Poll: Does Your AA Outperform Wellington and/or Wellesley?

[mathjak107]

the problem betting the ranch on any balanced fund is they bet on good times only.
we have had falling rates for 40 years and a decent stock market so any fund holding them had decent results.

going forward is not going to be what we are all used to. at some points rates will reverse and reality will set in that the static mix that worked so well since we all became investors will come to an end.

the ability to split off the bond portion and move it into more appropriate income investments i think will be very important.

it is okay to hold a balanced fund , in fact 38% of my portfolio is fidelity balanced fund but the other 62% while in conventional bond funds now is free to be moved about where seen fit even if i keep balanced fund.


i would love nothing more than sell everything by wellesley and call it a day but i think at this junction that would not be wise.

[clifp]

Yes according to the Schwab portfolio tool
1 year 14.6%
3 year 16.08%
5 year 14.6%
6 years 16.9%

My 3 year standard deviation was 7.87% and 5 year 10.19% so a couple points higher than Wellington but lower than the S&P or the benchmark 80/20 allocation.


On the other hand I probably spent 20x the time managing my portfolio than the W&W investor spent. But like reading the forum does it really count as work if you enjoy it?

[clifp]

Quote:

Originally Posted by mathjak107 the problem betting the ranch on any balanced fund is they bet on good times only. we have had falling rates for 40 years and a decent stock market so any fund holding them had decent results. .... going forward is not going to be what we are all used to. at some points rates will reverse and reality will set in that the static mix that worked so well since we all became investors will come to an end. i would love nothing more than sell everything by wellesley and call it a day but i think at this junction that would not be wise.

Actually Treasury rates peaked in 1982 and start going down pretty consistently after 1985. I point this out not to be netpicky but only because Wellesley started in 1970 at the beginning of a steep rise in interest rates, and despite this has managed a 10%+ annual return over the 44 years.

Wellington was started at even worse time July 1929, just 3 months before the historic crash and right before the worse performing decade for stocks.
Despite the bad timing, the fund is averaging 8.32% over the last 85 years.

If my 5 year performance every dips below W&W I hope somebody will tell me to move my money into them.

[sengsational]

I couldn't answer the poll accurately without a whole lot of analysis, reason being so many contributions, shifting for rebalancing, moving institutions, etc.

Besides looking at 10 years worth of old statements (for folks with everthing at one institution), how are people rolling-up this number? I have the value calculated by each institution, but I have always found those to be suspect when there are transactions in and out during the year.

[NW-Bound]

Quote:

Originally Posted by mathjak107 the problem betting the ranch on any balanced fund is they bet on good times only. we have had falling rates for 40 years and a decent stock market so any fund holding them had decent results...

Quote:

Originally Posted by clifp Actually Treasury rates peaked in 1982 and start going down pretty consistently after 1985. I point this out not to be netpicky but only because Wellesley started in 1970 at the beginning of a steep rise in interest rates, and despite this has managed a 10%+ annual return over the 44 years...

The drop in inflation and interest rates in the decades of 1980-2000 helped bond funds to gain in principal, meaning principal gain in addition to dividend, particularly long bonds that locked in the high interest rates. And of course the market performance during the same time was a hell of a bull run. Both bonds and stocks won big.

To really judge these balanced funds, we must compare them to a synthetic benchmark of the same AA by blending an index bond fund with a stock index fund. I am willing to bet that these balanced funds will show that they beat the synthetic balanced fund, if only by a small amount. I remember that looking back in the 2000-2003 crash, many active stodgy funds did so much better than the S&P because they shunned "new economy" stocks with high or negative P/E that turned out to be just flash in the pan.

[NW-Bound]

About comparing oneself to W & W, in recent years sometimes I beat them, some other times not. But what is the longer-term performance? In the short run, anything is possible. An AA like mine with more international stocks means larger up/down, and that's the nature of the beast. But over a longer period, the question is whether people who are willing to stomach the up/down get a better return. I mean that in the long run, perhaps we can even compare funds with different AA, or rather different investment styles, to see what works better. But then, we do not know how long is long enough for such comparison to make sense, but I guess 10 years should be reasonable.

