VG Wellesley vs LifeStrategy Conservative Fund

[In-control]

Hi All,

Lazy Man(Person) model of active??

I am at a cross roads and need some other opinions. I have been able to FIRE for a while now. Just waiting for the kids to finish school to pull the trigger. I consolidated 50% of my assets in to the Wellesley Adm fund, a conservative, actively managed fund two years ago and have been happy with it.

The other 50% is in VG Health care(7%), International(8%), High Yield Corp. Bonds(8%) and Fidelity Spartan Indexed Tot. Stk(12%) and Bond Funds(15%)

Over all I am @ 40% stk/50% Bnd and 10% cash allocation and pretty satisfied. I know really want to reduce volatility and risk.

The Lazy Mans(Persons) method would be to move the majority of my assets into the VG LifeStyles fund, Conservative. It is all index funds with an allocation of Bnds(48%)/US Stk(28%)/Inter Stk(12%)/Inter Bnd(12%). That will keep me in my allocation range and increase my diversity.

The benefit of doing this is to increase diversity/reduce volatility/costs/maintenance. The disadvantage based on past performance - loss of ~ 1.5%/time period.

What do you think

[REWahoo]

Life Styles Conservative fund? Did you mean VSCGX, the LifeStrategy Conservative Growth fund?

[pb4uski]

Or if you have both taxable and tax advantaged accounts you may want to buy the index funds instead and periodically rebalance in the interest of tax efficiency. That and you could further tilt the bond allocation to shorter duration bonds to reduce interest risk by using the component funds rather then the composite fund and substituting a broad based lower duration fund for Total Bond.

[In-control]

Quote:

Originally Posted by REWahoo Life Styles Conservative fund? Did you mean VSCGX, the LifeStrategy Conservative Growth fund?

Yes the VSCGX

[In-control]

Quote:

Originally Posted by pb4uski Or if you have both taxable and tax advantaged accounts you may want to buy the index funds instead and periodically rebalance in the interest of tax efficiency. That and you could further tilt the bond allocation to shorter duration bonds to reduce interest risk by using the component funds rather then the composite fund and substituting a broad based lower duration fund for Total Bond.

Thanks - I am keeping things balance by primarily adjusting tax free accounts. I do have to adjust the sector accounts annually. I also put 70% of my salary in pretax'ed 403b & Annuity accounts. So much of my income comes from long term cap. gains and dividends.

One of the benefits of the LifeStyles fund is that it stays balanced.

[eytonxav]

Perhaps one consideration point for you is that Wellesley has a bond duration of 6.2 yrs. I have been in this fund for some time with a fairly sizeable position and its been a great conservative performer. It does concern me how it might perform in a raising rate environment, which is bound to happen at some point down the road. I think its hard for Wellington Management to shorten that duration given the large size of this fund, and therefore suspect holders of this may be in for some disappointing results.

I don't know how that compares to the bond duration of the life strategy fund.

[In-control]

Quote:

Originally Posted by DFW_M5 Perhaps one consideration point for you is that Wellesley has a bond duration of 6.2 yrs. I have been in this fund for some time with a fairly sizeable position and its been a great conservative performer. It does concern me how it might perform in a raising rate environment, which is bound to happen at some point down the road. I think its hard for Wellington Management to shorten that duration given the large size of this fund, and therefore suspect holders of this may be in for some disappointing results. I don't know how that compares to the bond duration of the life strategy fund.

Thanks -

The duration for the funds with in the LifeStyles are,
5.4 yrs for the Total Bnd fund(48%)
8.3 yrs for the Inter. Bnd fund(12%)

[karluk]

Quote:

Originally Posted by In-control The benefit of doing this is to increase diversity/reduce volatility/costs/maintenance.

It's possible that you would be increasing diversity and reducing volatility and maintenance by investing in VSCGX, but it's almost certain that you would be increasing your costs. VSCGX doesn't appear to offer low cost Admiral shares, so you would be stuck buying the investor class shares. I see that the underlying assets of VSCGX are the investor class shares of Vanguard's total bond market, total stock market, total international stock market, and total international bond market funds. Considering what a simple four fund mixture this is, you could easily duplicate it by directly buying the Admiral shares of the four funds, thereby duplicating the holdings of VSCGX at a lower cost to you. That's what I would do, if I decided to go in this direction. You get lower expenses for only the trivial overhead of needing to do your own annual rebalancing.

The real question is should you go in this direction. I find your current portfolio to be a little on the quirky side, but overall to be quite reasonable. You have a conservative asset mix spiced up with significant holdings of health care stocks and high yield bonds. Do you enjoy making this sort of bet on individual sectors in the hopes of outperforming the market? Some people do and derive great pleasure from managing their own portfolio. If you are one of them, I see no harm in what you are currently doing.

[In-control]

Quote:

Originally Posted by karluk It's possible that you would be increasing diversity and reducing volatility and maintenance by investing in VSCGX, but it's almost certain that you would be increasing your costs. VSCGX doesn't appear to offer low cost Admiral shares, so you would be stuck buying the investor class shares. I see that the underlying assets of VSCGX are the investor class shares of Vanguard's total bond market, total stock market, total international stock market, and total international bond market funds. Considering what a simple four fund mixture this is, you could easily duplicate it by directly buying the Admiral shares of the four funds, thereby duplicating the holdings of VSCGX at a lower cost to you. That's what I would do, if I decided to go in this direction. You get lower expenses for only the trivial overhead of needing to do your own annual rebalancing. The real question is should you go in this direction. I find your current portfolio to be a little on the quirky side, but overall to be quite reasonable. You have a conservative asset mix spiced up with significant holdings of health care stocks and high yield bonds. Do you enjoy making this sort of bet on individual sectors in the hopes of outperforming the market? Some people do and derive great pleasure from managing their own portfolio. If you are one of them, I see no harm in what you are currently doing.

