update on Wellesley and Intermediate-Term Bond fund

[obgyn65]

Hello everyone

In a recent thread a couple of days ago, I promised to give an update about the new investments I made back in March. After months of encouragements here from other posters to be much less conservative, it was the first time I bought something other than CDs, municipal bonds, annuities, or equivalent. Here are the results (if I read the graphs correctly):

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)

So far, it's a net loss. Any advice please from our experts ?

 

[foxfirev5]

Not an expert at all, however if these investments represented a small % of my NW and a short term decline gets my attention, I would just sell both and put the money in a CD. Many would say to ignore short term movements and invest for the long run. This will only work if your willing to accept short term fluctuations or even longer periods of negative returns.

 

[LakeTravis]

Summer trough. Wait until the end of the year and run your analysis again.

 

[MichaelB]

Any advice please from our experts ?

It's summertime. Have a beer.

 

[obgyn65]

I have written down the names of those who have been critical of my conservative stance and risk assessment in the past I am waiting for their expert input here

 

[obgyn65]

No time for a beer this week, but I will sure have a few margaritas in Central America when I fly down there late August.

It's summertime. Have a beer.

 

[braumeister]

Since you're new to the exciting world of short term fluctuations, it's easy to understand your consternation. But these are meant to be long term investments, so you should be looking at long term results, not just a few months.

Looking at M* for these:

VBIMX has had it rough the past year, but its 3 year total return of nearly 4% is well above its benchmark, as are its 5 and 10 year results. Above average return, above average risk.

VWIAX has also underperformed its benchmark but its 3 year total return of 10% is nothing to sneeze at, and it has outperformed its benchmark for five years. High return, below average risk.

With the bond market the way it is, even intermediate term may be too long, so I would consider exchanging the VBIMX fund for one of shorter duration, or perhaps even into the Wellesley for now. That would probably let you sleep more easily.

 

[LOL!]

"Expert" advice: Please follow the LOL! Market Timing Newlsetter. If you had you would be up 5% to 10% or so.

Most experts would suggest "Buy, Hold, and Rebalance". There were very clear rebalancing signals in May and June. Did you do anything then? If yes, then congratulations. If not, then why not?

 

[obgyn65]

I still work and I have no time to read newsletters. I don't know what rebalancing signals are. This website, and bogleheads to much lesser extent, is the only place I go to for investment advice and ideas when I have a few minutes. Many posters told me to be less conservative, as I used to be only in CDs, munis and annuities. I was advised to use vanguard bonds, and many here advised Wellesley.

"Expert" advice: Please follow the LOL! Market Timing Newlsetter. If you had you would be up 5% to 10% or so.

Most experts would suggest "Buy, Hold, and Rebalance". There were very clear rebalancing signals in May and June. Did you do anything then? If yes, then congratulations. If not, then why not?

 

[steelyman]

Be patient. I have a fund I bought in '94 and it's just fine.

 

[capjak]

how have your other investments done over the same period?

Perhaps it is time to watch these funds move down until you are ready to invest more $$ at the lower price.

 

[Htown Harry]

obgyn, I assume these results are with dividends reinvested?

There are always two psychological (and mathematically relevant) positives you can factor into the down period results for dividend-paying stocks or MF's.

One is that your total number of shares has increased as dividend reinvestment purchases are made. 840 shares of VBIMX has grown to 870, or thereabouts.

The other that the share purchases at reinvestment time are made when the shares are "on sale". Those 30 extra shares were purchased at a price below that paid in March, lowering your average cost per share by a small amount.

Both of these factors become more and more relevant to total return as holding periods increase.

 

[steelyman]

The investor you do not want to be:

SCARY CHIPMUNK - YouTube

 

[jimbee]

I am not an expert, but what does your Investment Policy Statement say to do? Investment Policy Statement - Bogleheads

Mine is simple. Maintain about a 50-50 balance of equities and fixed-income investments. If they're out of balance by more than 5%, rebalance. Ignore short term variation, since I don't have the time or knowledge to make sense of it.

 

[RunningBum]

I don't know why you are trying to read from charts when you should be able to see how much you invested in each and what the balance is now, adding back in any distributions if you did not reinvest them.

If you had a 5 month time frame, you shouldn't have been investing in stocks and intermediate term bonds. Assuming your time frame is longer, don't worry about short term fluctuations.

Most of the problem is that bonds did poorly. Had you invested in Wellington instead of Wellesley (larger % allocation to stocks), you'd have done better. In other words, you were too conservative. But I'm not advising you what to do.

 

[Idnar7]

OB, I just started investing in 2007. Not a great time to start. I invested a total amount of $1500 in VTI (total stock market) in four small buys between 3/20/07 and 7/01/08. My single largest purchase ($600) was at the highest price - $74.99. After the low of 3/05/09 I sold some losers and invested all of it ($1900) in VTI at $40.99/share. Haven't bought any since. So total invested $3400 and current value is $6586. My cost per share is $51.47.

Time, tracking your cost-per-share, and reinvesting dividends have me on track to double my investment in less than ten years. I try to only buy when it reduces my cost per share. Simple rule.

 

[Bestwifeever]

I still work and I have no time to read newsletters. I don't know what rebalancing signals are. This website, and bogleheads to much lesser extent, is the only place I go to for investment advice and ideas when I have a few minutes. Many posters told me to be less conservative, as I used to be only in CDs, munis and annuities. I was advised to use vanguard bonds, and many here advised Wellesley.

You have mentioned that you use an Edward Jones FA to help you choose CDs. Maybe when you have time you could discuss an asset allocation with her and get her impressions of your choices (did you use EJ for your Wellesley and bond fund purchases?)

 

[LOL!]

I still work and I have no time to read newsletters. I don't know what rebalancing signals are. This website, and bogleheads to much lesser extent, is the only place I go to for investment advice and ideas when I have a few minutes. Many posters told me to be less conservative, as I used to be only in CDs, munis and annuities. I was advised to use vanguard bonds, and many here advised Wellesley.

I'm laughing because the aforementioned newsletter is [Mod Edit for clarification] a thread originated by forum member LOL! [/mod edit] ON THIS WEBSITE, so since you are posting and reading on this website, it would take only another 10 seconds to read it.

 

[photoguy]

Part of learning how to invest in riskier assets is figuring out how to emotionally handle the volatility. You could consider this a gentle introduction.

 

[Dawg52]

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

 

[tulak]

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?

 

[W2R]

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.

 

[pb4uski]

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.

 

[FUEGO]

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.

 

[LOL!]

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.