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Vanguard High Income Fund?
Old 06-10-2009, 03:27 PM   #1
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Vanguard High Income Fund?

Question:
Has anyone put a significant amount like $100K in Vanguard High Income fund (VWEHX)and just collected monthly dividend without paying much attention to price fluctuation of the fund? One can do this by putting money in ROTH IRA and collect the Dividend every month? If the answer is yes, then are there any other similar or better funds? I have not done this yet, but I am considering it. VWEHX pays about 8.9% dividend which means $8,900/ per year income. Of course, the divividend amount varies every year but it has stayed in the range of 8-9%.
My question & curiosity is---
1. Is it a good idea?
2. Are there any better that pay high monthly or quarterly dividend?
Your ideas will be appreciated.
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Old 06-10-2009, 03:54 PM   #2
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I've never considered investing in that class of investment, but if you love junk bonds, it seems like a pretty good way to own them. BTW the current yield is 9.15%.
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Old 06-10-2009, 04:23 PM   #3
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Does it matter if the fund pays 9% or 10% a year if the share values drop 10% to 30% a year? You have to look at total return and not just yield.

In essence, high yield bond funds hold junk bonds. This means that when stocks go down, the high yield bond funds go down. That's the opposite of a typical high quality bond fund.

Take a look at 2008. Which bond funds dropped a lot in value? Which bond funds went up in value? By how much?

So I would not own a high yield bond fund, but if I did, I would include it in my equities allocation because it is correlated to equities and not so much to bonds.
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Old 06-10-2009, 05:29 PM   #4
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Personally, I will invest in whatever I think has attractive total return potential, so long as it is ethically palatable. From 12/08 to 3/09 I think that both junk and investment grade bonds offered a historically attractive buying opportunity. I bought a pile of mostly BBB rated (with a smidge of junk) senior unsecured bonds on names I could do credit work on and get comfy with. The bonds mature between 2013 and 2018 and the blended average yield is in the 12 to 14% range. These bonds now trade at an 8 or 9% yield, which is still attractive historically speaking. I would imagine that buyers of credit will make attractive returns over the next few years.

So yes, pay attention to total return rather than yield, but also do not reject an investment just because it is correlated with equities. Isimply used the bonds as a partial equity substitute, since I was able to lock in equity-like returns with far lessrisk.
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Old 06-10-2009, 06:28 PM   #5
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Quote:
Originally Posted by rsingh6675 View Post
Question:
Has anyone put a significant amount like $100K in Vanguard High Income fund (VWEHX)and just collected monthly dividend without paying much attention to price fluctuation of the fund? One can do this by putting money in ROTH IRA and collect the Dividend every month? If the answer is yes, then are there any other similar or better funds? I have not done this yet, but I am considering it. VWEHX pays about 8.9% dividend which means $8,900/ per year income. Of course, the divividend amount varies every year but it has stayed in the range of 8-9%.
My question & curiosity is---
1. Is it a good idea?
2. Are there any better that pay high monthly or quarterly dividend?
Your ideas will be appreciated.
Well if you compare it to a SPIA it's not such a bad idea. In case of the SPIA your principal is gone as soon as you sign the contract. With the HY fund I would assume you would always have some principal and continue to receive annuity type income. The older you get the better it looks IMO.
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Old 06-10-2009, 06:44 PM   #6
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VWEHX is known as being a conservative HY fund. Their bond choices are a little lower on the risk scale. Of course it has that famous Vanguard low expense. I hold it, but I also hold, and currently favor, two FIDO HY funds..You may want to check out FAGIX and SPHIX.
Put 100K in one of these? Sure, if 100K is no more than 8% of your stash..
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Old 06-10-2009, 06:45 PM   #7
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I have been in an out (mostly out) of VEHWX for many years. I got in back in Nov last year with a purchase of $100K of Admiral high yield. In very rare example of good timing got in near the bottom, so I am up about 25%. I do use the dividends for living expense and don't pay a great deal of attention to the price fluctuations.

It is true the VHEWX has much higher volatility than an average bond fund. But I wouldn't classify it as an equity holding more like a hybrid between a stock and bond fund. Like Brewer I also bought some BBB bonds in intermediate range with ~10% yields.

I couple of interesting factoid over 10 years the total returns of VEWHX have been almost the same as the Vanguard Money Market. 3.45% vs 3.32% so if you enjoy roller coasters because you know they eventually come back to the same place, VWEHX is your ticket LOL.

But since inception 1978 VWEHX has had an average return of 8.30% placing in 2nd just after Vanguard GNMA, for the best return of a Vanguard bond fund. Before buying it I checked VWEHX doesn't own GM, or Chrysler bonds (just a smidgen of GMAC bonds).

Finally to the OP if you have a $100K make sure you buy the Vanguard Admiral shares it will save you .18% ($180+) a year in expenses.
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Old 06-10-2009, 06:53 PM   #8
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Originally Posted by clifp View Post
I couple of interesting factoid over 10 years the total returns of VEWHX have been almost the same as the Vanguard Money Market. 3.45% vs 3.32% so if you enjoy roller coasters because you know they eventually come back to the same place, VWEHX is your ticket LOL.
Just for historical color, the high yield market blew up (very badly) twice in the last 10 years and VWEHX still managed a better return than the equity indices.
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Old 06-10-2009, 07:03 PM   #9
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Janus has a good fund also.
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Old 06-10-2009, 10:32 PM   #10
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Quote:
Originally Posted by rsingh6675 View Post
Question: Vanguard High Income fund (VWEHX)

My question & curiosity is---
1. Is it a good idea?
2. Are there any better that pay high monthly or quarterly dividend?
Your ideas will be appreciated.
Yes, I had allocated a significant amount to VWEHX, and later moved it to the Fidelity equivalent (SPHIX) to harvest the tax loss.

In Oct 2008, I sold some of my less volatile bond fund (FSICX) and bought more SPHIX. I did this hoping to catch junk near a low, and to get the increased divs so I would not need to liquidate other holdings at a low. That played out OK, it has returned 14.5% versus 11.7% for FSICX (yahoo 'adj' close, which accounts for divs). Cash flow from ~ 8.4% divs,versus 5.8%.

For AA purposes, I allocate this as half bonds, half equities, as the actual volatility (need to include the divs in there), is roughly half that of the 'market'.

Is it a good idea? Heck if I know! But the high dividend cash flow has helped me to meet expenses w/o liquidating too much other stuff at lows. That seems like a good thing right now, but who knows in the long run?

I am not aware of other funds that have a similar level of "not too junky junk" and a decent track record. They may be out there though.


BTW, anyone know what the latest default rates are for these? LAst time I checked, the VG fund had only one or two defaults.

-ERD50
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