update on Wellesley and Intermediate-Term Bond fund

[ER Eddie]

Eddie,

I just noticed your new avatar. It sort of give me the creeps.

He's looking with disapproval at your post.

 

[REWahoo]

He's looking with disapproval at your post.

I thought he was checking to see if his rug was still in place...

 

[clifp]

I should add Obgyn is hardly singled out for criticism. Yesterday there was a forum member,who joined a year ago but didn't post much, looking for advice on variable annuities. Not surprisingly the advice was run away don't buy those things. She didn't like that advice and the pile on continued.

Being beaten up by the forum happened to me a several years ago. I had a roommate who I suspected was growing and selling dope near my house. I knew he and his friends smoked a lot of dope, but growing and dealing are a different thing.

I ask the forum for advice on how to figure out what he was doing and how to get him to stop. I was a bit surprised when the forum didn't help me with my question but rather said.

YOU ARE AN IDIOT FOR ALLOWING A DOPE DEALER TO LIVE IN YOUR HOUSE EVICT HIM NOW.

I protested that he was a nice guy and I had no proof. One of the cops I believe pointed that if somebody has no job but is paying you rent in cash, he is dealing doh!
The rest of the forum piled on and I got no support for giving the guy a chance.

I have long said this forum is way better at keeping people from doing dumb things than telling people what to do. I finally realized I was being dumb, gave the guys 30 days notice and we parted amiable. Once he was gone I realize that he was causing me a lot stress. Consensus is hard to achieve on this forum, but when it is achieved. I think you are foolish to ignore it.

 

[ER Eddie]

I thought he was checking to see if his rug was still in place...

 

[Mulligan]

I thought he was checking to see if his rug was still in place...

While I am not a Trump honk, he definitely doesn't we're a rug. When he was toying with running for president he let a lady reporter in an interview pull on it to prove it was his hair. She agreed it was real.

 

[ER Eddie]

Yeah, he let Larry King pull on it, too.

"I wouldn't say retirement is for losers, but..."

Donald Trump: 'I Wouldn't Say Retirement Is for Losers' (But You'll Probably Get Fat and Old) - New York - News - Runnin' Scared

 

[pb4uski]

While I am not a Trump honk, he definitely doesn't we're a rug. When he was toying with running for president he let a lady reporter in an interview pull on it to prove it was his hair. She agreed it was real.

Yeah, he let Larry King pull on it, too.
....

Then he needs to fire his hair stylist. Atrocious.

 

[ER Eddie]

Then he needs to fire his hair stylist. Atrocious.

"Have some respect, you retired losers."


Ok, enough about Donald and his hair. Let's get back to OB sticking his big-toe in the market.

 

[ERD50]

Then he needs to fire his hair stylist. Atrocious.

It is scary. I much prefer the hair styling on this member of the Trump family:

More eye candy here:

ivanka trump - Google Search

-ERD50

 

[obgyn65]

My time horizon is at least 10 years (I am 48 years old and this is a 401k plan which I cannot touch until 59.5 years old).

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.

 

[obgyn65]

To answer your question, in the US my CDs and munis average about 2.8%. In Europe, my investments have generated about 2.5-3% also. Hard to keep track with euros / $ conversion and tax matters.

how have your other investments done over the same period?

 

[obgyn65]

Per the Vanguard site, distributions for VBIMX are scheduled monthly. And distributions for VWIAX are quarterly. It is my understanding they are reinvested right away.

obgyn, I assume these results are with dividends reinvested?

 

[obgyn65]

I do not have such a statement because I have always been the same with my investments, that is very conservative. I have lost money each time I deviated from my stance (I bought a condo in spring-summer 2008 which has lost about $50-100K since then, and now these bonds). Never lost money on any other investment, here or in the EU.

Like you I don't have the time or knowledge to make sense of fluctuations, but wanted try these bonds after reading good things about Wellesley and Vanguard here and on Bogleheads.

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.

 

[obgyn65]

Point well taken. I tried Wellesley because of all the many good references I read about it here (i.e. 'psst' from uncle Mick and others).

The VBIMX is described as such on the Vanguard website : "This index fund offers a low-cost, diversified approach to bond investing, providing broad exposure to U.S. investment-grade bonds with maturities from five to ten years. Reflecting this goal, the fund invests about 50% of assets in corporate bonds and 50% in U.S. government bonds within that maturity range. Risks of the fund include the fact that changes in interest rates, both up and down, can affect the fund by resulting in lower bond prices or an eventual decrease in income for the fund. Investors looking to add a diversified bond fund to their portfolio may wish to consider this fund."

