Why haven't I ever heard Psst...Wellington?

[ejman]

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Originally Posted by LakeTravis I remember the first time I checked into Wellington, looked back at it's history since inception. That's a long track record of solid performance. Then I checked out Wellesley. I've pretty much decided our simple investmant plan would be the majority of our after-tax investment portfolio in Wellington and the IRA's in Wellesley. Plan is to initially draw down on the Wellington over the first 14-16 years of FIRE, allowing the Wellesley to continue to grow before switching over to distributions from it year 15-17 until the end.

When I look at the performance of my portfolio over the last 25 years (multiple funds and fund families -buying, selling, exchanging, slicing and dicing) vs just Wellington/Wellesley - I could have bought just those two, gone to sleep, avoided all the drama and come out just as well if not better. Now Wellsi/Welltn is 40% of my retirement nut and it keeps inching up. Maybe when I'm at the dribble on my shirt stage those two will serve as my pretend annuity.

[pb4uski]

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Originally Posted by mathjak107 the big test for wellesly will be when rates rise. being chock full of bonds wellesly had the wind at its back and a 30 year bull market in bonds to keep it humming. those same bonds may be a big weight in the near future.

Probably not. If interest rates rise the most likely cause would be an economic recovery. If that was the case, then the drop in bonds caused by higher interest rates might be offset by increases in the equity portfolio.

[mathjak107]

thats what we would hope but its still going to be tough going . with the average historical average rates around 6-7% that can represent a big drop on the bond side possibly.

even though rates will be increasing in the fund your always behind the curve.

while duration makes everything okay in treasuries if you stay long enough thats not true in corporate or high yield bonds.

the ever changing credit ratings these bonds have are the wild card that can un-do higher rates on the bonds as the fund sells and buys.

there is no doubt that would make wellesley not have the performance we are all used to seeing.

im not saying it wont have a positve return. i am saying more then ever the past will not represent the future in balanced funds.


the effect of their first bear bond market is going to be felt for the first time in 30 years to many retirees as well as investors .

this could spur an exodus out of bond funds sinking prices further on bonds.

all those retirees in those target funds that reached the income stage are going to see a dip in their funds value and never realized that could happen and like always many will panic and flee.

[Tyro]

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Originally Posted by Midpack Good catch. Edit: I removed the graph since while true, it was not representative of the expected long term relative returns. Translation: My bad...

I'm sorry, but I'm not following you. Would you mind explaining that as if to... a tyro?

[eytonxav]

I have been in both for quite some time

[eytonxav]

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Originally Posted by pb4uski Probably not. If interest rates rise the most likely cause would be an economic recovery. If that was the case, then the drop in bonds caused by higher interest rates might be offset by increases in the equity portfolio.

In my opinion, when rates rise, equities will fare better initially, but after a year or more of that equities may not like raising rates either.

[REWahoo]

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Originally Posted by mathjak107 thats what we would hope but its still going to be tough going . with the average historical average rates around 6-7% that can represent a big drop on the bond side possibly. even though rates will be increasing in the fund your always behind the curve. while duration makes everything okay in treasuries if you stay long enough thats not true in corporate or high yield bonds. the ever changing credit ratings these bonds have are the wild card that can un-do higher rates on the bonds as the fund sells and buys. there is no doubt that would make wellesley not have the performance we are all used to seeing. im not saying it wont have a positve return. i am saying more then ever the past will not represent the future in balanced funds. the effect of their first bear bond market is going to be felt for the first time in 30 years to many retirees as well as investors . this could spur an exodus out of bond funds sinking prices further on bonds. all those retirees in those target funds that reached the income stage are going to see a dip in their funds value and never realized that could happen and like always many will panic and flee.

Not everyone shares your dire prediction:

Must Bond Investors Fear Rising Interest Rates?

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In conclusion Rising interest rates are not what bond investors would, in an ideal world, prefer. During the 29-year declining rate environment from 1982-2010, the five bond funds whose example I looked to produced predictably better annual performance than they had in the rising rate environment – 7.85% annually versus 4.15% annually – and the real returns for bonds were significantly higher from 1980-2010 than from 1950-1980. What lessons should you take away from my research? History is on the side of bond investors, even in a rising rate environment; The low historical variability of returns for bonds means past bear markets were much easier on bond buyers than is commonly thought; Interest rate increases have unfolded gradually; Since interest rate increases have been slow, rising interest income will outweigh the loss in principal value; Maturities should be shortened in a rising rate environment; Bond funds may perform better than individual bonds during rising rates, because of the ability to reinvest funds at progressively higher interest rates; Diversification across bond issuers, sectors and maturities is vital during a period of rising rates; and Avoid experimenting with untested products or strategies during rising rates. For the diversified bond fund, bond index or balanced fund investor, rising interest rates are simply not the looming catastrophe they have been made out to be.

