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Re: Recommend Wellesley to parents: good advice?
Old 07-14-2006, 04:29 PM   #21
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Re: Recommend Wellesley to parents: good advice?

Wellesley Income Fund Inv Annual Return

Capital Income Total

2005 0.59% 4.07% 3.48%
2004 3.39% 4.19% 7.57%
2003 5.08% 4.58% 9.66%
2002 0.05% 4.69% 4.64%
2001 2.22% 5.16% 7.39%
2000 10.02% 6.15% 16.17%
1999 9.17% 5.03% 4.14%
1998 6.43% 5.41% 11.84%
1997 13.79% 6.40% 20.19%
1996 3.33% 6.09% 9.42%
1995 21.55% 7.36% 28.91%
1994 10.16% 5.72% 4.44%
1993 8.16% 6.48% 14.65%
1992 1.62% 7.06% 8.67%
1991 12.86% 8.71% 21.57%

As a number of us suggested, it might be prudent to mix Wellesley with Wellington or some other balanced fund with a larger mix of equities.


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Re: Recommend Wellesley to parents: good advice?
Old 07-14-2006, 05:28 PM   #22
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Re: Recommend Wellesley to parents: good advice?

Bingo!
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Re: Recommend Wellesley to parents: good advice?
Old 07-14-2006, 06:52 PM   #23
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Re: Recommend Wellesley to parents: good advice?

Bingo?

i must be missing the point.

For the period in question, the average annual returns are:

* * * * * * * *Capital Income Total
Wellesley 1.99% 4.54% 6.52%
Wellington* 3.56% 3.26% 6.82%
S&P 500 -1.16% 1.62% 0.42%
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Re: Recommend Wellesley to parents: good advice?
Old 07-14-2006, 06:52 PM   #24
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Re: Recommend Wellesley to parents: good advice?

Am retired 6 years and tickled to have Wellesley as a core investment. *Of course, am also tickled to also own Vanguard Asset Allocation fund, small cap index, reit index, and international indices which come together in a prettly low correlation and mix growth to the income. *
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Re: Recommend Wellesley to parents: good advice?
Old 07-14-2006, 07:15 PM   #25
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Re: Recommend Wellesley to parents: good advice?

Quote:
It just doesn't provide enough inflation protection.
not to beat a dying-if-not-yet-dead-horse, but for the 15 yr period REW mentions, the Wellesely capital return averaged 4.26% while inflation as measured by CPI (with apologies to CFB) averaged 2.62% -- this, of course, in addition to the 5.8% average income return.* i'm not too sharp, but its clear to me that at least over this period Wellesely provided a decent income and a sufficient capital return to more than offset inflation.
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Re: Recommend Wellesley to parents: good advice?
Old 07-14-2006, 07:16 PM   #26
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Re: Recommend Wellesley to parents: good advice?

There was a posting over at M* that discussed this somewhat. I would be appreciative if anyone here would care to read it and give their opinion. Thanks.

http://tinyurl.com/j7vu2

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Re: Recommend Wellesley to parents: good advice?
Old 07-14-2006, 07:32 PM   #27
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Re: Recommend Wellesley to parents: good advice?

I guess I never understood the fascination with Wellesley.* *It's fine if you're looking for large cap value and bonds.

Alec did a study a while back that basically showed there was no value added by the fund's management.* *All the fund's returns are what you'd expect for its asset class mix.

link
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Re: Recommend Wellesley to parents: good advice?
Old 07-14-2006, 08:28 PM   #28
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Re: Recommend Wellesley to parents: good advice?

what Alex said:
Quote:
Wellington or Wellesley ... have certainly done a good job ... of sticking to their investment objectives [large value dividend paying stocks and high quality corporate bonds]... if an investor wants a value tilted balanced fund, either of these would do nicely, especially if one qualifies for admiral shares
*
Quote:
Originally Posted by wab
It's fine if you're looking for large cap value and bonds.
which is what OP was looking for
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Re: Recommend Wellesley to parents: good advice?
Old 07-14-2006, 08:33 PM   #29
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Re: Recommend Wellesley to parents: good advice?

