Vangard Wellesley Fund

[Markola]

I can see the appeal of blended funds but I'm not a fan of the Vanguard Lifestrategy Series. Their 40% allocation to international equity has hurt their returns for many years, total bond market has no advantages over an intermediate Treasury fund (and performs much worse during market crises) and the international bond allocation adds useless complexity.

Comparative performance of W, the comparable Lifestrategy fund and a simple 40:60 TSM/TBM says Uncle Mick would've been much better off sticking with Wellesley. That said, I'd go with a simple 30-40% TSM/ITT going forward over any of these alternatives.

https://www.portfoliovisualizer.com...location3_3=40&symbol4=VBTIX&allocation4_3=60

Wellesley certainly has defied gravity as an actively managed fund compared to those two index strategies, which is one concern I have about it as with any active fund: Will it continue to outperform? (Also, it holds just 1264 highly concentrated U.S. securities.)

As for the two index strategies, there isn’t a meaningful difference between them for the first TWELVE years of the 20 year sample period. Since then, yes, the one with only a domestic allocation (of exposure to 13,248 securities) has out-performed, which could reverse at any moment, possibly quickly.

To each their own and good luck but, for my own money, for which I’ve adopted the philosophy of buying and holding the entire casino rather than betting at its tables, I sleep better with my global index approach that more closely mimics the target allocation fund (I have exposure to approximately 28,000 securities, last time I counted.). It makes me feel ready for anything.

 

[kevink]

Wellesley certainly has defied gravity as an actively managed fund compared to those two index strategies, which is one concern I have about it as with any active fund: Will it continue to outperform? (Also, it holds just 1264 highly concentrated U.S. securities.)

As for the two index strategies, there isn’t a meaningful difference between them for the first TWELVE years of the 20 year sample period. Since then, yes, the one with only a domestic allocation (of exposure to 13,248 securities) has out-performed, which could reverse at any moment, possibly quickly.

To each their own and good luck but, for my own money, for which I’ve adopted the philosophy of buying and holding the entire casino rather than betting at its tables, I sleep better with my global index approach that more closely mimics the target allocation fund (I have exposure to approximately 28,000 securities, last time I counted.). It makes me feel ready for anything.

I agree with everything you've said here, and I share your concerns about Wellesley going forward. That's one of the reason I shared Darrow Kirkpatrick's post, and if you follow the link you'll see he combines his ~25% in Wellesley with a big slice of Vanguard LifeStrategy moderate growth and international stocks, which I think is wise.

I wouldn't own only Wellesley, given its concentrated holdings in sectors that are (IMHO) as unlikely to outperform in the future as they did in the past. I'm a fan of folks like Jonathan Clements: hold a decent size chunk of short-to-intermediate Treasuries for ballast and on the equity side get as close to global market weights as you can with a couple of good index funds (though he makes matters more complex with tilts to small and value, which is too much complexity and alpha-chasing for me).

I could see going with a significant allocation to Wellesley (say 25-40%) and the rest in a simple Three Fund (TSM, TI, IT Treasuries or TBM) and calling it a day.

 

[MRSPOCK]

I always look forward to complaining about how well Vanguard Wellesley has done when I do my taxes

 

[eroscott]

I know that 99% of what you hear/read on the Internet is about as reliable as the National Enquierer ("Elvis and Liberace Had Torrid Affair") but my wife heard "some financial guy" say that buying Wellesley in a taxable account (not in an IRA) was a mistake. That's all she remembers. It just so happens I was planning on buying into that fund and now she is against it. Is there any truth to this. Not about Elvis, about Wellesley.

I track several funds for my ER. Here is what the distribution $ looks like on $100,000. You can see if this *income* affects you tax-wise.

 

[2177V]

I know that 99% of what you hear/read on the Internet is about as reliable as the National Enquierer ("Elvis and Liberace Had Torrid Affair") but my wife heard "some financial guy" say that buying Wellesley in a taxable account (not in an IRA) was a mistake. That's all she remembers. It just so happens I was planning on buying into that fund and now she is against it. Is there any truth to this. Not about Elvis, about Wellesley.

My two cents:

According to https://finance.yahoo.com/quote/VWINX/risk?p=VWINX

You did not mention your time horizon, so I will assume 5 years

for VWINX, 5 years risk numbers are:
Alpha: 2.32
Beta: 0.62
Std Dev: 6.87

2.32 means this fund outperformed the comparable index by 2.32%. 0.62 means the volatility is less volatility than the market volatility which is 1.0. Std Dev is lower than S&P500 VOO which has a std dev of 14.76.
Ref: https://www.investopedia.com/ask/answers/102714/whats-difference-between-alpha-and-beta.asp

To evaluate the risk versus reward, you can review the historical performance returns. I can't recommend VWINX to anyone because I do not know what your objective and time horizon is.

