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Old 08-14-2013, 09:18 AM   #21
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Vanguard Intermediate-Term Bond Index Fund Institutional Shares (VBIMX) : Value of $10,000 : $10,286 in March / April and $9,793 latest (about 5% loss)

Vanguard Wellesley Income Fund Admiral Shares (VWIAX) : Value of $10,000 : $10,834 in March / April and $10,787 latest (about 1% loss)
I'm confused by the value of $10,000. Does this mean you purchased $10,000 of each VBIMX and VWIAX? If not, what does it mean?

Also, did you include dividends in these amounts? If so, were they reinvested?
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Old 08-14-2013, 09:34 AM   #22
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So far, it's a net loss. Any advice please [...]?
I hope you take this post in the constructive spirit in which it is offered. That said, did you invest in order to fund your retirement like the rest of us? I hope so.

If you look within yourself, hopefully you will find the additional self-discipline that we all must find in order to begin think like a long term investor. Ten years ago today VWINX was $20.03; five years ago it was $20.50; one year ago today, it was $24.33 and yesterday it was $24.97 despite all the dividends that many of us use for living expenses. BTW dividends are due in about six weeks.
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Old 08-14-2013, 09:59 AM   #23
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A couple things Ob. I was aware of your dive into Wellesley, but was surprised about your dive into the intermediate term bond fund.

The data in your OP seems to be based on the Wellesley growth of $10,000 chart on their website and comparing April 30 to July 31. IIRC you made you investment in Wellesley in early March so if your are going to assess your investment performance based on that graph you should probably look at Feb 28 ($10,490) compared to Jul 31 ($10,788). Alternatively, you could compare the share price(s) you bought at to the current share price but that would be somewhat too simple since you have received a couple dividends since March. Based on the timing of the post when you bought Wellesley, I think you may be up. The best way to assess your performance is to (if you use Quicken) look at a Investment Performance Report for that holding since it will look at the specific day(s) you invested and any dividends were reinvested and the ending value. Or if you don't use Quicken you can log on to VG and go to Personal Performance under the My Accounts tab and look at the Select specific holdings choice on that screen.

On the bond fund, intermediate term bonds have been taking a beating lately and you may have seen several threads where some people are concerned about the near term outlook for bonds given the widely expected increase in interest rates (which cause the value of bonds to decline) and that is what is driving the decline in that fund. That fund has a duration of 6.6, which means that for each 1% increase in interest rates that one would expect that fund to decline in value 6.6%. If the economy continues to improve and interest rates increase then one would expect that and other bond funds to decline in value and gradually recover over the long run as maturing bonds are reinvested by the funds at those higher interest rates. So if your time horizon for this investment is long (say 10 years or more) then you should come out fine in the long run.

As you may appreciate having been around here for a long time, many of us hold bonds not because we love bonds or the income of bonds, but to add stability and diversification to our overall portfolios. IOW, for me for example, as interest rates rise I expect my bond returns to be negative in the short term and very modest (2-3%) in the long term but assuming the cause of the interest rate rise is an improving economy I expect my equities to do very well and the 40% of bonds that I hold add stability and diversification to my overall portfolio. To be candid, since you don't hold any stocks (other than inside Wellesley) so you won't gain the diversification benefits of bonds, I would not see bonds as being a good investment for you in the near term.

If I was investing only for income, I would not be keen on bond funds right now due to the interest rate risk, but I would favor individual bonds or target date bond funds. Over the past 6 months, I have moved a significant part of my bond portfolio to target date bond funds that mature in 2019 and 2020 as a substitute for CDs.
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Old 08-14-2013, 10:02 AM   #24
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If you have a 5 month investment horizon then you are in the wrong investments and these experts at this board have given you woefully inadequate advice. You should be in cash or a 3 month CD or something similar.

However if this is money that you can leave in those investments to grow for multiple years, then just sit tight and expect long term positive growth above what cash will give you. Particularly on the Wellesely. For the bond fund, it may take a beating the next couple years as interest rates go up. But higher interest rates will also offset losses.
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Old 08-14-2013, 10:02 AM   #25
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Investing is a long-term affair. For myself, I always expect to lose money in the short term. Both the bond fund and the balanced fund you invested in are long-term investments.

Check back with us in 5 to 10 years and tell us if they did better than CD and money market funds.

Of course, don't forget to rebalance and add your investments. It cannot be a one-time buy-in and set-and-forget. That's not how investing works. For example, if your bond fund is down 5%, you can immediately double your investment, then the whole pile will only be down 2.5%.

But don't forget: These are long-term investments. Give them 5 to 10 years.
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Old 08-14-2013, 10:08 AM   #26
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I'm also curious about your asset mix. Why did you choose the bond fund?

There's an extremely important concept when dealing with asset allocation (AA): you need to look at the entirety of your portfolio, not an individual asset class.

To put it nicely, your AA is less than ideal. If your AA are these two funds, then you own way more bonds than equities, so you are doomed to less than ideal returns. Especially in this environment when everybody seems to agree that its not a good time to own bonds (return free risk!).