Looking at the OP, the 10-yr annualized performance of Wellington was 7.97%. Compounded over 10 years, you would slightly more than double your money. I looked at my daily log of investable accounts, and saw that I trailed it slightly, if counting from 2004 to 2014. However, I retired 2.5 years ago, and prior to that worked sporadic part-time, although my work was highly compensated. It meant that my cash inflow/outflow was highly variable and in addition I also bought a 2nd home. And my children were in college then. While I logged the daily value of my investable accounts, I did not track expenses until 4 years ago.

So, accounting for cash inflow/outflow was a really tough job that at this point I am not going to attempt. I started a thread about my performance in comparison to Wellesley a while back, and I could not reach a conclusion. Hence, I cannot vote in this poll.

[Cobra9777]

Quote:

Originally Posted by sengsational I couldn't answer the poll accurately without a whole lot of analysis, reason being so many contributions, shifting for rebalancing, moving institutions, etc. Besides looking at 10 years worth of old statements (for folks with everthing at one institution), how are people rolling-up this number? I have the value calculated by each institution, but I have always found those to be suspect when there are transactions in and out during the year.

My portfolio has been relatively stable for 3 years. So I just looked up the 1 and 3 year total returns for each holding on M* and used the current weighting to calculate the average. I checked the resulting 1-yr figure against Fidelity's online number, plus the one account we have outside Fidelity, and it was spot-on. Beyond 3 years, there were too many differences in the portfolio so I didn't bother. I was still working at that time with 90%+ equities, so not really relevant to the spirit of the poll anyway.

The bigger question is: why am I holding 15 different index ETFs, when I could achieve the same AA and return with an 80/20 mix of Wellington/Wellesley? Part of the answer relates to the limited investment choices in DW's 457B. Other smaller parts of the answer relate to tax efficiency and ER. But the bigger part of the answer is: I don't like being that concentrated in any one or two funds, and I'm not immune from making changes that are beyond the objective of those funds. For example, I have a SV fund teed up to replace AGG when/if interest rates start to go up.

[Lsbcal]

Quote:

Originally Posted by sengsational I couldn't answer the poll accurately without a whole lot of analysis, reason being so many contributions, shifting for rebalancing, moving institutions, etc. Besides looking at 10 years worth of old statements (for folks with everthing at one institution), how are people rolling-up this number? I have the value calculated by each institution, but I have always found those to be suspect when there are transactions in and out during the year.

It does take a fair amount of analysis to get at the answer to the poll question. I did not answer the poll because it did not seem like I had a good answer.

I've used Wellington in a benchmark for the past 3 years, the benchmark looks like:
1) cash & Ibonds & ST bonds (will always have some of these assets)
2) International/US market timed combo (added this to boost this asset class closer to our preferred level)
3) Wellington (added enough to get up to 65/35 AA overall)

This is how I did versus that Wellington based benchmark:
2012 beat it by 0.1%
2013 beat it by 0.8%
2014 lost to it by 1.5%

Just 3 years does not say a lot though. My portfolio is more flexible and it will take me maybe a decade to test it out versus the Wellington based benchmark. I think my portfolio will do relatively better when international stocks shine and also if bond rates rise.

EDIT: At the close of 2014 I adjusted my AA from 65/35 to 55/45. So now how to adjust the Wellington based benchmark? It will probably be easy to do but you can see that this stuff is fluid and as we age and have different needs + risk tolerances, it's hard to get a bead on this stuff. Someday I may go all into Wellington or Wellesley but not while I've got this testosterone poisoned beat-the-market psychology.

[HFWR]

Quote:

Originally Posted by sengsational I couldn't answer the poll accurately without a whole lot of analysis, reason being so many contributions, shifting for rebalancing, moving institutions, etc.

