Wellesley Income Fund Large Drop Today?

[Gatordoc50]

Great! Several of us are happy with Wellesley for income. Glad for you to join us.

Sounds like a change in asset allocation?

This is what I am contemplating as well as I am looking to change my AA. However, I am going to be selling in a taxable account so I am toying with individual securities.

 

[NW-Bound]

An international ETF I hold drops 3% today. This is the day it goes ex-dividend, and distributes 3.5% dividend. This plus the dividend it issued in June pushes its annual dividend yield to 5.4%.

Now, only if the S&P 500 pays this kind of dividend, I would not mind buying more US stocks.

 

[Richard4444]

Since Wellesley is weighted higher in bonds than stocks, should interest rates rise, wouldn't one expect the fund to decrease in value?

 

[REWahoo]

Since Wellesley is weighted higher in bonds than stocks, should interest rates rise, wouldn't one expect the fund to decrease in value?

See discussions here:

http://www.early-retirement.org/forums/f28/psst-wellesley-62212.html

and here (note the link in post #27):

http://www.early-retirement.org/forums/f28/why-havent-i-ever-heard-psst-wellington-63915.html

 

[Gatordoc50]

Since Wellesley is weighted higher in bonds than stocks, should interest rates rise, wouldn't one expect the fund to decrease in value?

Yes but the income should be stable. Rising interest rates don't favor stocks either.

 

[Alan]

Since Wellesley is weighted higher in bonds than stocks, should interest rates rise, wouldn't one expect the fund to decrease in value?

Not sure if the following is quoted in the links REW quoted but there have been rising rates before and Wellesley seemed to weather them quite well. No guarantee for the future of course. (only 2 successive -ve returns in 40 years)

Wellesley Total returns:

2011 9.6
2010 10.6
2009 16.0
2008 -9.8
2007 5.6
2006 11.3
2005 5.0
2004 7.6
2003 9.7
2002 4.6
2001 7.4
2000 16.2
1999 -4.1
1998 11.8
1997 20.2
1996 9.4
1995 28.9
1994 -4.4
1993 14.7
1992 8.7
1991 21.6
1990 3.8
1989 20.9
1988 13.6
1987 -1.9
1986 18.3
1985 27.4
1984 16.6
1983 18.6
1982 23.3
1981 8.7
1980 11.9
1979 6.2
1978 3.6
1977 4.3
1976 23.3
1975 17.5
1974 -6.5
1973 -3.6
1972 9.8
1971 15.1

 

[pb4uski]

Because of frequent trading policies. I don't want money sitting around like a rock, so Wellesley seems like a nice alternative.

I ran into the same problem.

One thing VG offered is to sell Total toward the end of the trading day and at the same time buy Total ETF in a VG brokerage account.

Or you could buy S&P 500 and Extended Market and they would be equal to Total as I understand it (but I don't know the proportions).

I was lucky in that I had some International so I sold that bought Total and then sold Total and bought FTSE ex-US the same day so it ended up being almost a wash (and I was doing some rebalancing as well).

I'm not happy that they can't grant exceptions to frequent trading where one wants to do a sale and purchase of the same fund the same day - that's not the sort of behavior that the frequent trading policy is targeted to.

 

[bondi688]

Alan
Thank you for posting the historical returns of Wellesley Income Fund. On thing that stood out that is extremely interesting. In 1979 to 1980, when inflation was running out of control and you were getting like 16% interest rate on bank saving accounts ( not even CD) , Wellesley was only getting 6.2 and 11.9% P.A.

 

[Alan]

Alan
Thank you for posting the historical returns of Wellesley Income Fund. On thing that stood out that is extremely interesting. In 1979 to 1980, when inflation was running out of control and you were getting like 16% interest rate on bank saving accounts ( not even CD) , Wellesley was only getting 6.2 and 11.9% P.A.

The table was to show that even in fast rising interest rates that the fund was not losing lots of money as was suggested. I wasn't suggesting that the fund would keep pace with inflation.


FWIW I also hold a big chunk of I-Bonds that I can use during high inflation periods.

 

[NW-Bound]

FWIW, in 1979 and 1980, the S&P500 returned 18% and 31% respectively. The full-year inflation was 14% in 1979, and 12% in 1980.

I was just starting in my career, hence did not have much to invest, but remember these awful years.

 

[bondi688]

I suppose what Wellesley gained in increased interest rate was offset by the drop in the value of the longer term bonds in the very unusual period of 1979 to 1980, when inflation was spiking. The fact that Wellesley still managed a positive return was not bad. Alan, thanks for pointing that out, and having some I Bond is a good idea, given the possibility of future inflation when it is now QE3.

 

[samclem]

FWIW I also hold a big chunk of I-Bonds that I can use during high inflation periods.

I've got some of those, too. I wish they threw off higher income during inflationary periods without having to sell the darn things. That would be a tough move: Bought 'em years ago when they still yielded 3+% (real), and do not want to sell them for a long time. At least not just as soon as inflation starts up again.

 

[Richard4444]

Thanks Alan for going through the effort to post those numbers.

 

[audreyh1]

I'm still waiting for a year when we don't get this question!

Notice that a poster who has never posted before (and not since either), visited just to create this hubbub.

So if visitors from outer space are going to come in just to try to create the "large fund drop" panic, there is no hope to avoid the distribution discussion each Dec.

 

[rescueme]

...(snip)...but remember these awful years.

But you did get a WIN button, did you not?

Still have mine (somewhere)...

 

[NW-Bound]

That was before my time, as I was not in this country then.

But I remember the long line for gasoline some time in the late 70s, and having a big raise in 1980 to catch up with inflation, followed by a threat of lay-off when the economy stank after Volker raised the fed fund rate to 20%.

This time, it will be different. Has to be. I am already retired, and no longer the whippersnapper that I was. I can't take it no more.