Wellesley vs. everything else in ER

[photoguy]

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.

 

[kevink]

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.

 

[GTFan]

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.

 

[kevink]

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.

 

[clifp]

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.

 

[kevink]

Thanks very much clifp. You've articulated something I've long thought might be the case far better than I could.

 

[REWahoo]

Thanks very much clifp. You've articulated something I've long thought might be the case far better than I could.

+1

I really hope clifp doesn't get in trouble for revealing the secret sauce recipe.

 

[RunningBum]

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.

There's probably something to that, though Wellesley is also bound to their stated objective of a 35/65 to 40/60 stock/bond mix. They may have to decide in your example that the WF stock is a better investment than the bond, but they go with the bond because it's close enough and they need more bonds for their stated AA.

 

[clifp]

+1

I really hope clifp doesn't get in trouble for revealing the secret sauce recipe.

Actually, I really think the sauce is three parts A1, one Part Siracha, and a dab of Dijon Mustard.

 

[wallygator69]

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

Does the chart include dividends? Many times I have seen charts like this that don't include them...

Also, VWINX has lower expenses (admiral share) and it would have a higher return than VWAIX.

Yes, I have a lot of Wellesley.

See ya,

Wally

 

[Happyras]

If you put an_ under score in front of the mutual fund symbolit will display without Dividends. __VWIAX is the admiral shares symbol for Wellesley without dividends.




Sent from my iPhone using Early Retirement Forum

 

[wallygator69]

If you put an_ under score in front of the mutual fund symbolit will display without Dividends. __VWIAX is the admiral shares symbol for Wellesley without dividends.

Sent from my iPhone using Early Retirement Forum

Nice! Thanks I didn't know that...

See ya,

W

 

[FreeBear]

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.

Good point kevink. Have been thinking what to do if the "wealth manager" (me!) has "issues". I like the idea of splitting between Wellesley in DW's IRA and perhaps a Vanguard indexed 60/40 balanced fund in my IRA.

I too am a late convert Boglehead and indexer, but I doubt DW would want to bother with rebalancing and figuring out what to sell (bonds?, stocks?, which ones?). It's a good reminder for other folks too that some sort of simple crash plan is needed if the in-house money manager is unavailable for any length of time.

FB