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Old 07-04-2016, 09:36 PM   #61
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Not wanting to hijack this thread, but what's the thoughts on Vanguard Tax Managed Fund for a taxable account? It's 50% stock and 50% municipal bonds.
Looks like a good fund. Would cut my tax bill to zero.
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Old 07-05-2016, 08:29 AM   #62
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We don't own Wellesley or Wellington. Reasons are similar to what others have stated:

1. We only own ETFs, primarily to avoid year-end CG distributions.
2. It's more difficult to slice/dice and maximize tax efficiency with stocks and bonds in the same fund.
3. The expense ratio, while low by most standards, is still quite a bit higher than our index ETFs.
4. We prefer to house everything at Fidelity, where Vanguard MFs would be costly to trade.
5. Despite the excellent track record, we prefer highly diversified index funds over actively managed funds.

Our portfolio is pretty straightforward with the largest positions in VTI and AGG, with a good chunk of LQD as well. We also have 15% in real estate (VNQ plus 2 rental houses). For a slight boost in dividends, we own some high-dividend ETFs (VYM and others) and some high-yield corporate (HYG). We have smaller positions in international stocks, international bonds, and some municipal.
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Old 07-05-2016, 11:53 AM   #63
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I don't have Wellesley. I called Vanguard a few years ago, wanting to buy Wellesley and Wellington. The agent talked me out of these and into the 3 fund portfolio. (Vanguard Total Stock Market Index Fund (VTSMX), Vanguard Total International Stock Index Fund (VGTSX), Vanguard Total Bond Market Fund (VBMFX)). Agent said that the 3 fund was more cost effective- less fees than Wellesley and Wellington. I haven't verified this.


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HMMMM....Back to the original post. When Kevin stated he saw the returns to be better than the Boglehead 3 fund, no one really showed an argument. In the following link I entered the two W's in a chart against the 3 Bogle funds since 2001. Over the long haul what can be argued? I really am open to more allocation diversity with indexing, but the chart is fairly clear on what did best over time.
PerfCharts - StockCharts.com - Free Charts
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Old 07-05-2016, 12:52 PM   #64
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"Past performance is not a guarantee of future results."
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Old 07-05-2016, 12:57 PM   #65
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"Past performance is not a guarantee of future results."
Touche'----But a negative yield curve in the bond market is a great indicator of a following recession.
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Old 07-05-2016, 01:18 PM   #66
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"Past performance is not a guarantee of future results."
True. No matter what investment strategy, fund, AA, FA or dart board you select, it's a crapshoot.
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Old 07-05-2016, 01:32 PM   #67
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Of course past performance guarantees nothing, but its disingenuous to pretend that allocations are constructed on anything other than careful backtesting combined with the best forward-looking guesstimates one can come up with.

There's data on Wellesley that goes back long before many asset classes we incorporate into modern slice-and-dice portfolios could even be invested in (sector ETFs, EM, value, small and micro-cap stocks, paper gold, etc. etc.). One of the amazing things is just how much better - with far, far less volatility - VWINX does than a classic 60:40 stock:bond portfolio that inverts Wellesley's asset blend:

https://www.portfoliovisualizer.com/...ocation3_2=100
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Old 07-05-2016, 02:00 PM   #68
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True. No matter what investment strategy, fund, AA, FA or dart board you select, it's a crapshoot.
And even in craps, the house always has an edge.
Thank goodness for my Ameriprise rep -- by trusting him I never have to think about any of this.
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Old 07-05-2016, 02:07 PM   #69
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Thank goodness for my Ameriprise rep -- by trusting him I never have to think about any of this.
A textbook example of the house having the edge...
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Old 07-05-2016, 02:11 PM   #70
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And even in craps, the house always has an edge.

And thus the inspiration for the name Merrill "Edge"...
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Old 07-05-2016, 03:23 PM   #71
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Of course past performance guarantees nothing, but its disingenuous to pretend that allocations are constructed on anything other than careful backtesting combined with the best forward-looking guesstimates one can come up with.

There's data on Wellesley that goes back long before many asset classes we incorporate into modern slice-and-dice portfolios could even be invested in (sector ETFs, EM, value, small and micro-cap stocks, paper gold, etc. etc.). One of the amazing things is just how much better - with far, far less volatility - VWINX does than a classic 60:40 stock:bond portfolio that inverts Wellesley's asset blend:

https://www.portfoliovisualizer.com/...ocation3_2=100
OK, that my "past returns" comment was quick and pithy, but what is the magic that says Wellesley will do better in the future? I am also amazed at how well the more conservative Wellesley compares, but as you say, you also have to make forward guesstimates. Past results alone does not close the argument, as per the sentiment I thought (perhaps mistakenly) I was reading.

