Wellesley Fund for Aging Parents

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Familywu

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I'm looking for a recommendation fund for my aging parents (70) who don't have the knowledge nor ability to manage anything (one unfortunately has brain damage and the other is doesn't want to deal with the financials). Fortunately, they have a fair amount of cash saved up (and it's all in cash) - but I'm trying to move them into something almost as safe but have a much better long term yield.

After reviewing the Wellesley Fund (60% bonds, 40% cash), it appears that the overally volatility is low (I couldn't find more than an 8% total drop over the last 10 years) while returning consistent yields.

Seems like the best choice for ultraconservative where someone doesn't need to do much other than deposit thier cash, create an automatic withdrawal (or paycheck) of 1% withdrawal per quarter and just forget about it.

Am I missing something?
 
My parents, when they were in their 80's, had a simple portfolio of the three Vanguard W's: Wellesley, Wellington, and Windsor II. That gives a decent exposure to large cap stocks with low volatility and good income. Check them out.

Grumpy
 
You are correct...Wellesley has never had a double digit loss, never two losing years in a row, and the gains following any losing year wiped out the loss and restored it to the normal trend.

In general, the returns have exceeded inflation plus a 4% withdrawal rate over the period 1970-2004.

I like the makeup for current situations as the stock component is largely higher dividend paying large cap value. Which tends to be a little higher returning but more volatile than a large cap blend or growth. But the heavy bond allocation smooths out that volatility while taking advantage of the higher returns to offset the low stock percentage.

One of my larger holdings, by the way.

Two other options to look at are lifestrategy income and target retirement income. The target retirement income does include a hunk of inflation protected bonds, so if you think inflation will be a big, big problem in the next 15 years, thats worthy of consideration. Target retirement income holds a fairly fixed 20% in equities, while lifestrategy holds a fixed 5% plus 25% in the 'asset allocation' fund...which means your stock holdings could be as much as 30% or as little as 5%. Costs for >$250k amounts are comparable: .20 for wellesley, .27 for lifestrategy and .21 for target retirement income.

They yields are 3.45 (lifestrategy), 3.55 (wellesley) and 3.65 (target retirement), and that ordering and spread stay fairly constant. So you could simply have the dividends paid out directly/electronically into a checking account and get pretty close to that 1% per quarter you're looking for.

If they've got more than a few hundred thousand, you might consider splitting it between wellesley and target retirement, or between all three. They're all very conservative, make very few sudden moves or loud noises, but they do all work rather differently and might provide for even lower volatility with no significant downside risk in spreading the money out.
 
Dodbx is a very good fund, and I've owned that before. The investment cost, however, is more than double what these are.

Vanguards Wellington is a more appropriate comparison to Dodbx as its also a 60/40 stock/bond and is also less expensive than Dodbx.

But...a 60/40 stock/bond blend might not be what a very conservative investor wants to get into.

Considering the recent long stock bull market followed by a decent bond bull market, a 60/40 will look better than a 40/60 on a 10 year chart, probably regardless of which funds you've chosen.

And will continue to, providing you expect stocks to continue to do very well, and you're willing to accept higher potential volatility to go with the potential for higher returns.
 
Good Discusion

Hopefully - this isn't the first poster's sit.:

When my father died, I put my mothers cash into a Fidelity bond fund (1989). Being depression era - she promptly sold it when the NAV fluctuated - even though I thought I had 'pre educated' her about bonds/market action. When we sold the house in the Pacific NW and she came to live with us - 1994 - I  later invested her in Lifestrategy Income with auto deduct to her checking. TO this day! - I never let her read her Vanguard statement by herself without me being there to explain it. That's how big an effect the Great Depression had on her.
 
Uncle brings up an excellent point. If they can't deal with the fluctuation of the share price, they are likely to be very unhappy. If that is the case, you might as well just split the money up into a bunch of high yield CDs (doesn't seem hard to find 5 year CDs spitting out 4.75%).

I think a 60/40 bond and stock portfolio would be fine, FWIW.
 
Consider the following: Ladder CDs for three to five years of income they anticipate needing from their savings, keep one year in a savings account. Put the rest in 2-3 of the balanced funds mentioned.

I thought Dodge and Cox Balanced closed, but I may be wrong. I understand the Oakmark balanced fund is available only from Oakmark at the moment. Yes these two have slightly higher costs than the Vanguard product but I look at performance as well as cost. By spreading the money among several funds you will decrease the total volatility. Read Forbes recent Mutual Fund report, balanced funds discussion. Also take a peek at www.fundalarm.com. Don't be afraid to post your question on their discussion board. There is a whiz who frequents that board who can tell you if you are really diversifying when buying more than one fund. Through them I learned that OAKBX and DODBX investments are quite different, holding both is not more of the same.

If you want a conservative income fund you could look at Berwyn Income (BERIX). It may be that Vanguard has targeted retirement funds with similar performance.
 
Thanks for the comments.

The Wellesley fund appears to have less total volatility (when you add in the dividends/interest reinvested) than the index based funds. I suspect that the fact that there are many different securities held vs. having only 3 or 4 indexes held helps the volatility.

I think I'm even going to use the Wellesley fund (40/60 stock/bond split) for myself. I am shooting for a 60/40 stock/bond split but this allows me the diversification and then I can just "play in the stock market" with an additonal equity (now I don't have to worry about bonds).

BTW - for those of you who like to play - I've been using foliofn.com - it's a great way to have your "own mutual fund".

It also let's you keep track of how good you really are or aren't.
 
I had DODBX and OAKBX at the same time, and did well. The point that they hold very different stocks and bonds is well taken and was why I held both. OAKBX charges around 1% though, and I'm not sure its worth that much.

I hold Wellesley as a core holding, even though I'm only 43. The simple fact is that over a very long period of time its performed almost as well as much more volatile holdings. I've been tweaking myself into Wellington to increase the stock percentage. Wellington tends to hold the same types of stocks and bonds as Wellesley.

In fact, I think an old investment advice bit was to hold equal amounts of both to get roughly a 50/50 split.

I then add 10% foreign holdings split evenly between europe and pacific indexes, a large holding in REITS, and bits of emerging markets, energy, small cap value, precious metals and healthcare to 'spruce up' the core holding.
 
TH, ah to be young again!

Those in the accumulating phase should take a peek at Financial Engines. It is available through Vanguard, many 401(K) plans, and for a different $ separately. It isn't as "touchy-feely" as an investment advisor but it is a whole bundle cheaper and you don't need to worry about hidden agendas.

That is not to say that a financial advisor isn't worth their fee, there is more to financial decisions than your investments. However.... IMHO self education is the foundation to financial planning. I enjoyed "How not to go broke at 102", although it wasn't as rigorous as I would have liked.
 
The only problem with financial engines is that its geared for someone retiring at a 'traditional' age.

I really, really, really dont know why about 90% of the people who design and implement retirement software go out of their way to make the product useless for anyone that doesnt retire at 60-something by not allowing you to pick a retirement date lower than 50-something, or by forcing you into an "accumulation" mode until you're in your 60's.
 
Agreed. The other limitation is that it gives no advise for those who are retired.
 
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