Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Vanguard Wellesley Income and future interest rates??????
Old 06-06-2010, 08:49 AM   #1
Recycles dryer sheets
 
Join Date: Mar 2006
Posts: 81
Vanguard Wellesley Income and future interest rates??????

I know that a lot of people here, including myself, have substanial investments in this fund. It has been a really good conservative fund in the past. However, I am a bit puzzled looking forward and wonder.

For a very long time, the interest rate trend has been down. Interest rates are not going any lower. 60% of VWINX represents bonds - similar to the total bond fund. Going forward, there will be a long term interest rate reversal. Are you concerned about having a big chunk of funds in VWINX?
__________________

__________________
molly is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-06-2010, 09:33 AM   #2
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,904
If the exploding inflation scenario that seems to be popular view these days comes to pass, then long term bond funds will take a hit as interest rates go dramatically higher and Wellesley will too. Personally, about 30% of my NW is in Wellesley and I do not intend to make any changes. Why?

1) I don't think the high inflation scenario will come to pass - exhibit one is Japan's case. Basically a flat to deflationary 20 year period with low interest rates and still continuing
2) Even if there is some inflation, the stock portion may help (that's why its a balanced fund)
3) I'm looking at the income from the fund (which I've been using since ER in 2002) and as long as that doesn't take a dramatic turn for the worse, changes in NAV are not that important to me
__________________

__________________
ejman is offline   Reply With Quote
Old 06-06-2010, 10:00 AM   #3
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,078
I'm in agreement with ejman. I have a little more than 1/3 of my allocation in Wellesley and have no plans to make any changes based on interest rate concerns.

One point of clarification, Wellesley's bond funds have an average maturity of 8.7 years and an average duration of 5.7years. This indicates an intermediate term bond tilt rather than long term. What implications this has in a rising rate/high inflation environment remains to be seen, but I take some comfort in looking back to the last time high inflation hit in the 70's. At that time Wellesley's performance (annual return including dividends) looked like this:

1980: 11.9
1979: 6.2
1978: 3.6
1977: 4.3
1976: 23.3
1975: 17.5
1974: -6.5
1973: -3.6
1972: 9.8
1971: 15.1
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 06-06-2010, 11:00 AM   #4
Thinks s/he gets paid by the post
73ss454's Avatar
 
Join Date: Oct 2004
Location: LaLa Land
Posts: 4,378
I also have a good chunk of Wellesley and since I'm not smart enough to have any idea what the markets are going to do I'm just going to keep it.
__________________
73ss454 is offline   Reply With Quote
Old 06-06-2010, 12:03 PM   #5
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
Quote:
Originally Posted by REWahoo View Post
I'm in agreement with ejman. I have a little more than 1/3 of my allocation in Wellesley and have no plans to make any changes based on interest rate concerns.

One point of clarification, Wellesley's bond funds have an average maturity of 8.7 years and an average duration of 5.7years. This indicates an intermediate term bond tilt rather than long term. What implications this has in a rising rate/high inflation environment remains to be seen, but I take some comfort in looking back to the last time high inflation hit in the 70's. At that time Wellesley's performance (annual return including dividends) looked like this:

1980: 11.9
1979: 6.2
1978: 3.6
1977: 4.3
1976: 23.3
1975: 17.5
1974: -6.5
1973: -3.6
1972: 9.8
1971: 15.1
Inflation for those yrs was:

1980: 13.58
1979: 11.22
1978: 7.62
1977: 6.5
1976: 5.75
1975: 9.20
1974: 11.03
1973: 6.16
1972: 3.27
1971: 4.30
__________________
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
Bikerdude is offline   Reply With Quote
Old 06-06-2010, 12:26 PM   #6
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,424
It is absolutely not clear that we will face decades of rising rates. If there is a “long term interest rate reversal” we do not know what form it will take (slope) or over what period of time.

The real risk is not an increase in rates, it is continually increasing rates, especially for taxable accounts. If this is your concern you would need to reduce the bonds exposure in your portfolio. Where would you then allocate those funds and how would that impact your overall portfolio risk?