I guess Wellesley succeeds because they do a better than average job of weeding out the losers, while maintaining a low expense ratio for a managed fund, though not as low as an index fund. But I can also remember a time years ago looking comparing Wellesley past performance to other options and not being as impressed. I can't even begin to tell you when this was and what I compared to so take this for what very little this is worth, but I'll just say that as obvious of a choice as Wellesley would seem to be now, I don't think it's always been so clear. It's only in looking back that we can say for certain what it was, but not what it will be.

Remember how good Fido Magellan was under Lynch? You don't hear so much about it anymore. Managers change, and with it, so do results. I couldn't tell you anything about the Wellesley managers.

btw, want better backtesting results? Replace Total Stock Market with PRIMECAP, which I have in my portfolio as a nod to managed funds. The PRIMECAP/total bond mix beats Wellesley, albeit with more volatility, and not if I match the 40/60 stock/bond mix. I haven't figured out the magic in PRIMECAP either.
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Old 07-05-2016, 06:11 PM   #72
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I own Wellesley (about 25% of my portfolio), and have found it to be a very good fund to help balance out my portfolio over the last 5 years.
I also own several other funds such as VDIGX (dividend) and VGHCX (healthcare) and a mix of stocks. Wellesley seems fairly stable during the volatile times, and helps to offset the big market drops. I guess at the same time, when the market is flying high, my returns aren't as much as they could potentially be. But that's ok with me. For instance, last week and this week, when the market was down on different days, VWINX was up.

Everybody has to be comfortable with their own asset allocation and tolerance for risk.
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Old 07-05-2016, 09:03 PM   #73
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I own Wellesley (about 25% of my portfolio), and have found it to be a very good fund to help balance out my portfolio over the last 5 years.
I also own several other funds such as VDIGX (dividend) and VGHCX (healthcare) and a mix of stocks. Wellesley seems fairly stable during the volatile times, and helps to offset the big market drops. I guess at the same time, when the market is flying high, my returns aren't as much as they could potentially be. But that's ok with me. For instance, last week and this week, when the market was down on different days, VWINX was up.

I feel the same. Although with Wellesley's roughly 65% in bonds, that is to be expected. What I find interesting is how often Wellesley and VTINX are up vs. down (like today) and vice versa. With their allocations as close as they are I wouldn't have expected that to happen all that often. Granted, the differences are small.
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Old 07-06-2016, 08:00 AM   #74
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I really like John Greaney's site too. His charts showing the performance over time for different portfolio's during the distribution phase helped me to understand the 4% rule. Regarding the relative performance of the different portfolios that he models, it's important to compare the returns for the 1995 retiree to those of the 2000 year retiree. When you do, you'll see that the 75/25 S&P 500 portfolio was the worst plan to have if you retired into the bear market period of the 2000s.

I like the returns for the MPT portfolio too, but I'm not sure that I want to own and re-balance between 10 different funds. On that note, what do people think of Otar's recommendation to only re-balance once every 4 years during the presidential election cycle? Also, when exactly are you supposed to re-balance? Is it after the November vote, but before the January inauguration?

I own Wellesley in my ROTH. I have thought about shifting my ROTH to Wellington, and then using Wellesley for my post-tax allocation because of its dividend rate. I have 3 more years until I can FIRE so, like many here, I'm still working on what my portfolio should look like in retirement.
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Old 07-06-2016, 09:12 AM   #75
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I'm 71/spouse 70 with a 40/55/5 AA in a classic 3 fund portfolio. Pension and SS cover all but the most extraordinary expenses. I have started my RMD; my wife will shortly. RMDs are being/will be reinvested in taxable.

All of our IRA money (28% of total port) is currently in VG Total Bond Index. Lately I've been considering "goosing" the IRAs a bit and, in the course of so doing, taking overall AA to 45/50/5. The two things I've been most considering are:
- simply adding a slice of VG Total Stock Market Index to the IRAs.
- transferring half the money in my IRA from Total Bond to Wellesley.

In either case, I think I'll wait bit and see if either stock or bond markets drop significantly through the end of the year. 5% either way won't make a huge difference and, if I do nothing and leave things where they are (for a year or for 5 years) it won't make a big difference in our lives. I think I'm just satisfying the itch to "do something" but not too much.

Wellesley is the only managed and/or balanced fund I have seriously considered using for this purpose. Reason is its historical record which, I understand, is no guarantee....
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Old 07-06-2016, 12:06 PM   #76
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On that note, what do people think of Otar's recommendation to only re-balance once every 4 years during the presidential election cycle?
Not much.