Thanks -

I asked the same ? of the VG rep as I had the same assumption. I was told that the overall expense ratio is a combined at.15%. Which makes it lower then then Wellesley Adm shares @ .18. It would be slightly less expensive .02% to build the fund with Adm shares and re-balance on my own.

As for the portfolio mix I am trying to consolidate. The Health care and Corp. bond fund. The health care fund has 3x'ed since I have owned it and I try to keep it @ 5% because it's a cash cow! The Corp. bond as well generate a steady flow of income. I will be dropping that one when the share values increases a bit.

[karluk]

Quote:

Originally Posted by In-control I asked the same ? of the VG rep as I had the same assumption. I was told that the overall expense ratio is a combined at.15%. Which makes it lower then then Wellesley Adm shares @ .18. It would be slightly less expensive .02% to build the fund with Adm shares and re-balance on my own.

You are comparing apples and oranges. Wellesley is an actively managed fund, and so can be expected to have somewhat higher expenses than passively managed index funds. The expense ratios of the Admiral shares of the four funds that VSCGX holds are

total bond - 0.10%
total stock - 0.05%
total international stock - 0.16%
total international bond - 0.20%

Taking into consideration VSCGX's current allocation of 47.6%/28.5%/12.0%/11.9% to these funds, I calculate that that you would reduce your expense ratio from 0.15% to 0.105% by buying the Admiral shares of the four component funds, rather than by purchasing the investor shares of VSCGX. That's close to a 33% reduction in your costs.

[In-control]

Quote:

Originally Posted by karluk You are comparing apples and oranges. Wellesley is an actively managed fund, and so can be expected to have somewhat higher expenses than passively managed index funds. The expense ratios of the Admiral shares of the four funds that VSCGX holds are total bond - 0.10% total stock - 0.05% total international stock - 0.16% total international bond - 0.20% Taking into consideration VSCGX's current allocation of 47.6%/28.5%/12.0%/11.9% to these funds, I calculate that that you would reduce your expense ratio from 0.15% to 0.105% by buying the Admiral shares of the four component funds, rather than by purchasing the investor shares of VSCGX. That's close to a 33% reduction in your costs.

Thanks for the clarification and comparison. It is definitely an option.

[madsquopper]

Slightly off topic, but I've been doing a lot of backtesting to figure out how to do sort of a coffeehouse approach to get to my allocation of 60/40. While looking at this, I also looked at a very simplistic approach using Wellesley since that has been a good performer for me. Based on the Wellesley bond/stock allocation, doing 2/3 Wellesley, 1/6 US Small Cap (like VSS) and 1/6 total international stock (like VXUS) covers most categories and simulates my 60/40 split. This performed almost as well as the more complicated portfolios.

To get closer to your allocation you'd have to do the math; I"m guessing you might edn up with something like 80% Wellesley and 10% of the other two. Whether you want that much in Wellesley is up to you.

Larry

[In-control]

Quote:

Originally Posted by madsquopper Slightly off topic, but I've been doing a lot of backtesting to figure out how to do sort of a coffeehouse approach to get to my allocation of 60/40. While looking at this, I also looked at a very simplistic approach using Wellesley since that has been a good performer for me. Based on the Wellesley bond/stock allocation, doing 2/3 Wellesley, 1/6 US Small Cap (like VSS) and 1/6 total international stock (like VXUS) covers most categories and simulates my 60/40 split. This performed almost as well as the more complicated portfolios. To get closer to your allocation you'd have to do the math; I"m guessing you might edn up with something like 80% Wellesley and 10% of the other two. Whether you want that much in Wellesley is up to you. Larry

Ah Ha - your on to me - I read that book last weekend and it triggered, re-kindled, this whole exercise. I came to the same conclusion as you. Add a Mid to Small cap index fund and I will have a better balance. Wellesley has been around awhile and just seems to be a reliable group.

Thanks

Bill

[Gearhead Jim]

Since OP wants to reduce risk and volitility:
Consider keeping a similar equity position as what you have now with Wellesley but using other VG funds, and using CD's to replace the bond portion?

That eliminates interest rate risk at least.

[LakeTravis]

Quote:

Originally Posted by In-control Thanks - I asked the same ? of the VG rep as I had the same assumption. I was told that the overall expense ratio is a combined at.15%. Which makes it lower then then Wellesley Adm shares @ .18. It would be slightly less expensive .02% to build the fund with Adm shares and re-balance on my own. As for the portfolio mix I am trying to consolidate. The Health care and Corp. bond fund. The health care fund has 3x'ed since I have owned it and I try to keep it @ 5% because it's a cash cow! The Corp. bond as well generate a steady flow of income. I will be dropping that one when the share values increases a bit.

Are you referring to VGHAX, the VG health care admiral fund? If so, I'm heavy both Wellington and Wellesley but have 5% of my portfolio in VGHAX and really like how that fund has performed. ER is high at .30% but YTD return has been over 40%

[In-control]

Yes the VGHAX fund. I have been in it for 15 years. The few times it went down I added $ and have been rewarded. I to used be in Wellington but moved those funds to Wellesley as it is more in line with my AO.