Wellesley and rising interest rates

[tmm99]

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Originally Posted by tmm99 I bought VWELX for the first time just last week... How could it be? I am not complaining. I am just wondering what it means by "closed to new investors".... Does that (close to "new" investors) mean "new" to VG? (I don't know this investing stuff much...)

For people who were curious - I called VG and found out that Wellington fund is closed to *institutional* investors but it is open to *personal*(/individual/retail) investors like myself.

[golfnut]

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Originally Posted by LakeTravis I like Wellesley. I also like Wellington. After examining all of the options for years, I eventually decided that my retirement fund(s) would initially be divided among four accounts: 3 years worth of expenses in Wellesley from which I would draw annually. Wellesley averages pretty decent returns with a lower level of risk and is not very volatile. Will this change in a rising rate environment? Maybe. Maybe not. Years 4 thru 25 in Wellington for longer term growth. I like the kind of returns this fund has seen in the past and while it's a bit more volatile than Wellesley it's not too bad. Years 26 and beyond in Vanguard Healthcare fund and Vanguard Energy fund. I like these funds because I think they are capable of some really impressive returns over a very long term. Much more volatile, of course, but with 25 years as a buffer should do well.

Interesting concept with these fund picks. When you get much older, what happens to years 26 and beyond?

[clifp]

I moved my mom's large position in Vanguard GNMA to 2/3 Wellesley and 1/3 Wellington. In my annual investment letter to her I wrote this.

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I invested the money from the sale of the GNMA (over $300,000 worth in the last 2.5 years) into 3 funds. Vanguard Wellesley, Vanguard Wellington and $100,000 into a short bond fund. The Vanguard W&W funds are long time Vanguard funds back to 1927 with amazingly consistent and long term records. Both funds own bonds and stocks, and while I hate bonds, it would foolish to have all of my 89 year old mom’s money in the stock market. I have confidence the smart managers at Wellesley and Wellington will figure out how to avoid losing money no matter what happens with the stock or bond market.

I am not big efficient market fan. I figure they have institutionalized two things at W&W rule 1 is avoid losing money and rule #2 never lose a lot of money. I think Wellesley lost 6.4% back in 1974 (vs 14.2% for a 35/65 mix). Still this is going to be challenging few years for the managers at these funds.

[RunningBum]

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Originally Posted by clifp I moved my mom's large position in Vanguard GNMA to 2/3 Wellesley and 1/3 Wellington. In my annual investment letter to her I wrote this. I have confidence the smart managers at Wellesley and Wellington will figure out how to avoid losing money no matter what happens with the stock or bond market. I am not big efficient market fan. I figure they have institutionalized two things at W&W rule 1 is avoid losing money and rule #2 never lose a lot of money. I think Wellesley lost 6.4% back in 1974 (vs 14.2% for a 35/65 mix). Still this is going to be challenging few years for the managers at these funds.

Wellington lost 22.30% in 2008 while Wellesley lost 9.84. Wellington also lost money in 2002, and Wellington in 1999. Both are good funds, and I have some in Wellesley and have owned Wellington in the past, but the fund managers aren't miracle workers.

[RunningBum]

Also, the "strategy and policy" statement at Vanguard's website say nothing about your 2 rules. If those were really the top 2 rules they would probably be 100% in CDs or similar investments. I'm glad they aren't.

[NW-Bound]

Yep, no pain no gain.

And if an investor does not know what he is doing, it's all pain for no gain.

[LakeTravis]

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Originally Posted by golfnut Interesting concept with these fund picks. When you get much older, what happens to years 26 and beyond?

You mean if there's still anything left?

While that's the allocation I'll start with when I RE, I haven't yet decided how it will evolve as I move thru large blocks of time. My first thought was that the first three years of Wellesley used for draw would always stay at three years worth of withdrawals and be replenished every year from Wellington while the health care and energy funds remained untouched, and as I got towards the end of the 26 years the (hopefully) long term growth health care and energy funds would be moved into Wellington.

But I honestly haven't settled on that strategy yet.

[Birchwood]

My Vanguard account is concentrated on Wellington, Wellesley and Intermediate term bond fund. Roughly that puts me about 40% equity.
I'm not moving anything at this point, despite bond's dire future with interest rate.
I stay with my asset allocation no matter what. I have cash in other account.
There is a risk in anything. It's part of investing.

[clifp]

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Originally Posted by RunningBum Also, the "strategy and policy" statement at Vanguard's website say nothing about your 2 rules. If those were really the top 2 rules they would probably be 100% in CDs or similar investments. I'm glad they aren't.

I think you are taking my statement too literally. A 9% loss in 2008 is remarkably little the category average was 13%. I went back and looked at various ER threads that showed the performance of Wellesley. (Vanguard fiscal years end Sept. 30 so sometimes it hard to make the right comparison) Roughly once or twice a decade Wellesley loses 2-9% and 2-3 times a decade that make 15%+. The rest of the time Wellesley makes 8-10% which is fairly remarkable because even though the market average is 9-10% the S&P almost never makes 8-11%. The +30% and -10% years are more common.

If you look at Wellesley portfolio and to a large extent Wellington's also they don't hold the Netflix, Tesla, nor do they swoop in a try and buy Detroit bonds on the cheap. So they miss out on some of potential big wins, but when I say they avoid losing a lot of money they do so by staying away from the risky bets.

One of the reasons I don't own either W&W funds is because when I look at their stock portfolio, there is high degree of overlap. My core holdings look very similar to both funds. Except for I dabble in Tesla and Netflix in small amounts.

[RunningBum]

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Originally Posted by clifp I think you are taking my statement too literally. A 9% loss in 2008 is remarkably little the category average was 13%. I went back and looked at various ER threads that showed the performance of Wellesley. (Vanguard fiscal years end Sept. 30 so sometimes it hard to make the right comparison) Roughly once or twice a decade Wellesley loses 2-9% and 2-3 times a decade that make 15%+. The rest of the time Wellesley makes 8-10% which is fairly remarkable because even though the market average is 9-10% the S&P almost never makes 8-11%. The +30% and -10% years are more common.

OK, you bolded it and then pointed out a year 40 years ago as if it hadn't happened within the last 10 years. I figure when people are using numbers and saying things like "no matter what" they are talking at least fairly literally. I mean, you essentially promised your mother that she couldn't lose money, when in fact she history shows she can with those investments, at least in the yearly term of your letters. But that's between you and her. I trust people here will do their own due diligence, and this was just a bit of a warning from me to be sure not to skip that. I used numbers from Vanguard's own site. https://personal.vanguard.com/us/fun...Ext=INT#tab=1a . Out of the last 16 years, there's 7 that did less than 8%, including 2 that lost money. Not trying to get into a pissing match, just trying to be real.