I do suggest that you consider dividing your money into the bucket strategy: One bucket with a short time horizon 0 to 5 years which translate to a conservative investment for liquidity. The second bucket with a time horizon 5 to 10 years. The final bucket with a time horizon 10 year plus.

The final bucket, you can invest aggressively with S&P 500. The first bucket should be a conservative bond fund. The middle bucket can be a mixture of bonds and stocks such as VWINX. I always evaluate the risk numbers to determine if the risk numbers of alpha, beta, std deviation meets my risk tolerance for my time horizon. I then compare the risk versus reward of other funds before making a decision. This may be a lot of work....but it is better than the eenie meenie miny moe method.

Many inexperienced investors simply look at the reward numbers and completely ignore the risk numbers that I have cited above. Finally, you should combine all three buckets to determine your overall AA. If your objective was to have an overall 60/40 portfolio, then your 60/40 bucket strategy portfolio should work well because you have a short term bucket designed to minimize your risk and a long term bucket to maximize your reward.

 

[The HalfBreed]

I used Wellesley for my ROTH IRA (via my Federal VCP $$$ to MAX Fund my ROTH IRA) and am completely happy with it.
I also have Wellington in a Taxable account and am also happy with it.
Both have been in for approx. 10 years, and Wellesley is a Legacy fund for my daughter, whereas Wellington will be for my Significant other (GF)

As mentioned above, Wellesley does spin off lots of cash, and fortunately, it's in a ROTH IRA, so it's not an issue.
Wellington does too, but just slightly less, so I pay taxes on it every year.

Everyone's situation is different, so, do what you feel is best for you.
Good Luck and enjoy !

 

[PointBreeze]

Wellesley was fine in my after-tax account but it was throwing off a lot of capital gains which boosted my income/taxes a couple years ago. Someone suggested Vanguard Tax-Managed Balanced Adm VTMFX and I switched last year it has dividends but so far no capital gains.
It has also come back well during the pandemic. (5.61% YTD)

+1

 

[OldShooter]

... the risk numbers of alpha, beta, std deviation ...

@LXEX55, I think @vchan2177 is quite a ways from your thread topic, but I think it is important to clarify some of what he said.

First, alpha is a measurement of the historical performance difference between two investments. As the Investopedia points out: "Note, alpha is a historical number. It's useful to track a stock's alpha over time to see how it did, but it can't tell you how it will do tomorrow." Too bad, really. If we could predict alpha we'd all just buy a few guaranteed winners and retire in certain luxury. Alpha doesn't measure risk.

Second, beta and standard deviation are essentially the same thing: measures of historical volatility. They do not measure risk at all. Risk is owning bad investments: Enron, GE, Sears Holdings, Mongomery Ward, Worldcom, Wirecard, Virgin Australia, etc. The way we deal with this as retail investors is to buy broadly diversified mutual funds. Yes, we own all the bad stocks but we also own all the good ones, and the good guys win to the tune of a few percent portfolio growth per year. All we have to do is to buy and hold.

The situation where risk and volatility become entwined is the situation where an investor has to sell, even if the investment is on a down bounce. This risk is referred to as "Sequence of Returns Risk." Using @vchan2177's bucket metaphor, that forced selling comes from bucket one. So, you want low volatility investments in bucket #1 just as he recommends. For most people SORR is really not that hard to manage. More: https://www.forbes.com/sites/jamieh...manage-sequence-of-returns-risk/#1b43cff227eb

@LXEX55, from your post it is not clear whether you are in the accumulation phase or whether you are spending from your portfolio. If you're accumulating and dollar cost averaging, higher volatility may actually be a financial advantage for you.

 

[2177V]

Alpha doesn't measure risk.

Second, beta and standard deviation are essentially the same thing: measures of historical volatility. They do not measure risk at all. Risk is owning bad investments: Enron, GE, Sears Holdings, Mongomery Ward, Worldcom, Wirecard, Virgin Australia, etc. The way we deal with this as retail investors is to buy broadly diversified mutual funds..

Risk can be subjective to many different people with different viewpoints and I respect everyone's viewpoint. I do agree that past performance is not a guarantee of future performance...but that's goes without saying.

This is my personal viewpoint of risk:

If fund A has an Alpha of 3.0 and fund B has an Alpha of -4.0, then it is my humble opinion, that owning fund A should have "less risk" than fund B.

