks for some investors?

 

[REWahoo]

P.S. The rest of you want to expand on the "it really isn't for everybody" comments? You might be more specific on what might be the drawbacks for some investors?

I think you're doing a great job Audrey...

I (retired and living off investments) don't actually own it, as I maintain a higher allocation to stocks and a more broadly diversified portfolio - looking for higher growth.

Additionally, the fund is heavily weighted towards bonds and may not be appropriate for non-tax advantaged accounts.

 

[Poundkey]

I've often thought that Wellesley might also be a good 'starter' fund. Thinking of a young first time investor. The low volatility and dependable dividend would give the young person a chance to get a feel for investing and still not be scared away should things turn down.

 

[teejayevans]

I've often thought that Wellesley might also be a good 'starter' fund. Thinking of a young first time investor. The low volatility and dependable dividend would give the young person a chance to get a feel for investing and still not be scared away should things turn down.

If you subscribe to the bucket theory, it makes an excellent bucket 2 investment.
TJ

 

[bamsphd]

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.

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. ]

 

[unclemick]

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.

 

[rsingh6675]

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.

 

[Alan]

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).

 

[Delawaredave5]

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.