Wellington and Wellsley

[Tim Bates]

Hi.  I've been a lurker on this board for a while and thought I would finally post.  40 years old.  Planning to ER in 12-15 years at age 55, like most of you (from what I gather).  Someone said that Wellington and Wellsley would probably return 7-8% over the foreseeable future.  My goal is 7% over the next ten years plus savings to reach my ER goal.  Is it wise to invest in these two funds, with 10-12 years left until ER or should I be more aggressive?

 

[MasterBlaster]

What a name !

Well these balanced funds are sort of the middle ground between cash and bare equities. They have less risk, are diversified. For a risk adverse person they just may fit the bill.

Personally I would look at something like the Vanguard Star fund or the Vanguard Life Strategy funds.

But that's why there are so many funds. So that you can find one you like.

For your age and timeframe I would think though that the Wellsley fund just might be a bit too conservative.

 

[cute fuzzy bunny]

If you like the style of those funds, start in wellington and as you get closer to retirement, start contributing to or shift towards wellesley. An even split gives you a pretty flat 50/50 stocks/bonds allocation. Generally good returns and decent volatility, at a reasonable cost. Another option is to go with the target retirement 2015 and let it do its thing...

 

[thefed]

I've been eyeballing Wellington myself, even though some may consider it conservative for my age. I like what I've read about the fund.

 

[yakers]

My wife is in Wellsley but she is 58 and retiring in May. Chose this based on considerations of this board and uncleMic and others who wisper Wellsley into the ears of the seekers income. But both together is not a bad approach. I would say do it unless you prefer index funds. Another choice, we have our Roths in Vanguard Asset Allocation fund (VAAPX) also a good long term core fund. But the Target funds are hard to beat if you just want to set and forget.

 

[cute fuzzy bunny]

I remember spending a morning looking through the vanguard funds when I first started looking at them. Decided on the Wellesley fund as a core holding and wellington as a little extra 'juice'. About the minute after I finished reading 37,000 pages of very exciting crud I found an interesting article on the history of mutual funds that had a lot of highlighting on wellington, fair considering its one of the oldest (if not THE oldest) mutual fund. Apparently there is a long running "old money" strategy to invest in wellington and the wellesley fund may have been created for wellington investors to start making their money more conservative while maintaining the same investment principals. The "old money" (whatever/whoever that is exactly) ends up with some sort of split between the two at retirement.

Sounded like a bit of a marketing play to make people want to emulate the "old money", but it made for a nice story.

I had a hard time struggling with the index/active thing, but that I was getting < .20 ER on the wellesley admiral shares took away one of the objections to active funds. Low turnover that wasnt much different from an index and therefore good tax efficiency took away another. That wellesleys 10+ year track record was better than or in line with other balanced funds that charged more and performed more poorly while those other funds also held a lot more equities and had a lot more volatility was also in the funds corner. No sequential losing years. No double digit losing years. SWR friendly 4%+ yield. Historic returns that matched an SWR and the average annual rate of CPI reported inflation.

That having been said, the large cap value stocks and shortish intermediate bonds have done well over the last decade or two, and the combination has been a winner...somewhat higher returning but volatile equities in a smaller dose, ballasted by a big lump of fairly steady and decent returning bonds.

A long term bear market in bonds coupled with a return of Growth to favor, might make the fund a poor returner for a while. But of all the funds out there, this one might be the most "good sleep worthy".

I dont know if I'd hold a lot of this fund if I was a young person, unless i was a very conservative investor. A lot of the yield is taxable (ok in an IRA/401k) as unqualified dividends. For long term holding periods a higher equity component is warranted (which wellington has). But for in-ER holders, its a good place to stop. If you're worried about really long term ER's holding up to inflation, you can do what I did...take Wellesley as your core taxable holding, and fill your IRA with racy stuff like small cap value, international small cap, emerging markets, reits, healthcare, energy, etc. Let those simmer and rebalance them for 20 years until you get to 'real' retirement age...

 

[soupcxan]

Thefed, I think you're around my age (24)...I hold Wellington in my Roth. And yes, some will say that it is too conservative for people our age, but I have my own risk tolerance, and I like it.

I've been eyeballing Wellington myself, even though some may consider it conservative for my age.  I like what I've read about the fund.

 

[MasterBlaster]

Soupcxan, TheFed and others:

I guess you already know that the after tax, after inflation return of those bonds is likely less than zero - ie. negative. Then subtract off the likely hit you'll take if and when interest rates go up to their 'natural' level.

Sure they reduce shortterm risk in your portfolio and are somewhat uncorrelated with equities.

However, think about what those bonds do for your portfolio over a decade or four.

 

[laurence]

I hold Wellington as my "bond position" - it's only ten percent of my portfolio, it's the most conservative holding, and I'm 31. I plan on buying Wellesly when I retire, but I think it's too conservative for those of us who aren't retiring in the next decade.

 

[thefed]

Soupcxan, TheFed and others:

Then subtract off the likely hit you'll take if and when interest rates go up to their 'natural' level.

Can you explain that to me please?



I also don't see how holding Wellington would put you in the negative. Obviously, holding it in a 401k/Roth helps. But either way, an 80 yr record of 8.3% annual return seems fine to me.

