Should I sell Wellington and Wellesley?

[FIREd]

Hi,

I am in need of an intervention.

Situation: I have owned Vanguard Wellington & Wellesley (VWELX and VWINX) for many years now and I am very, very happy with both of them. But, I may have to sell them now. Most of our money is already in taxable accounts and 80% of new contributions go to taxable accounts, so tax-deferred space is at a premium. Years ago, when we had much less money and most of it was in our 401Ks, we built our retirement accounts around Wellington+Wellesley but we are now quickly running out of room for taxable bonds and other tax-inefficient assets.

The idea would be to sell Wellington and Wellesley, and replace them with taxable bonds in the tax-deferred accounts and large (value) equities in the taxable account.

The problem is I can't bring myself and pull the trigger and sell them. I clearly blame UncleMick for this because without his constant pssst reminders I wouldn't know what I was missing.

The question really is what funds should I replace them with.

On the bond side I was thinking about the Total bond market fund (VBMFX which I already own) or the intermediate term investment grade fund (VFICX).

On the equity side I hesitate between the total stock market fund (VTSMX which I already own) or the equity income fund (VEIPX) which is a perfect match for the equity portion of VWELX and VWINX. I am aware that the equity fund is not super tax-efficient but all distributions are taxed at 15%, so I am fine with it. I would like to keep a value-tilt and the equity income fund would allow me to do just that.

So what would you suggest I do? Should I sell VWELX and VWINX? Which funds should I replace them with?

A bit more information: I am squarely in the 28% tax bracket (5% for state), flirting with the 33% bracket and AMT.

 

[charlie]

If you have analized the tax consequences carefully and still think it
is wise to sell Wellington and Wellesley, then I think you could
buy Intermediate Term Investment Grade and Windsor II in the same
stock/bond ratio and not change your overall risk.

By the way, I love Wellington and Wellesly and own both myself.

Cheers,

Charlie

 

[unclemick]

Not to cross forum as it were - but I would bounce your situation off the Boglehead's forum for a second opinion - it's free.

Pending other ideas - Charlie's sounds good. I don't have a feel for Vanguard's tax managed funds that might be utilized.

heh heh heh -

 

[harley]

I am aware that the equity fund is not super tax-efficient but all distributions are taxed at 15%, so I am fine with it.

Don't forget, the 15% CG limit expires in 2011 and goes back to 20%. I would pretty much bet the mortgage that they won't be extending this one. Make sure to take this into consideration since you are (I believe) planning LTBH purchases.

 

[WilliamG]

Your thought of going Equity Income and Intermediate Investment Grade Bond fund is probably the best "lateral" move from W/W.

Don't know how taxes will shake out over future, but you may be in a position where a portion of portfolio could go to munis. They are supposed to be a pretty good buy right now. Should you consider them appropriate, another option would be some munis in taxable and keep Wellesley in deferred.

 

[Dennis]

Well, since your concerned about Tax issues?
I assume your in a HNW and High Tax Bracket (28% or higher)
and you have A Sizeable Portfolio..

In that case? I would be consulting with my CPA Firm .. Any decent one's have Tax advisors on Staff or Know of One..they use..

Since you make/made a good living doing what you Do, don't think your just as good at doing someone else's profession.. Biggest Mistake HNW people do.. Just ask Madoff Investors..

and FYI on VWINX? the past 10 yr APY is now only about 5%.. Underperfoming many Bond Funds.. and it has had a Fund Mgr. Retire and Change of Captains at the Helm.. and has avery Poor Tax effecientcy rating as well. ( 1 out 5 )

I'd also go Meet with at least 2 different Investmen Advisors ( Individual or Firms) and get their Opinons.. B4 I'd be making some Serious Moves like this and get a LT planning Strategy as well..As wtih Dr.'s, several Have their Own Specialties either On Staff or Refer them to you.. ( ie; Cabot And Wilmington Investment firms to name just 2.)

Many Investors are To much being a Penny Wise and a Dollar Foolish, when letting Taxes Interfear with their investing decisions and found being far better off paying The taxes and going for it, instead..and/or owning Properties is another Tax Shelter for the Wealthy..

Prime example? The Firm I use and I followed suit, moved most of my Bond % Allocations into Short and LT Treasuries last yr, took the ave of 17.6% gains on the rtns, sold them and paid the 32% taxes. what did I net? ( I also Sent Them a Catering service for a Luncheon for them and their staff and with an addtiional Present for My Direct guy and his family )

After achieving " Critcal Mass" as Bob Brinker Calls it? I went searching for Defensive People in the Investing world.. following Ben Grahams Method of making 'Preservation of Principal " A First Priority... and securing my projected Income needs first and then Go Ahead and Gamble & Play with whatever is Left over... has worked out very well so far for me..

And as what won the Chicago Bears their Super Bowl was ? Defense.. Not offense.. as with most Super Bowl Teams of my time. While other teams have since won by having A Top Offense... So, It all depends.. on what You Feel Comfortable with doing.. and you just Work and make more to make up for any shortcommings if necessary.. when the time is ripe..
and I think Now the time is Ripe for the Pickings..ie; DCAing over the next 6-12 mos .... But, Doing the Opposite of where everyone else is going.. has always been my Fortae'...

 

[harley]

In that case? I would be consulting with my CPA Firm .. Any decent one's have Tax advisors on Staff or Know of One..they use..

Since you make/made a good living doing what you Do, don't think your just as good at doing someone else's profession.. Biggest Mistake HNW people do.. Just ask Madoff Investors..

You really think these HNW people decided on their own to pump money into Madoff's fund? I bet nearly every one of them had the investment recommended to them by one of their "professional" advisors. It sounds like you've got somebody good and who works with and for you, and congratulations for that. But many CPAs, advisors, etc don't do the footwork themselves, and just follow the herd and/or the commisions. IMHO.