Bonds can be important in your overall AA, even in this environment, IF you have a properly built AA. Your current stock/bond ratio with 50% bonds and 50% Wellesley is ~ 20% stock/80% bonds.

Now on the other hand, if you bought Wellesley by itself, instead of buying other fixed income producing assets, I can see the benefit. Wellesley will most likely give you better performance than a bond fund, cds, with slightly more volatility. For me, that's a reasonable trade-off.

But I'm still puzzled as to why you own the bond fund. I would argue that you would have been better off buying CDs (isn't that ironic?), especially in the way you've constructed your portfolio.

If you are trying to run an experiment on total return investing, then why not buy a Target Retirement Fund that has about a 60/40 mix and see how it does over the next few years?

But maybe that wasn't your goal. Actually, I'm not quite sure what your goal was, maybe you can repeat it to us or send us a link? This is where an investment personal statement is helpful (IPS in bogleheads world). I've never done one, but it can help to determine what your goals are and then build the appropriate portfolio based on those goals.

And one more note based on a personal experience. I bought a sh*tload of equities at about the worse time possibly: 2008 prior to the crash. The values of those assets three months later were significantly lower. I didn't sell and since then, the assets have recovered their value and then some. My point is that 3 months is a small time frame when dealing with assets with volatility. You need to know what your timeframe is and build your AA accordingly. Then you can look at it yearly and see if it's meeting its objective.

I hope this was helpful information. I think it's interesting and good that your are looking at other asset classes beyond CDs, but you would be well served to understand the theory behind this type of investing so your expectations are properly set. And keep in mind, it's not for everyone. There's a good reason why most people are unable to do this. I know a lot of smart people that can't figure it out. It's not hard, but it does take an understanding of portfolio management.

And for those skeptics out there, this is one reason I love this forum. This method works better than anything else. Need proof? Look at the people posting here. How many people have retired early and are using this method? Actually, beyond having a sh*tload of money, I don't see any other alternatives that work (and yes, I'll include those that actively manage their money in this group - at least the ones here), or at least I haven't found that forum yet.
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Old 08-14-2013, 10:42 AM   #27
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@kiki, deep background: obgyn is extremely risk averse and was invested 100% in CDs and perhaps fixed annuities, so has not experienced any loss of capital. For someone like that, no amount of equities may be a good asset allocation. These investments that obgyn made are their first baby steps into the big bad world of possible losses and investing in general. Before this, it has all been about savings in can't-lose CDs.
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Old 08-14-2013, 10:43 AM   #28
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A couple things Ob. I was aware of your dive into Wellesley, but was surprised about your dive into the intermediate term bond fund.
I think "dive" is a little strong since he probably has well under 0.01% of his money in this bond fund. "dip his toe" is probably a better description.


Ob,
I think you have demonstrated to everyone what you keep on telling us, that you are extremely risk averse and should not have any investments in places where the principal is at risk, regardless of how low that risk may be.

Thank you for entertaining us, I look forward to the next installments of your investing experiences
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Old 08-14-2013, 10:46 AM   #29
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I think "dive" is a little strong since he probably has well under 0.01% of his money in this bond fund. "dip his toe" is probably a better description......
Right you are - "dip" may have been a better word and I can't think of anything smaller than a dip.
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Old 08-14-2013, 11:04 AM   #30
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I would buy more, especially of the bond fund. At the very least, the couple of hundred dollars needed to get it back up to $10,000.
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Old 08-14-2013, 12:25 PM   #31
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....and people ask, 'should I help ______ with his/her finances?' You can be sure your name will be at the top of the list when the quarterly statements come in.

But seriously, my 3 eggs are in different baskets. I don't see that changing anytime soon. If an investment is mentioned, I'll do my own research and decide the proper course.
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Old 08-14-2013, 12:35 PM   #32
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Cheap way to learn volitity really bothers you. I guess, either go with what you know, or be uncomfortable. Only you know the right answer.

FYI I have 100 shares of AAPL with a cost basis of $595. It looks better at 500 today than 400 a couple of months ago.

I'm not meaning anything derogatory, my Sister and BIL have the same risk tolerance that you appear to. We are all unique!

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Old 08-14-2013, 01:02 PM   #33
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Obgyn,

I have wrestled with the same risk aversion for most of my life. Each time I invested in the market, only to see a crash (1987, 2000, 2007) I would decide I'm fed up and pull out. However, what I've learned over the years is that each time I pulled out and gave up, it turned out to be the best time to buy more, not sell what I have. It is only recently that I put my money back in the market, but I'm hoping to have the discipline to keep it there for good. Watching your hard earned money drop significantly in value is not easy. But keeping money in very low yield investments simply won't keep up with inflation and is a losing proposition. You're about the same age as me, which means you have many years to go. Don't worry about five months of returns. It's a very small blip of time relative to the rest of your life. You will be fine. Just hang in there and maintain whatever asset allocation you feel comfortable with, and ignore the daily gyrations.
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Old 08-14-2013, 01:21 PM   #34
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Wellesley is 60% bonds, and interest rates rose over the time period you cite. Over that same time period the S&P 500 was up about 8%. If you look at the performance of the equity portion of Wellesley, I'm sure you will find it was up (that is why Wellesley was down considerably less than the intermediate-term bond fund). Effectively, of the 20K you invested in the those two funds, about 80% was in bonds.
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Old 08-14-2013, 01:30 PM   #35
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I doubt any of the experts you are referring to suggested the fund goes up in a straight line. If you had looked at the long term chart you would have known this.