Quote:
Originally Posted by LL
There was a posting over at M* that discussed this somewhat. I would be appreciative if anyone here would care to read it and give their opinion. Thanks.

http://tinyurl.com/j7vu2
My initial take was that CFB and SG had migrated their mortgage payoff debate over to M*.

As a retired Wellesley investor (40% of my portfolio), I see nothing that would cause me to question my choice of funds or allocation percentage. The discussion reinforced what was pointed out above, that it is probably prudent to include additional equity funds in addition to Wellesley if you expect to maintain a 4% + inflation SWR over a 30 year time frame.


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Re: Recommend Wellesley to parents: good advice?
Old 07-15-2006, 12:36 PM   #30
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Re: Recommend Wellesley to parents: good advice?

Quote:
Originally Posted by wab
I guess I never understood the fascination with Wellesley. It's fine if you're looking for large cap value and bonds.
Lets see, its cheap, simple and you dont have to do any rebalancing. Returns provide more than 4% income and if you reinvest the residual, you would have beaten inflation from 1970-today. You invest and cash the checks.

For folks that dont understand how to dig into the guts of a variety of funds, piece together their own composite index and then balance/manage it going forward, I guess it might be a LITTLE fascinating

As far as Hogwilds efforts go, my original post on the fund said that my analysis that produced the "no 5 year period since inception below 8%" had been done several years ago, hence the period from 2000-2005 wasnt one that I looked at.

Fairly understandable for a fund with 65% of its holdings in intermediate bonds to not do so well given what was done with interest rates in that period.

It still paid the 4% SWR and gave some capital appreciation. If you look at the full history of the fund since inception, you'll also see that periods where the fund had some slow years were usually preceded by and followed with very good periods. This is the first time one of those 'slow' periods went on for 5 years. Long term investors in the fund would still be well rewarded.

Case in point: I'll bet the folks that got 11%+ a year out of the fund from 1995-2000 didnt feel totally unhappy with the measly 6.5% they got for the next 5 years while the S&P 500 produced no meaningful net gain, as the minimalist "d" points out above. What? You couldnt afford to spring for the upper case "D"?

Oh yeah, and they completely missed that gut wrenching drop and rebound of most of the equity markets. They did have to contend with two 4% annual losses in the entire 15 year period quoted above, which must have been extremely painful!

I do agree that holding more equities is a good idea for people with less concern about volatility risk, but in looking at wellesleys numbers I frankly cant explain why. I keep wanting to buy back into it again. Aside from missing some long term upside of holding higher equities and some tax implication of taking most of your income as unqualified dividends...

I think for a retiree, early or otherwise, who doesnt like volatility and wants simple and cheap, its perfectly fine for one stop shopping. I think for people considering annuities or other income contraptions, it'd be a grave mistake to not take a hard look at buying this fund instead.
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Re: Recommend Wellesley to parents: good advice?
Old 07-15-2006, 05:24 PM   #31
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Re: Recommend Wellesley to parents: good advice?

Quote:
Originally Posted by Cute Fuzzy Bunny
I think for a retiree, early or otherwise, who doesnt like volatility and wants simple and cheap, its perfectly fine for one stop shopping.* I think for people considering annuities or other income contraptions, it'd be a grave mistake to not take a hard look at buying this fund instead.
I agree and have owned Wellesley for a number of years.* I'm glad you pointed out that it is actually a target of 35% stocks, not 40, so if you really want a 60/40 mix then you need to add some other stock funds, and choosing international and/or small and mid caps would increase diversity.* (Just used the Portfolio Analysis tool on my Wellesley holdings and it is 35/65 )
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Re: Recommend Wellesley to parents: good advice?
Old 07-15-2006, 05:42 PM   #32
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Re: Recommend Wellesley to parents: good advice?

The OP said preservation of capital is important, and they are looking at a 5-10 year horizon before retirement.

So far, everybody who loves Wellesley is basing their love on past behavior.* *Yes, it's true -- in a 20-year-long dropping interest rate environment coupled with a 20-year-long stock market bull run, a 60/40 (or 65/35) mix of bonds/stock can't go wrong.* * The bond allocation saved the fund in the last bear market.