Basically he tried a bunch of random stuff to see what would stick in backtesting. A very poor methodology and prone to spurious conclusions when you have little data.
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Old 07-06-2016, 03:02 PM   #77
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I really like John Greaney's site too. His charts showing the performance over time for different portfolio's during the distribution phase helped me to understand the 4% rule. Regarding the relative performance of the different portfolios that he models, it's important to compare the returns for the 1995 retiree to those of the 2000 year retiree. When you do, you'll see that the 75/25 S&P 500 portfolio was the worst plan to have if you retired into the bear market period of the 2000s.
Yes! IMO that's the most interesting part of Greaney's recap:

"What if you retired in January 2000?

If you happened to retire in January 2000, the last sixteen years haven't been pleasant. Only the Warren Buffett portfolio has a value appreciably exceeding its $100,000 starting balance. The 100% fixed income portfolio is underwater while the MPT portfolio, Larry Swedroe Portfolio, Harry Browne Portfolio, and Harry Dent Portfolio are all 8% to 14% in the black. The other two portfolios both show losses. The worst performer was the 75% S&P500/25% fixed income portfolio which is now less than two-thirds of its starting value."

Specifically, at the end of the 2000-2015 period with a 4% SWR you'd have a balance of $77,911 remaining from a 75:25 allocation and $87,572 from a 60:40 stock:bond portfolio. Only approaches that minimize fat tails have thrived over the past decade and a half.

Personally I can really see having up to 25% of total assets in Wellesley but I'm too much of a Boglehead to not have broadly diversified index funds as my core holdings. That said, my wife and I have agreed (and put it in our investment plan) that if at any point either of us aren't sharp enough to deal with rebalancing or other aspects of monitoring things we'll go to 50:50 Vanguard Lifestrategy Conservative Growth and Wellesley and call it a day.
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Old 07-07-2016, 09:50 AM   #78
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The problem with reallocating to W/W is that if you have a lot of taxable in your port from saving over the years, you're looking at a big tax bite and/or a long time to shift the money. And by that I mean going whole-hog since these are balanced funds, not just moving tax-advantaged money.
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Old 07-12-2016, 03:54 PM   #79
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Just a couple of notes correcting misinformation from earlier in this thread:

1. Wellesley's bonds are mostly corporate, with only ~15% Treasuries.

2. Average effective maturity of bonds at the moment is 9.9 years, vs. 5-7 years for Vanguard's IT Treasury and Bond funds, so the yield curve and interest rate sensitivity are indeed well out of the intermediate range.

3. Expense ratio for Wellesley Admiral shares is .16 - more than the rock bottom .05 level of Total Stock Index Admiral but on par with any of their Target retirement or Lifestrategy funds and about the same as a typical three or four fund all-index portfolio at Vanguard.
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Old 07-12-2016, 10:41 PM   #80
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Just a couple of notes correcting misinformation from earlier in this thread:

1. Wellesley's bonds are mostly corporate, with only ~15% Treasuries.

2. Average effective maturity of bonds at the moment is 9.9 years, vs. 5-7 years for Vanguard's IT Treasury and Bond funds, so the yield curve and interest rate sensitivity are indeed well out of the intermediate range.

3. Expense ratio for Wellesley Admiral shares is .16 - more than the rock bottom .05 level of Total Stock Index Admiral but on par with any of their Target retirement or Lifestrategy funds and about the same as a typical three or four fund all-index portfolio at Vanguard.
I'm suspect I've said this before, but I think Wellesley's consistent risk adjusted outperformance (Alpha) has as much to do with
their bond picks as stock picking.

The bond market is bigger than the stock market, it trades less frequently, and bid ask is wider on the corporate bonds than stocks or government bonds.
I think this makes it the perfect market for active management.

Looking at the big pictures, if I have a portfolio and I'm looking to generate income, I can loan money to a government or corporation and collect interest, or I can take an equity position and generally collect dividends.

Most people decide on AA between stocks and bonds and stick it in index funds. A fair number cheat a bit and decide to allocate more to international, or small caps, or value. There are also a decent number of active stock pickers on this board. I know many of us have a least respectable track record. I can think of only two people in my time on the board who active bond pickers. I followed some of recommendations of one of the guys (Brewer) and I can say that unless Sallie Mae goes broke in the next two years, his recommendation far outperformed similarly rated bonds.
So I think it's not unusual for bond traders who are able to beat the average (It's how Michael Lewis made his early money).

In contrast, Wellesley is constantly looking at both stocks and bonds and deciding what is the best way to get income from a corporation, buy bonds or buy stocks. I'm a pretty sophisticated investor, but I'm pretty clueless on how to determine I'm a better of buying Wells Fargo stock with 3.1% yield or Wells Fargo 2025 bond with the same yield. I suspect that most firms and fund managers that only buy bonds or only buy stocks aren't be that much smarter.

So moving forward, I think Wellseley will continue to provide Alpha because their balanced approached to stocks and bonds is pretty unique and not easily replicated.
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