That ^

Since being outsized in late 2007, there have been no contributions to my old 401k, which is the 800-lbs gorilla of my portfolio, so the math is easy:

YEAR	%
08	-21.67
09	26.35
10	11.45
11	1.24
12	10.77
13	10.8
14	6.8

[clifp]

Quote:

Originally Posted by sengsational I couldn't answer the poll accurately without a whole lot of analysis, reason being so many contributions, shifting for rebalancing, moving institutions, etc. Besides looking at 10 years worth of old statements (for folks with everthing at one institution), how are people rolling-up this number? I have the value calculated by each institution, but I have always found those to be suspect when there are transactions in and out during the year.

Schwab has nice performance portfolio tool which accounts for deposit and withdrawals, and also measures standard deviation. I've have double checked the numbers with my IRA accounts which many years have no additions or deposits. Unfortunately it only goes back to Jan 2009 (conveniently ignoring the awful 2008 )Vanguard has personal performance report which provides similar information without that risk analysis. Schwab represent 88% of my liquid net worth so its close enough for me. If I didn't have Schwab tool I'd probably give up on the exercise.

For longer periods I simply use my annual balance sheet information, which includes investments in my house, rentals, alternative investments, and most importantly living expenses for the last 15 years. My net worth increased by 6.8% over the last 10 years adding my withdrawal rate of 2.5-3% puts me in the 9% range.

[mathjak107]

Quote:

Originally Posted by clifp Actually Treasury rates peaked in 1982 and start going down pretty consistently after 1985. I point this out not to be netpicky but only because Wellesley started in 1970 at the beginning of a steep rise in interest rates, and despite this has managed a 10%+ annual return over the 44 years. Wellington was started at even worse time July 1929, just 3 months before the historic crash and right before the worse performing decade for stocks. Despite the bad timing, the fund is averaging 8.32% over the last 85 years. If my 5 year performance every dips below W&W I hope somebody will tell me to move my money into them.

the time frame from 1987 to 2003 was nothing short of amazing . 17 years averaging almost 14%. that skewed a lot of long term numbers crunching with events that likely will never repeat in our lifetime. that time frame made some pretty crappy times look very good long term.

in fact peter lynch declared 7% to be the safe withdrawl rate, which he later withdrew.

one of the big differences pfau found when doing monte carlo simulations of the 4% rule vs actual historical was results were quite different.

events in periods of time influenced many rolling periods that crossed paths that made very long time frames look good but if those events before hand didn't play out exact then the outcomes were different.

most fund results were heavily skewed with that 1987 to 2003 time frame if you are trying to use those numbers as a future guide..

it is like market returns look good when we start playing with very long term averages but the fact is starting 15 years ago all we got from that point on was less than a 1.77% real return average. but go back a bit more in starting date and the early numbers bump up the last 15 years to a decent level even though they were pretty poor ..

you kind of get the idea here , historically results are far more dependent on what happened in time frames before that effected the time frames after to make them look better than they really were.

i will have to see if i can find the pfau article on monte carlo vs historical , it was pretty interesting. it showed the scenarios with the monte carlo simulation would have called for a lower swr than 4% based on the fact time frames were so effected by other time frames crossing its path .


it is like that 1987 to 2003 period had 14% returns on average , but the long term time frame leading up was sooooo poor few could save money up to take advantage. decades of poor markets and high inflation made the greatest bull market in history not so good since few accumulated much money to be in it.

[yakers]

My returns, retired in 08, I'm satisfied as returns are decent and some coverage for the downside, DWs IRA is 65% Wellesley & 35% VG Star fund. My fixed income is in the TSP G fund, bonds and some ibonds in VG Balanced index. Not sure where to go, bonds don't look good and stocks are at record highs so more likely to go down, so I just hold on to my AA, 65/35 stock/FI, headed towards 70/30 and will hold it there.
YEAR %
08-18.8%
09 18
10 11.2
11 3.8
12 11.7
13 14.82
14 7.4

[clifp]

Quote:

Originally Posted by mathjak107 the time frame from 1987 to 2003 was nothing short of amazing . 17 years averaging almost 14%. that skewed a lot of long term numbers crunching with events that likely will never repeat in our lifetime. that time frame made some pretty crappy times look very good long term. ... it is like that 1987 to 2003 period had 14% returns on average , but the long term time frame leading up was sooooo poor few could save money up to take advantage. decades of poor markets and high inflation made the greatest bull market in history not so good since few accumulated much money to be in it.