Any guesses as to what the fund would do in a rising interest rate environment coupled with a secular bear market?

Hint: it won't preserve capital.

If they are OK with a mix of large-cap value and bonds, Wellesley is a fine pick.* * The fund is not magic.* *The historical returns of the fund are meaningless.

If they want to ensure that their capital is preserved over the next 5 or 10 years, I would go with a smaller allocation of stocks and either buy TIPS that mature when they retire or buy a fund like Vanguard's Target 2015, which seems like a better fit than Wellesley for their situation, but might just as easily drop in value over the next 5-10 years.
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Re: Recommend Wellesley to parents: good advice?
Old 07-15-2006, 06:11 PM   #33
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Re: Recommend Wellesley to parents: good advice?

Wab's got some good points.

Wellesley - duration 5.2 on the bonds, 2.4 price to book on the stock side. So things could get chewy in a 'stagflation' or rising interest scenario going forward.

I still would be happy to buy it - provided it fit my needs(like da current dividend heh heh) and with full knowledge of 5.2 duration* in a rising rate envoronment and that 2.4 P/B might erode to to a lower number over 5-10 yrs.

Target Retirement 2015 came closer for me - and I'm lazy - they shift the asset balance as I get older.

I had an experience with my Depression era Mom - put her in a high yield Fidelity fund circa 1989 for current income - she panicked and sold due to NAV/price fluctuation - even though I was under the illusion that I had thoroughly explained bond price movements. Silly me. It of course went on to become their best performing fund the year after she sold it.

The why you own is as important as what you own.

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Re: Recommend Wellesley to parents: good advice?
Old 07-15-2006, 08:05 PM   #34
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Re: Recommend Wellesley to parents: good advice?

I agree with the comments of the last 2 posts which is why Wellesly only holds about 25% of my assets (it's where I put the proceeds of my house sale late in in 2002). In my limited experience of the fund I have had 2 years of 11 and 12.5% ROI, then 2005 was 3.65 and 2006 is heading towards 2.25 - 2.5% although only 6 months so far. (I reinvest the divends). I think the US stock market is down a little for the year so I would expect that a real bear market PLUS rising interest rates would see a loss in this particular fund.

Also, I am still in an accumulation phase so no experience of returns while making withdrawals.
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Re: Recommend Wellesley to parents: good advice?
Old 07-16-2006, 06:51 AM   #35
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Re: Recommend Wellesley to parents: good advice?

I avoid "balanced" funds. I'd recommend buying a conservative equity income type fund and then buying CDs or laddered bonds individually.
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Re: Recommend Wellesley to parents: good advice?
Old 07-16-2006, 08:33 AM   #36
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Re: Recommend Wellesley to parents: good advice?

Quote:
Originally Posted by 2B
I avoid "balanced" funds. I'd recommend buying a conservative equity income type fund and then buying CDs or laddered bonds individually.
What fund do you recommend for your conservative equity income allocation?
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Re: Recommend Wellesley to parents: good advice?
Old 07-16-2006, 12:14 PM   #37
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Re: Recommend Wellesley to parents: good advice?

Quote:
Originally Posted by wab
The OP said preservation of capital is important, and they are looking at a 5-10 year horizon before retirement.

So far, everybody who loves Wellesley is basing their love on past behavior. Yes, it's true -- in a 20-year-long dropping interest rate environment coupled with a 20-year-long stock market bull run, a 60/40 (or 65/35) mix of bonds/stock can't go wrong. The bond allocation saved the fund in the last bear market.

Any guesses as to what the fund would do in a rising interest rate environment coupled with a secular bear market?

Hint: it won't preserve capital.

If they are OK with a mix of large-cap value and bonds, Wellesley is a fine pick. The fund is not magic. The historical returns of the fund are meaningless.