 

[cute fuzzy bunny]

Actually the returns of both wellesley and wellington, adjusted for reasonable taxes and average inflation, produce an average of 4%+ per year. One since 1970 (wellesley) and one since 1928 (wellington).

 

[MasterBlaster]

I also don't see how holding Wellington would put you in the negative.

Well you have misquoted me. I was referring to bonds and by inference all of the bonds that Wellington and Wellesley hold.

Right now bonds pay maybe 4.5 %. Subtract off your personal inflation rate and your personal tax rate. Considering that the CPI ( an indicator of the relative inflation rate) went up 4.2 percent last year. Maybe your federal and state combined tax rate is 30 percent.

Use those two indicators to get a real negative return on bonds. The fact that in the past bonds returned more than 0 pertcent real return is irrelevant.

Furthermore, one day just maybe the Chinese and the rest of the world will get tired of loaning us money. When that happens interest rates will adjust up fast. Just watch what happens to your bond fund then. Stocks won't do much better then but it's something to consider.

My point was that just maybe bonds aren't the best thing to hold right now.

 

[Danny]

Furthermore, one day just maybe the Chinese and the rest of the world will get tired of loaning us money. When that happens interest rates will adjust up fast. Just watch what happens to your bond fund then. Stocks won't do much better then but it's something to consider.

My point was that just maybe bonds aren't the best thing to hold right now.

This will be become very interesting in the next few months, as the administration pressures China to make our trade relationship more equal - fat chance - and when congress begins working up veto proof legislation to slap across the board tariffs on China's imports (Lindsey Graham promised this week). That and the accumulation of our growing isolationist tendencies reflected in the pressure on China not to buy a US Oil outfit last year, the DP World port fiasco, and senators saying they want closer scrutiny of all foriegn companies buying US assets...very troubling for a country like us that has been championing globalization...

 

[MasterBlaster]

After thinking about the scenario where other countries stop lending us money...

Bonds will do terrible as expected. However the dollar will also fall like a rock. So companies that sell things overseas will do great as their products become great values to foreign buyers.

Therefore, under that scenario, some stocks will do very well.

So, on reinspection I'd much rather be a holder of stocks than bonds. Even under a crisis sceanrio as mentioned.

 

[thefed]

MasterblasteR:

I'm unsure and un-educated regarding foreign fiscal policy and its effect on bonds.

BUT, I do like your avatar.....

 

[ferco]

Would a 50:50 mix of Wellington/ Vanguard Target 2045 help to even out the "rough" bumps over a ten year period and give a more balanced asset allocation?

 

[Brat]

I am retired so I thought it would be interesting to compare Wellesley to my balanced funds, Dodge & Cox and Oakmark EI.  Wellesley is 40/60 stocks/bond, mine the reverse.  D&C is a swinger (+/- annually), while Oakmark is steady as she goes, it's worst return was -2.14%, down once in 10 years.  Wellesley's worst was +3.56%, up all 4 years.  The big difference is that is on the upside; Oakmark's mean annual return is 14.86% vs Wellesley's 8.10%.   

I think I'll stick with Oakmark but ladder some I-bonds for insurance.

 

[cute fuzzy bunny]

isnt oakmarks fee a little stiff? I think when I owned it the ER was over 1%.

 

[Spanky]

isnt oakmarks fee a little stiff? I think when I owned it the ER was over 1%.

Oakmark Equity Income's fee is 0.89%.

 

[cute fuzzy bunny]

Ah, EI...I had oakbx which I see is also at .89. Could have sworn the sucker was over 1% and thats why I sold it...

 

[ats5g]

The expense ratio for OAKBX was over 1%. As of fiscal year ending September 30 of each year.

1996...2.50%
1997...1.50%
1998...1.31%
1999...1.18%
2000...1.24%
2001...0.98%
2002...0.96%
2003...0.93%
2004...0.92%
2005...0.89%

- Alec

 

[Nords]

The expense ratio for OAKBX was over 1%. As of fiscal year ending September 30 of each year.

That must be the only mutual fund in America that lowered its expense ratio over the last few years. Whatta buncha losers.

Whatever you said to them when you sold your shares, Laurence, it sure worked!

 

[cute fuzzy bunny]

Hey, I'm not a moron again! I had the fund in 2000-2001 IIRC. I remember looking at it and saying "good performed, but dodbx is just as good and (I think) .54% ER'...and a couple of others looked good and were cheaper.

Then I was vanguardized and now anything over .25 looks way too spendy to me

 

[Spanky]

Fido's index funds (Total Market, Total International) have very low ER (0.07% for advantage class and 0.1% for investor class). Advantage class requires an investment of $100K.

 

[ats5g]

Well geez, I would hope OAKBX lowered their expense ratio given the massive asset increase.

9/30/1997 33,462,513
9/30/1998 57,745,855
9/30/1999 60,317,591
9/30/2000 54,935,837
9/30/2001 623,356,396
9/30/2002 2,360,587,003
9/30/2003 4,384,649,011
9/30/2004 8,056,557,682
9/30/2005 9,805,219,823

- Alec