Wellesley discussion following Greenspan Comments

[IMATERP]

On March 1, 2018 former Fed Chair Allan Greenspan made the comments that the "bond market" was in a bubble. Based on the comments, has anyone considered reducing their exposure to Wellesley over the near term, or, are most folks just going to ride this out?

I'm also curious if folks are paring other holdings based on the former Chairs comments or attributing his comments to "media noise."

 

[bloom2708]

Ignore Alan. He is not good at being retired. This is the nth straight year of a "bond bubble".

You may look at (replacing) Wellesley because it holds only 68 stocks and 300 bonds.

Total US + Total International + Total US Bond would be much more diversified. Lower cost too.

 

[HadEnuff]

I have reduced my Wellesley, and my Wellington. I may well wish I'd reduced them more than I did, but even reducing them to the extent that I did so violated my ethic of not being a "market timer" that I just couldn't bring myself to do more.

 

[redduck]

... has anyone considered reducing their exposure to Wellesley over the near term, or, are most folks just going to ride this out?

I don't know what most folks are going to do, but I plan on riding this out. Hmmn, it's not even a plan as I never considered reducing my Wellesley.
Besides, where would I go with my Wellesley? Into my Wellington? Not worth the effort (and it would be very little effort).

 

[wanaberetiree]

he also said "Irrational exuberance", how many years before it actually took place?

 

[wanaberetiree]

I don't know what most folks are going to do, but I plan on riding this out. Hmmn, it's not even a plan as I never considered reducing my Wellesley.
Besides, where would I go with my Wellesley? Into my Wellington? Not worth the effort (and it would be very little effort).

100% with you. I don't even get what you do if somebody said "sell bonds" or "sell stocks". If you have sizable portfolio, you'd pay load in taxes (and I bet if you have been investing for awhile it's true to almost everyone) and then what ?

Sure you can somewhat move things around and change AA, but but in very limited way.

 

[nativenewenglander]

I'm 5% cash and 95% Wellesley I went this way a few years ago when I was basically retiring. Obviously, I don't believe in the bond bubble story. The 10 year note runs at 4% long term average, the active managers at Wellington keep buying new bonds. I reinvest the dividends on most of it each quarter and all the capital gains is reinvested in December each year. The 5% cash equals two years of income needed.

 

[W2R]

Wellesley has been 30% of my portfolio for many years, and I have never had any regrets. It's a terrific fund. I would no more cut back on Wellesley than, well, than fly.

Now, if it sank in value to a great extent, I might buy more. I have limited myself to no more than 30% of any one fund up to now. However I am almost 70 and feeling like I could bend that self-imposed "rule" a little by now and possibly move towards 50% Wellesley, or maybe even more.

 

[ejman]

I've owned Wellesley since 1987 and so far no regrets. Maybe "this time it's different" I guess we'll see. In the meantime not selling it (currently about 35% of my LNW).

 

[NW-Bound]

I have reduced my Wellesley, and my Wellington. I may well wish I'd reduced them more than I did, but even reducing them to the extent that I did so violated my ethic of not being a "market timer" that I just couldn't bring myself to do more.

I never let the labeling bother me.

However, I never have that much bond, preferring short-term cash and I-bonds. I generally carry 20-30% cash. I think my bonds could have been as high as 5% in the past. Currently at 2.8%, mostly inside balanced funds. I won't bother with that now.

 

[kevink]

The only thing I've considered doing is exchanging Wellesley shares for Vanguard's new (@11/17) Wellesley Global. I do think that the bond, equity and for that matter rel estate markets in the U.S. are in a bubble and that valuations are more attractive elsewhere - and I also have a lot of faith in Vanguard's motivation to manage the new fund to the same high standard as the old one.

Still wouldn't have more than 50% in even the best actively-managed fund but that's just me.

 

[Bikechuck]

I would never purchase a fund with international bonds and expose myself to exchange rate risk on what is supposed to be the stable and safe portion of my portfolio. International equities, yes but no more than 20% of my equity holdings.

 

[NW-Bound]

There are foreign bonds that are denominated in US dollars. These have no currency risks. The yield is higher, like 4.5%, but then that is to compensate for the default risk.