There is a very good chance that Wellesley Income fund management is aware of this possibility and can allocate the assets to minimize a negative impact. The real question is if you think you can do a better job.

I share some concerns about interest rates increasing and may lower my fixed income allocation as a result – perhaps reducing from 40% to 35%. In no case would I consider going below 7-8 years of total expense (budget plus likely large unplanned).
__________________
MichaelB is offline   Reply With Quote
Old 06-06-2010, 12:38 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
I suppose it is worth pointing out that if you are worried about rates increasing on the back of much higher inflation, it isn't hard to hedge this. Either buy some puts on long term bond etfs (TLT, for example) from time to time, or put a dollop of your portfolio into commodities and/or commodity producer equities.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 06-06-2010, 01:21 PM   #8
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Quote:
Originally Posted by brewer12345 View Post
I suppose it is worth pointing out that if you are worried about rates increasing on the back of much higher inflation, it isn't hard to hedge this. Either buy some puts on long term bond etfs (TLT, for example) from time to time, or put a dollop of your portfolio into commodities and/or commodity producer equities.
What fun would it be to actually solve the problem?

We'd rather spend our time kvetching, arguing, & agonizing about it...
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 06-06-2010, 02:24 PM   #9
Full time employment: Posting here.
 
Join Date: Nov 2009
Posts: 510
Everything I've received from Vanguard points to the steep yield curve, and their predictions are that the short term rates will be manipulated for a flattening of the yield curve - but then again, no one's talking at the Fed...
__________________
fritz is offline   Reply With Quote
Old 06-06-2010, 02:39 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Quote:
Originally Posted by Nords View Post
What fun would it be to actually solve the problem?

We'd rather spend our time kvetching, arguing, & agonizing about it...
Sorry, was attempting to be helpful rather than pissing in the punchbowl.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 06-06-2010, 03:47 PM   #11
Recycles dryer sheets
 
Join Date: Nov 2003
Location: Charlotte
Posts: 360
MichaelB said:

"There is a very good chance that Wellesley Income fund management is aware of this possibility and can allocate the assets to minimize a negative impact. The real question is if you think you can do a better job. "

A major reason W&W are core parts of our portfolio. Counting on seasoned and proven active management rather than myself whirling those index funds in the right way at the right time!
__________________
WilliamG is offline   Reply With Quote
Old 06-06-2010, 05:14 PM   #12
Full time employment: Posting here.
 
Join Date: Nov 2009
Posts: 510
Quote:
Originally Posted by WilliamG View Post
MichaelB said:

"There is a very good chance that Wellesley Income fund management is aware of this possibility and can allocate the assets to minimize a negative impact. The real question is if you think you can do a better job. "

A major reason W&W are core parts of our portfolio. Counting on seasoned and proven active management rather than myself whirling those index funds in the right way at the right time!
Amen! W&W are my core funds also and for the very same reason.

You'll hear some say they rather do their own thing, and that's fine. I'd point out that if you follow threads over at bogleheads - you'll read where some seasoned members verify that Wellington has done as good a job in the past as a balanced portfolio of index funds (providing you know when to properly time a rebalance of your funds). Wellesley has done as well or better.

Also hear some state that active management is a thing of the past, but I would only agree with that comment for "stock only" funds - personally view "balanced" funds strength as professional asset balancing management.

My third reason is although I've spent a considerable amount of time educating myself about investing - my wife has absolutely no interest in it (don't fault her - it is rather boring and dry reading). It is much easier to use auto pilot (W&W) for planning the "turning the reigns over". I sleep better with a simpler approach to asset management and knowing that when the time comes - W&W will keep things going for her in the right direction.
__________________

__________________
fritz is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Interest rates jrcase FIRE and Money 12 04-23-2008 11:01 AM
New Zealand interest rates. CCdaCE FIRE and Money 9 08-05-2007 01:31 PM
Wellesley Income Fund charlie FIRE and Money 46 03-04-2006 07:51 AM
Low interest rates Whisper9999 FIRE and Money 29 12-01-2004 06:03 AM
When interest rates rise.... wabmester FIRE and Money 36 02-06-2004 05:38 AM

 

 
All times are GMT -6. The time now is 11:52 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.