If they want to ensure that their capital is preserved over the next 5 or 10 years, I would go with a smaller allocation of stocks and either buy TIPS that mature when they retire or buy a fund like Vanguard's Target 2015, which seems like a better fit than Wellesley for their situation, but might just as easily drop in value over the next 5-10 years.
So if we throw historic data out then what do you go by? Crystal ball? This isnt like we're looking at 5 or 10 years worth of data. Aside from the depression and stagflation, the last 35 years have had a little bit of everything.

Presume a worst case market scenario, i'm not sure that anything the average investor buys would do well.

35% dividend paying large cap value in wellesley is more dangerous than 50% Total Stock Market in the 2015 fund in a secular bear?

Looking at the OP's request, he's got aging conservative parents that want capital preservation and growth, but they also dont have a huge portfolio. I'd be concerned that a primarily TIPS portfolio wouldnt throw off enough cash for them to live on and might not hold up for a (hopefully) lengthy retirement.

There is certainly nothing "magical" about the fund...it couples a high return, high dividend, somewhat volatile sector (LCV) with a big ballast of good quality intermediate bonds that are at the low end of intermediate. You get decent dividends and qualified dividends from the stocks and the bonds dampen the stocks volatility. No magic.

But its cheap, its simple, its easy to understand, and its sellable to the less investment/financially adept. There are few scenarios where it would blow up in their faces when other reasonable picks wouldnt. I would imagine every single target retirement and lifestrategy fund would suck to own in a rising interest rate environment coupled with a long term bear market.

Certainly a case can be made for something like target retirement income or 2005. I dont think I'd go to 2015 or a TIPS heavy portfolio unless they had a little more appetite for risk for the 2015 fund or a big porfolio like you do for the TIPS heavy port.

Now if you throw out the OP's post and just make this a thread about general investing, maybe some different answers.

Those were already pretty well thrashed out here
http://early-retirement.org/forums/i...p?topic=2317.0 and here
http://early-retirement.org/forums/i...p?topic=1387.0 and here
http://early-retirement.org/forums/i...p?topic=5058.0

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Re: Recommend Wellesley to parents: good advice?
Old 07-16-2006, 12:25 PM   #38
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Re: Recommend Wellesley to parents: good advice?

Quote:
Originally Posted by Cute Fuzzy Bunny
35% dividend paying large cap value in wellesley is more dangerous than 50% Total Stock Market in the 2015 fund in a secular bear?
LCV doesn't behave much differently than LC, except that value stocks tend to get hit harder in economic downturns. Doesn't the percentage of stock go down each year in the 2015 fund? And stays the same in Wellesley?

Yes, things are different this time. The biggest test for Wellesley probably came in the late 70's when bonds were wiped out and stocks were pretty flat. I'm sure it helped that stocks back then paid nearly twice the dividends they do today. If we had the same environment today, it would be uglier from a returns perspective.
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Re: Recommend Wellesley to parents: good advice?
Old 07-16-2006, 12:39 PM   #39
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Re: Recommend Wellesley to parents: good advice?

The "new" target retirement fund strategy unwinds the stock component a lot more slowly than the "old" strategy did. It'd be 10-15 years before the 2015 fund would drop down to or below 35%.

By your point, that fund would do much worse in an environment like the late 70's. Lots of longer bonds in the TBM, more stocks, and lower stock dividends from TSM than from LCV.

Got some data showing that LCV doesnt behave much different from LC over the long haul? Everything I'm looking at shows higher dividends from LCV and higher overall returns. What am I missing? Last stuff I looked at showed that higher interest rates are far more harmful to growth/blend than to value, which again to your point would make value a better choice.
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Re: Recommend Wellesley to parents: good advice?
Old 07-16-2006, 12:52 PM   #40
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Re: Recommend Wellesley to parents: good advice?

Good debate - lets wag the dog - since I own/have owned both.

For the parent's income stream in retirement - me being old school(Norwegian widow) and all:

Wellesley - current yield 4.6% or so. Target 2015 - 2.8%

Make some assumptions about span time. I think the break point centers around whether and when they want to take out more than the current yield. Do we know that?

Man - I could go either way on this one - given my current yield bias. I have RMD looming closer sooooo - it colors my vision.

heh heh heh - got's to think more on this one.
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