 

[audreyh1]

he also said "Irrational exuberance", how many years before it actually took place?

December 1996, so say three years. It doesn’t mean he was wrong. But it’s a very good lesson in how long it can take for extreme trends to continue.

 

[24601NoMore]

Glad to see a thread and Wellesley (and to a lesser extent Wellington) as I own both - although far more VWIAX than VWELX.

I bought (and made Wellesley the bedrock of my RE plan) because it historically has shown very stable 5-7% annual returns with low volatility - but so far this year, it's considerably more volatile than normal, being down ~2.48% as of close of market 3/1. That's not much in the grand scheme of things, but much more than I'd expect from my "sleep well at night" fund.

I suspect this is because VWIAX holds some pretty long bonds - and a fair amount of them. So, when rates rise - VWIAX gets hammered.

The other thing I worry about is the management changes - there have been a lot of new names in the past year, and M* performance over that time is not equal to performance numbers of the past.

Beginning to think I may not have made a wise choice making such a large commitment to Wellesley (and lesser extent Wellington), but it is my "tortoise and the hare" fund that I always thought would allow me to sleep well at night also. I did the same thing with BERIX previously, and look where that got me - sub-par returns for the past 3 years..

 

[Bikechuck]

There are foreign bonds that are denominated in US dollars. These have no currency risks. The yield is higher, like 4.5%, but then that is to compensate for the default risk.

Thanks NW Bound, I did not know that and it is very useful input.

 

[foxfirev5]

DM keeps her income investments in Wellesley. However there's nothing magical. Equity income and a corporate bond fund give me basically the same results. There are many roads.

 

[NW-Bound]

Glad to see a thread and Wellesley (and to a lesser extent Wellington) as I own both - although far more VWIAX than VWELX.

I bought (and made Wellesley the bedrock of my RE plan) because it historically has shown very stable 5-7% annual returns with low volatility - but so far this year, it's considerably more volatile than normal, being down ~2.48% as of close of market 3/1. That's not much in the grand scheme of things, but much more than I'd expect from my "sleep well at night" fund.

I suspect this is because VWIAX holds some pretty long bonds - and a fair amount of them. So, when rates rise - VWIAX gets hammered.

The other thing I worry about is the management changes - there have been a lot of new names in the past year, and M* performance over that time is not equal to performance numbers of the past.

Beginning to think I may not have made a wise choice making such a large commitment to Wellesley (and lesser extent Wellington), but it is my "tortoise and the hare" fund that I always thought would allow me to sleep well at night also. I did the same thing with BERIX previously, and look where that got me - sub-par returns for the past 3 years..

In 6 months to a year, perhaps you will feel glad again that you have Wellesley and Wellington.

No, not that I think bonds will shine again. But rather it is more likely that stocks with high P/E will falter when their growth finally gets stunted by higher interest rates. And these conservative funds do not have growth stocks.

 

[audreyh1]

On March 1, 2018 former Fed Chair Allan Greenspan made the comments that the "bond market" was in a bubble. Based on the comments, has anyone considered reducing their exposure to Wellesley over the near term, or, are most folks just going to ride this out?

I'm also curious if folks are paring other holdings based on the former Chairs comments or attributing his comments to "media noise."

Greenspan's comments? Gosh - after his failure to see the building housing market fiasco 2004-2007, I just ignore his market pronouncements.

I'm not changing my AA. I saw the interest rate rise coming a long way off. And guess what - it took way longer to get here than I expected, so I'm glad I stuck to my AA and didn't try to "outsmart" things.

 

[ESRwannabe]

A bond bubble... ok so what do they mean by that in real terms? Does that mean that interest rates will go up to 5% again? Whoop dee doo. If that is supposed to scare me then it has failed.

I remember when rates were 5%. I remember when they were higher. The economy was just fine, sometimes fantastic, during those years. Bond funds did just fine at 5%, in fact I'd love to see it as I would benefit over the long term. In the short term bond funds will go down, but you simply re-invest the interest for a few years and you will come out way ahead.

Do they instead think we will have something illogical like 20% interest rates? If so how do they justify this? What kind of logic makes that happen? I am confident it will not happen.

So what exactly am I supposed to be worried about? People are really freaking out about 5% interest rates? What a joke.