Guess only time will tell who is the more accurate prognosticator. I hope I'm around long enough to see the final score.

[pb4uski]

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Originally Posted by REWahoo Not everyone shares your dire prediction:....

Surprise!!! please add me to the list.

[eytonxav]

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Originally Posted by mathjak107 the effect of their first bear bond market is going to be felt for the first time in 30 years to many retirees as well as investors . this could spur an exodus out of bond funds sinking prices further on bonds. all those retirees in those target funds that reached the income stage are going to see a dip in their funds value and never realized that could happen and like always many will panic and flee.

mathjak, IIRC aren't you following a Fidelity Income Investment allocation that is pretty bond oriented.

In my opinion, bonds are for diversification, and all the dire headlines (which seem to imply that rates will rocket straight up and continue on that path for some time to come) about the demise of bonds does not make sense to me.

[Midpack]

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Originally Posted by REWahoo Not everyone shares your dire prediction: Quote: Originally Posted by pb4uski Surprise!!! please add me to the list.

Me too. I shortened my duration, but didn't change my % allocation to bonds. And I know I'll get a decent yield (over 4% so far this year) in the meantime - which beats the heck out of "cash." Interest rates will rise, but they are not going to shoot up any time soon (in the next year or two at least).

I am not suggesting a course for anyone else. If you think bonds are toxic near term or have a better alternative, act accordingly.

[hlfo718]

Can't really go wrong with either or both of these funds. They are conservative, low fees, and low turnover. I have a 50/50 split now but wish I had done that long time ago.

[Midpack]

I feel better (not that it matters). Evidently Wellington is widely held here too, but for some reason I haven't heard much about it, at least relative to the frequency that I hear "psst...Wellesley." Again, I am not knocking or recommending either - by all accounts they are both very high quality low cost balanced funds, just targeting slightly different AA/risk tolerance. All is well...

[pb4uski]

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Originally Posted by Midpack Good catch. Edit: I removed the graph since while true, it was not representative of the expected long term relative returns. Translation: My bad...

Midpack, it is good to see that you can readily admit when you are wrong.

[rbmrtn]

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Originally Posted by REWahoo Not everyone shares your dire prediction: Must Bond Investors Fear Rising Interest Rates? Guess only time will tell who is the more accurate prognosticator. I hope I'm around long enough to see the final score.

On the other side, GMO...

Grantham is bailing out of bonds, should you? - MarketWatch

[foxfirev5]

DW - Wellesley , Me -Wellington . Giving us a combined 50/50 allocation in our Roth's which is about 15% of our retirement accts. Hopefully we'll keep these for the long run.

[fritz]

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Originally Posted by Midpack I feel better (not that it matters). Evidently Wellington is widely held here too, but for some reason I haven't heard much about it, at least relative to the frequency that I hear "psst...Wellesley." Again, I am not knocking or recommending either - by all accounts they are both very high quality low cost balanced funds, just targeting slightly different AA/risk tolerance. All is well...

We utilize both funds which allows us to tweak our stock/bond allocation between the two funds - 60/40 Wel. and 40/60 Wels. (currently 48/52). Held Wellington throughout our accumulation phase and added Wellesley for transitioning to ER a few years ago. Pay out nice quarterly dividends to live on, make decent gains, and easier to stomach during market swings. Funds don't overlap as much as you'd think.

[mathjak107]

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Originally Posted by DFW_M5 mathjak, IIRC aren't you following a Fidelity Income Investment allocation that is pretty bond oriented. In my opinion, bonds are for diversification, and all the dire headlines (which seem to imply that rates will rocket straight up and continue on that path for some time to come) about the demise of bonds does not make sense to me.

right now yes im in an all bond fund fund mix . we still have time before rates rise to the point of shifting gears.

[pb4uski]

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Originally Posted by mathjak107 right now yes im in an all bond fund fund mix . we still have time before rates rise to the point of shifting gears.

For once I agree with you. Scary.

Speaking of shifting....... any luck finding that shift key?

[Gearhead Jim]

Have we ever had a time when the government has so aggressively forced interest rates down so much for so long?

That kind of manipulation might set the stage for a much larger and quicker rise in rates, eventually, than we would otherwise expect.

No predicting, just questioning...

[mathjak107]

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Originally Posted by pb4uski For once I agree with you. Scary. Speaking of shifting....... any luck finding that shift key?

nah, i will start looking once i retire..