Interesting points, but not sure they are really relevant to a discussion of W&W. Wellesley is 44 years old longer than most everyone has been investing and Wellington is 84+ years old longer than virtually everybody in the forum has been alive. 1987 to 2003 is barely a blip on the radar screen in Wellington's overall record. It is more important for Wellesley but since ~2/3 of its assets are in bonds also not that important.


I guess I'd argue that those who invested in either one of these funds over most any time period , had and good real returns.

[Lsbcal]

institutional memory is pretty short. management tenure is probably more important.

[Looking4Ward]

My one year performance: 10.5%

My three year performance: 12.2%

I currently only have 4 funds in my portfolio:

Wellesley (12%)
Wellington (70%)
Vanguard Health (10%)
Vanguard Energy (8%)

[SVHoper]

Excellent reminder, I have been looking at Wellesley returns with longing as my >40% international/emerging have significantly underperformed. Large, Small cap and REIT have not fully compensated.

When international/emerging finally perform, I am thinking I may switch to Wellesley... if I did it before that, I think I would be selling low :-(

[Ed_The_Gypsy]

Quote:

Originally Posted by RetireAge50 1 year 2.94% 3 year 14.89% 5 year 11.2% 10 year 7.33% 1 year got killed by oil and international.

Me, too. I also had to take some out about 4 years ago and these numbers are not adjusted. I went to about 50% cash a couple of months ago in anticipation of TIRA conversion to Roth. My AA is normally 100% equities, 50/50 US/non-US.

1 year 3.4%
3 year 10.3%
5 year 8.9%
10 year 6.7%

When O&G recovers, I may throw it all into Wellington and let it ride. My record is not that good.

[Lawrence of Suburbia]

The yields on Wellesley and Wellington seem to be on a steady decline (due to Fed's zero-interest rates?) ...

What effect does this have on those of you dependent upon the income dividends to pay the bills? How are you dealing with it?

[fritz]

Quote:

Originally Posted by Lawrence of Suburbia The yields on Wellesley and Wellington seem to be on a steady decline (due to Fed's zero-interest rates?) ... What effect does this have on those of you dependent upon the income dividends to pay the bills? How are you dealing with it?

I'm in my 6th year of retirement - retired at 58. Wife retired at 57 (5th year now) - living off our investments (no pensions or annuities). Added Social Security as of two years ago, and wife's this year (spousal).

We have both Wellington and Wellesley funds. Chose them for simplifying things in retirement (very important as wife has "zero" interest in managing investments, and for me when I eventually lose my edge and won't realize it). They offer professional management at a very low expense ratio (Admiral level .18%), along with auto rebalancing/maintaining desired stock/bond ratio). They pay out dividends higher than all other VG balanced funds. We've held Wellington since we started investing and it is has been a solid performer. Wellesley was added when we retired for manipulating stock bond ratio to 52/48 utilizing the two of them (58% Wellington, and 42% Wellesley). Index funds were the mainstay pre-retirement. IMHO balanced funds are the most underrated retirement investment vehicle for simplicity.

Our investment income stream currently consists of only Taxable account withdrawals. I'd have to say (w/o really looking back) that the dividend income stream has been fairly steady/growing over the 6 years of withdrawing. The accounts have grown nicely during that time frame as well with all dividends taken (we also took all year end capital gains last year to replenish 2 year cash reserves - medical issue).

[clifp]

It is been a rough year for me. Looking at strictly at my Schwab numbers

1 year. .1%
3 years 11.2%
5 years 12.7%
Since 1/1/2009 15.0%
With my 5 year standard deviation at 9.4% so modestly higher than Wellington.

On the other hand a couple more years like this year and I'll definitely have trouble outpacing the Ws.