If fund C has a Beta of 0.5 and fund D has a Beta of 2.0, then it is my humble opinion, that owning fund C should have "less risk" than fund D. This is important if your objective is to own a fund with low volatility.

Again everyone has a different viewpoint of risk.

Please note that Alpha, Beta, etc are listed under the "risk" tab at https://finance.yahoo.com/quote/VWINX/risk?p=VWINX. It appears that www.finance.yahoo.com categorize Alpha, Beta, etc as "risk" statistics.

My main point: You do not know whether VWINX is a good investment until you compare funds using both performance data AND risk data. Only the investor can make this determination since each investor has different objectives, risk tolerances, and time horizons from another investor.

 

[OldShooter]

... This is my personal viewpoint of risk:

If fund A has an Alpha of 3.0 and fund B has an Alpha of -4.0, then it is my humble opinion, that owning fund A should have "less risk" than fund B.

If fund C has a Beta of 0.5 and fund D has a Beta of 2.0, then it is my humble opinion, that owning fund C should have "less risk" than fund D. This is important if your objective is to own a fund with low volatility.

Again everyone has a different viewpoint of risk. ...

You're entitled to this per the Humpty Dumpty rule. As Humpty Dumpty told Alice: "When I use a word," Humpty Dumpty said, in rather a scornful tone, "it means just what I choose it to mean—neither more nor less."

The problem is when you use a word to mean something other than its common meaning, it confuses people. For example, Alpha has nothing directly to do with risk. It is also well known (as Investopedia mentions/your link) that alpha is not predictive, though again you are completely entitled to your apparent belief that it is.

... Please note that Alpha, Beta, etc are listed under the "risk" tab at https://finance.yahoo.com/quote/VWINX/risk?p=VWINX. It appears that www.finance.yahoo.com categorize Alpha, Beta, etc as "risk" statistics. ...

Yes. It's unfortunate, actually. The genesis of this, I believe, was Harry Markowitz' 1952 paper "Portfolio Selection" where he offhandedly and without any justification equated volatility with risk. As a PhD student he wanted to play statistical games, but had a problem because he had no numerical way to measure risk. So he performed this slight of hand, offhandedly equating apples with oranges, and the rest is history. He also proposed that stock prices can be approximated by a normal/aka Gaussian/aka "bell curve" distribution. Back then they were doing everything with slide rules and Friden calculators, so maybe he did not realize how far off the mark this was.

The misunderstanding is everywhere. I recently reviewed the investment policy statement of a nonprofit, helpfully drafted for them by one of their financial advisors. At one point the IPS states authoritatively that the maximum portfolio loss in a year will be two standard deviations. This is patently nonsense, as even a cursory look at a few decades' market history will prove. But there it is, in a fully signed-off IPS. Go figure.

 

[hanginthere]

What your tax bracket? Over the last several years I've gravitated more toward the best of the best individual dividend paying stocks but I've kept Wellesley since I could afford to invest and am considering buying a bit more for some extra income. Great dividends because of the conservative balance and also has a history of paying capitol gains(some times a lot some years). It also split a few years ago which tends to help returns long term. If your in the 30% or less and can use the returns I think it would be a good addition.

 

[Badger]

What other funds are in your retirement account, just curious?
I, for example have
VWIAX
FCNTX
PRHSX
VIG
VYM
VHT

Wellington and about a dozen individual stocks.


Cheers!

 

[Ncc1701]

For a Conservative bucket, I am using:

VWINX 50%
SWAN 30%
SPHQ 10%
ACWV 10%

Regards.

 

[hanginthere]

VMMXX
VUSUX
VMFXX
Rest individual stock, Precious metals, and also trade discounted bonds for extra interest and profits. And cheers to you.

 

[MarieIG]

I will be rolling the non-Roth portion of my 401(k) out of my company plan over to Vanguard the beginning of the new year.

I will be considering whether to make Wellesley one of the funds in the IRA.

 

[eroscott]

I will be rolling the non-Roth portion of my 401(k) out of my company plan over to Vanguard the beginning of the new year.

I will be considering whether to make Wellesley one of the funds in the IRA.

Maybe come combination:

 

[MarieIG]

Maybe come combination:

Thank you. (I actually bought a little bit of Wellington in my taxable account just to look at it.)

 

[hanginthere]

I did the same and if you roll over your dividends and capitol gains it will really grow fast. It also falls much less in a bad bear market.

 

[HopefulHaole]

Aqz

For a Conservative bucket, I am using:

VWINX 50%
SWAN 30%
SPHQ 10%
ACWV 10%

Regards.

Wellington and about a dozen individual stocks.


Cheers!