I liked its 2 rating (i.e. low risk) on a scale from 1 to 5. Its 3 year performance was 5%. Now it's been going south since I bought in. Good thing I am not a financial advisor...

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.

 

[obgyn65]

This is a good idea. Thank you, bestwifeever. To answer your question, no. I use EJ only for CDs and munis and keep Vanguard and EJ separate.

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?)

 

[obgyn65]

Do you mean this thread : http://www.early-retirement.org/forums/f44/lol-s-market-timing-newsletter-57042.html
I had a look at the first post :
"Today, we are all neutral. Invested in passively-managed index funds such as VCSH, VTI, VEU, VWO, VBR, VSS, VNQ. No cash.
Watch this thread for transaction info."

With all due respect, LOL, I have no idea what this post means. Please remember many of us here are not experts. Where do I get the list of passively managed index funds anyway ? Isn't Wellesly passively managed too since I do not need to tell them where to invest ?

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.

 

[obgyn65]

Apologies, kiki, if I was not clear. When I click on the Vanguard page for VBIMX for example and choose "Price and Performance", they show a graph with the growth of a hypothetical $10,000. The graph clearly shows about $10,000 in July 2012 and about $9,800 now.

It is my understanding from their table that the last Dividend was recorded 07/31/2013 and reinvested the same day - 07/31/2013.

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?

 

[obgyn65]

To answer your question, I have tried to invest a bit of my extra cash from CD income into bonds to (hopefully) increase my net worth in my 401k plan when I turn 59 years. And after months of encouragements here, I decided to make the jump a few weeks ago (started a thread on this topic back in March or April). It was the first time in my life I made such a move but did it to see if diversification would work in the long term and also to explore within myself how I can handle the stress of losing money.

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.

 

[obgyn65]

Thank you for your helpful and constructive comments as always, pb4uski. I have sent you a friend request and hope you accept it.

To answer your point below : per Vanguard, the VBIMX "offers a low-cost, diversified approach to bond investing, providing broad exposure to U.S. investment-grade bonds with maturities from five to ten years." I thought 10 years was appropriate in my case, since I am 48.

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.

 

[obgyn65]

Yes, I plan to do just this but it's hard to see money evaporate in an investment considered "safe". Never experienced this before. Fortunately I never think of money when I see patients, since I am always 100% focused on their care first. The truth is that seeing people helps me thinking about topics other than money, which is a plus.

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.

 

[obgyn65]

I plan on doing this. We will see whose approach was right over the next few years. Let's consider this an experiment. If, at the end of the experiment, my 401k balance is higher with bonds than with money market only, I will have no problem admitting defeat and will say so publicly. But if my CD and money market approach shows better results over the next 5 to 10 years, the beer is on Midpack

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

 

[obgyn65]

Hello kiki - This is the full description provided by Vanguard:

"This index fund offers a low-cost, diversified approach to bond investing, providing broad exposure to U.S. investment-grade bonds with maturities from five to ten years. Reflecting this goal, the fund invests about 50% of assets in corporate bonds and 50% in U.S. government bonds within that maturity range. Risks of the fund include the fact that changes in interest rates, both up and down, can affect the fund by resulting in lower bond prices or an eventual decrease in income for the fund. Investors looking to add a diversified bond fund to their portfolio may wish to consider this fund."

Its risk potential is low (2 out 5). I have heard good things about Vanguard here + Bogleheads, and thought this fund was a good match for a first try.

I'm also curious about your asset mix. Why did you choose the bond fund?

 

[obgyn65]

The $10,000 is the hypothetical amount given by Vanguard for illustrative purposes. I have invested more.

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.

 

[obgyn65]

Maybe you should invite them to join this website... I feel a bit lonely sometimes, although I read a few posts recently from others who seem to be 100% CDs (more conservative than me, if Alan thought this was even possible )

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

MRG

 

[obgyn65]

I agree with this. And it is a risk I have been willing to take, but was hoping diversification would help mitigate it.

I will meet a mod next week face to face (another first) and this subject will likely be discussed.

Will answer other posts soon, but falling asleep now and must go to this CPR certification class in a few hours... I have been missing these chest compressions

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.