Vanguard Wellesley Income Fund Fund Chart - Yahoo! Finance
Ok gotta call out about funds that always beat out everybody.
There was that one fund that always beat the averages, for years. Who was that guy? Bernie who?
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Old 08-14-2013, 01:52 PM   #36
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This is very sensitive to date due to short term fluctuation. I don't know what date you are using.

In March I had $118,351.68 in Wellesley and the March divided was reinvested.

The June dividend was not reinvested and was $969.42.

Current balance is $118,724.53.

So if you add the not reinvested dividends I am at $119,693.95 compared to $118,351.68 in March.

That said, it is not a good idea to be determining whether something is a good investment based upon these kinds of short term fluctuations.
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Old 08-14-2013, 01:58 PM   #37
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If I were a market timer, I would sell both and buy a U.S. total stock index fund and CDs. As I am not a market timer, I might still do that.

Other than routine re-allocations I have been a buy and hold person for ever, but am now shifting away from intermediate and long term bonds and recently divested myself of my intermediate term fund and into shorter duration.
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Old 08-14-2013, 02:16 PM   #38
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I can't think of anything smaller than a dip.
A mild flirtation? A sideways glance? A casual flutter? A fleeting thought? The merest of suggestions? A faint tickle? OK, now I'm being flippant

Obgyn - I couldn't sleep last night and saw your post before anyone else had replied. I was tempted to reply then but was feeling a bit sleepy and knew that by the time I awoke again, there would be many responses, most from people with more experience and knowledge than myself. Everyone here has said the same things I would have said to you, and then some.

Regarding Wellesley - as others have said, worrying about the return over the last 5 months just isn't the right approach for a fund containing a mixture of bonds and equities. Have you seen the performance chart showing the hypothetical growth of $10,000 over the last 10 years?

https://personal.vanguard.com/us/fun...FundIntExt=INT

It looks pretty good to me. Notice how the line doesn't go straight up - there are some down bits too. You're just in one of them right now. Don't worry - that "down bit" will turn into an "up bit" at some point. This next page linked below has a chart showing the performance of Wellesley over the last 1 year, 3 years, 5 years, and 10 years. Select the 1 year option and you will see the "down bit" you got caught in. It's going to go up again so as MichaelB said, have a beer (or a margarita).

https://personal.vanguard.com/us/fun...tExt=INT#tab=1

One other thing I'll mention. You've said in this thread that you don't have time to read newsletters. You have also indicated that the only places you go for your financial education are this place and Bogleheads. Actually, those are two pretty good places. Correct me if I'm wrong, but the overall impression I get from your comments (as well as your posting behavior) is that you're a very busy guy who doesn't have much time to do a lot of in-depth reading and learning. It almost seems to me as if you expect us to tell you what to do, and then explain everything to you, because you don't have the time to search out this information for yourself.

Over the years, as I became more and more interested in my personal finances, I spent a great deal of time reading. There were a few books, and a lot of time spent on The Motley Fool back when it was a free site. Then I found this forum. I'm a slow learner and will never be comfortable researching and investing in individual companies myself. A simple portfolio consisting of just 3 low-cost passive index funds is my style, combined with a basic knowledge of asset allocation, the nature of risk, and the tax consequences of what I'm doing. That is all I have learned - but it's enough for me. An important component of my learning was understanding the nature of risk when owning investments that go up and down. As I, and others, have said to you before, volatility can be very unsettling, but the longer your time frame is, and the more experience you get under your belt, the more you learn to see short-term volatility for what it is - short-term volatility (surprisingly!)

To be perfectly honest, if you don't have the time, or are not willing to spend the time that is required for all this stuff to sink in and take root, you should not be in anything other than the fixed income investments that currently make up the overwhelming majority of your portfolio. If you're truly comfortable with the fact that they will lose purchasing power over time to inflation (as you have indicated), then continue on the course you are already on, and don't give equities a second thought. If, however, you are interested in learning how to put together a portfolio from which you can draw an income which will keep pace with inflation and, just as importantly, want to learn a bit about risk assessment so that you feel comfortable with that portfolio, then there's plenty of good reading right here on this forum as well as on Bogleheads and the many great books that have been recommended and talked about right here on this forum.

Best of luck!
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Old 08-14-2013, 02:38 PM   #39
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@kiki, deep background: obgyn is extremely risk averse and was invested 100% in CDs and perhaps fixed annuities, so has not experienced any NOMINAL loss of capital. For someone like that, no amount of equities may be a good asset allocation. These investments that obgyn made are their first baby steps into the big bad world of possible losses and investing in general. Before this, it has all been about savings in can't-lose CDs.
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Old 08-14-2013, 02:52 PM   #40
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If that little blip made you nervous you would have been on life support during the 2008 melt down ! As the saying goes "If you can't stand the heat stay out of the kitchen ".
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