Vanguard VWIUX

[titleman]

Getting closer to that picture of kook-aid

I had VG run an analysis of what I want to invest and they came up with VWIUX as my major player.

I had been looking at Wellesley but VWIUX is tax free and appears less risky. I would have very little in the over 15% bracket, but I'm just not smart enough to determine how good a deal this might be.

Doesn't anyone have this and care to make a comment.

Thanks

 

[FIREd]

I own VWITX (same fund as VWIUX but investor shares) and Wellesley.

It's hard to compare Wellesley and VWIUX because they are 2 different beasts: one is 100% municipal bonds with high credit ratings, the other a mixture of stocks and taxable corporate bonds. So there is no doubt that Wellesley is more "risky" than VWIUX, though I would suggest that you include inflation risk in your analysis. In a taxable account though, VWITX would be more tax-efficient than Wellesley. VWITX is tax-exempt at the federal level, Wellesley is notoriously tax inefficient (large taxable dividends, mostly unqualified, and sometimes large capital gain distributions). But tax-efficiency is not the only thing to consider: you have to try and maximize your after-tax returns as well.

If you are in the 15% tax bracket, it might make sense to own taxable bonds in your taxable account. That's because, in a normal environment, tax exempt bonds pay less dividends than taxable bonds. As a general rule of thumb, the break even point is generally around the 28% tax bracket. In other words, if your marginal tax bracket is lower than 28%, you would get a higher after-tax return with taxable bonds. If your tax bracket is 28% or higher, you would get a higher after-tax return with munis. Of course you have to look at you own tax situation and decide for yourself which type of bonds makes more sense for you.

 

[titleman]

I guess the 28% was my fault. I put in my last years rate and they used that for determining what to put me in. Using 15% theY recommended Vanguard LifeStrategy Conserv Growth (VSCGX). i was hoping for a little larger dividend, but maybe I'll get some growth that I wouldn't get with Wellsley.

 

[FIREd]

I would like to point 2 things out about VSCGX:

1) only 5% of the fund is invested in international equities.
2) 25% is invested in the "asset allocation" fund. I don't particularly like this fund. The fund's manager is supposed to change his allocation based on market conditions. And he has failed miserably in that regard over the past year with the fund losing over 36%, almost as much as the S&P500.