Wellington in a taxable account

[Helen]

Hello gurus,

I have seven years till I retire. My plan has been to sock away cash in an after tax account to live on for the first four years of retirement (age 56 - 60).

I've been transferring money electronically to Treasury Direct to purchase I Bonds.

Now that the rates are so low, I need to re-think my strategy. What do you all think of using Vanguard's Wellington fund instead of I Bonds ?

Thanks for any opinions,

-helen

[Dawg54]

I'm no guru by any means but you would be moving from an all bond strategy to a balanced approach. A balanced approach makes sense for the next few years until you retire. When that time comes then probably move it to a 4 year ladder of cd's. I'm assuming you also have money in a 401k account that is invested in a mix of stock/bonds for long term growth.

Give some more details and Brewer and the rest can give you some good advice.

[Helen]

Thanks, Dog51.

Yes, I'm maxing out my 401k and Roth every year. I'm in a pretty high income bracket, which is why the I bonds were ideal as I would not have cashed them until after I retired.

-helen

[Dawg54]

Originally Posted by Helen

Thanks, Dog51.

I'm in a pretty high income bracket
-helen

hmmmmmm................married? heh heh heh(to steal a phrase from unclemick)*

[brewer12345]

So you have 7 years to go and once you get there you plan on using these funds as a bridge to IRA money for 4 years. *I think you probably want to separate out the tax decision from the investmet decision and make them separately. *

On the investment decision: *are you willing to trade higher risk for higher return with this money? *What is the upside to better performance? *Would it accelerate your FIRE date? *If not, what are the consequences of poor performance? *Would it keep you in the labor force longer? *How do you feel about these potential outcomes? *Basically, unless you have a real reason to reach for return, you may decide that the downside isn't worth it.

On the tax decision: *IIRC, Vanguard offers a selection of Muni funds and money markets that are very attractive for a high bracket person. *To the extent you want FI for this money, that might be an attractive alternative to I bonds. *VG also has tax-managed equity funds, so you could roll your own tax efficient version of Wellington (40% munis, 60% tax-managed equity index) if you want soome equity exposure for this money. *I'm not sure if VG has a tax managed balance fund, but that would be a no-brainer, too.

[LovesLife]

There are restrictions for the Wellington fund, now. You can only put in 25K per year. There is a TM balanced fund, however. http://flagship5.vanguard.com/VGApp/...FundIntExt=INT

[brewer12345]

The tax managed balanced fund looks like a good substitute for Wellington, assuming you actually want equity exposure. Note that if you sell before 5 years are up you pay a 1% penalty.

[Helen]

Originally Posted by brewer12345

On the investment decision: *are you willing to trade higher risk for higher return with this money? *What is the upside to better performance? *Would it accelerate your FIRE date? *If not, what are the consequences of poor performance? *Would it keep you in the labor force longer? *How do you feel about these potential outcomes? *Basically, unless you have a real reason to reach for return, you may decide that the downside isn't worth it.

Very good points. My retirement date is an age/years of service thing. I would have to hit a huge home run in the next few years to be able to walk away from the health care benefits I will qualify for in seven years. At my current savings rate, I should have $1 million in seven years with a 5% return. I don't want to use rule 72T, so this money is pretty important. I appreciate your thoughtful response, I want to go for safety.

On the tax decision: *IIRC, Vanguard offers a selection of Muni funds and money markets that are very attractive for a high bracket person. *To the extent you want FI for this money, that might be an attractive alternative to I bonds. *VG also has tax-managed equity funds, so you could roll your own tax efficient version of Wellington (40% munis, 60% tax-managed equity index) if you want soome equity exposure for this money. *I'm not sure if VG has a tax managed balance fund, but that would be a no-brainer, too.

I'll check into those. What I liked about I-Bonds was the Oregon State tax exemption combined with the Federal tax deferral. Bummer about the rate of return.

-helen

[brewer12345]

Helen, how about Oregon state General Obligation bonds that mature when you expect to retire? Very safe, tax free, and should be available, although returns will be modest.

[Jane_Doe]

Originally Posted by LL

There are restrictions for the Wellington fund, now.* You can only put in 25K per year.* There is a TM balanced fund, however. http://flagship5.vanguard.com/VGApp/...FundIntExt=INT

LL-

Where did/do you find out if there are restrictions on an account such as the 25k per year quoted above. (I looked but couldn't find it. :P)

Thanks!

Jane

[LovesLife]

Hi Jane.

The following should get you there. http://tinyurl.com/s59fh

Sometimes restrictions are listed on the individual fund at the Vanguard site when you look at the overview page.

[Helen]

Originally Posted by brewer12345

Helen, how about Oregon state General Obligation bonds that mature when you expect to retire?* Very safe, tax free, and should be available, although returns will be modest.

I'll have to check this out. Thank you !

[BigMoneyJim]

Originally Posted by brewer12345

The tax managed balanced fund looks like a good substitute for Wellington, assuming you actually want equity exposure. Note that if you sell before 5 years are up you pay a 1% penalty.

I think I misread that the first time. The 1% redemption fee is for TM, not Wellington, right? I didn't see a redemption fee for Wellington at Vanguard's site.

I now have LS Moderate Growth available in my 401(k) and am considering dumping my Wellington investment into it. I wouldn't pay a redemption fee on the last years' contributions to do it, though.

</hijack>

[brewer12345]

Yeah, the early redemption penalty is for the tax managed fund.

[Jane_Doe]

Originally Posted by LL

Hi Jane.

The following should get you there.* http://tinyurl.com/s59fh

Sometimes restrictions are listed on the individual fund at the Vanguard site when you look at the overview page.

LL_ Thanks for the info - I just looked at the overview page again. Right at the top of the page it reads:

Vanguard Wellington Fund Investor Shares (VWELX)
Vanguard restricts investments in fund

Not sure how I missed it!

Anyway, I will try to be more observant. I somehow lost track of this thread and couldn't find it - so sorry for the delay in saying thanks! Silly me.


Jane

[LovesLife]

Your welcome, Jane. I try to check the news on the home page at Vanguard frequently. Unfortunately, I missed the deadline for Wellington. I had been buying this fund for my brother's trust by DCA into it. I wish now I would have done a lump sum investment.

LL

[Jane_Doe]

LL-

Yeah, that stinks - altho if you had lump sum deposited then everything dropped down in price, you would not be happy. Sometimes thngs happen for a reason.
Maybe there is something else (can you hear Uncle Mick "psst, Wellesley"?!) that will fit into his port. Suggestions, board members?

We have to wait to do anything (we are hoping to sell some property in this next year) and I had Wellington on my short list. I do respect that Vanguard is doing this to protect the fund, tho.

Have a great day!

Jane