Wellesley vs. everything else in ER

[Ronnieboy]

Thanks everyone for the thoughtful and insightful replies!

Senator's comments and well thought-out portfolio remind me of other savvy posters at Bogleheads who've pointed out that Wellesley really doesn't have a "secret sauce" and that these days one can pretty much duplicate its performance with a 65:35 large cap value: IT corp. bond ETF approach. I would still choose Wellesley myself, but agree wholeheartedly that it'd be foolish to make such a concentrated portfolio one's whole enchilada. And of course it has no place in a taxable account. I will probably put my IRA (26% of total assets) in it and leave the rest in the Bogleheads 3 fund portfolio (though I have long since substituted Admiral shares of IT Treasury for Total Bond due to consistently better performance, benefitting from flight-to-safety [as we saw big-time this past week] and no state or local taxes]).

I love Paul Merman's generosity and overall investing savvy, but I've run the numbers on his "Ultimate Buy and Hold" and it has yielded around 5% during the entire time I've been ER'd. Other DFA slice-and-dice portfolios (check out Scott Burn's numbers over at AssetBuilder.com) are in the 3-3.5% range over the past 15 years - out of which you have to pay 1% portfolio mgmt/DFA access fees and the costs of a boatload of trades to keep the intricate slices balanced.

John Greaney, probably the earliest (and still one of the sharpest and most irreverent) ER site founders, has a great updated article on real world retiree returns on his site:

2015 Update: Real-Life Retiree Investment Returns

One of the portfolios he backtests is a William Bernstein MPT slice-and-dice, and Greaney's comment says it all, IMHO:

"While the MPT portfolio value has trailed the simple S&P500/fixed income portfolio (No. 1 above) by 21% as of Dec 31, 2015, advocates of this approach like its reduced volatility and sterling academic recommendations. Which brings us to an important investing truism -- it's OK to under perform as long as you're pleased with the results and proud of what you are doing."

Thanks again to everyone for sharing your thoughts. I learn a lot from this forum and am grateful to all of you.

I checked out Greaney's site and it looks like the Buffett portfolio is the way to go in both scenarios The WB portfolio is: 75% Stock/25% Fixed Income, rebalanced annually consisting of:75% BRKa 21% VFSTX, 4% VMMXX

It has most success over both periods, 1994 to 2016 and 1999 to 2016.

 

[Al18]

I can confirm Fidelity charges a $75 transaction fee to buy Wellesley. I currently own Fidelity Balanced fund (FBALX) and while similar, they are not the same. Wellesley favors Value Stock and BBB or higher rated bonds. Fidelity Balanced favors Growth stocks and HAS 8% of their bonds rated less than BBB.

 

[MBSC]

I have Wellesley but from the time I was with Vanguard. I am with Fidelity now and they said they would charge me something like $75 a transaction ...

I can confirm Fidelity charges a $75 transaction fee to buy Wellesley.

You can purchase Wellesley Investor shares through Fidelity but not Admiral shares. Fidelity charges $75 the first time you buy. For subsequent purchases you can setup automatic investments through 'Automatic Account Builder' and pay $5. After it executes once you can turn it off or choose "skip a contribution". There is no fee to sell.

 

[LuckyDog]

We currently own about 7% VWELX, 30% VWINX, and 3% VGSTX for a total of 40% of our portfolio. Schwab has waived the transaction fees for us...

 

[easysurfer]

I have Wellington for my HSA investment. I've had some in Wellesley before but decided to just do the indexing (tot stock, tot bond, tot intl stock) routine instead.

 

[redduck]

Wellesley makes up 29.8 % of my Sep-IRA and is easily my largest holding. I also own a much lesser amount of Wellesley (and of Wellington) in a regular account. I figure I'm in good company if W2R and REWahoo both have good-sized slugs of it. I do admit that it did shake me up a bit when unclemick sold his pssst Wellesley to buy a Target date account. (I think I got that right).

 

[NW-Bound]

...These are actively managed funds. I guess Wellesley and Wellington are managed by the same managers. I got the impression they were similar but with different AA's. Might not have this exactly right though...

Yes, they are actively managed. A fund manager (forgot whether Wellesley or Wellington) in a video interview stressed that they are stock pickers and no indexers. Wellesley is 40% stock, while Wellington is 60%. So, of course Wellington is more volatile than Wellesley. Their stock holding compositions are not the same, however.

One does not get rich with these funds, but he would not get wiped out either. They are managed by a team following a certain conservative investment discipline, not a hot-shot manager who takes large risks.

I have only a bit in both currently. When I get older and tired of tracking my individual stocks, I may get more into these funds plus one or two other similar conservative funds. It will be easier for my wife to manage when I croak, compared to holding index funds then needing the courage and know-how to balance between them.

 

[mathjak107]

I can confirm Fidelity charges a $75 transaction fee to buy Wellesley. I currently own Fidelity Balanced fund (FBALX) and while similar, they are not the same. Wellesley favors Value Stock and BBB or higher rated bonds. Fidelity Balanced favors Growth stocks and HAS 8% of their bonds rated less than BBB.

wellesley also has a 50% stake in long term treasury's which can be a big plus when bond rates fall but it can burn you pretty bad when rates reverse as eventually they will .

at this stage i sold my balanced fund last week and now own all separate bond and stock funds that can be tweaked as things see fit . if need be i can easily shed the interest rate sensitive stuff for more appropriate types of bond funds when the time comes .

 

[mbnj77]

KevinK, please excuse the Noobiness of this question but why would Wellesley "... of course it have no place in a taxable account"? We have about 10% in DW's 401(k) and recently, about 15% in an after-tax account that we are planning to use to fund the Gap to 59 1/2 in about 4-5 years . I like the idea of getting some income as well as the stability. I understand it is actively managed so there are lot of trades but those dividends aren't taxed as regular income if held long-term, but rather as CGs, correct? Or do I still have a lot to learn? (very likely and not mutually exclusive). Thanks.

 

[alaska55]

KevinK, please excuse the Noobiness of this question but why would Wellesley "... of course it have no place in a taxable account"? We have about 10% in DW's 401(k) and recently, about 15% in an after-tax account that we are planning to use to fund the Gap to 59 1/2 in about 4-5 years . I like the idea of getting some income as well as the stability. I understand it is actively managed so there are lot of trades but those dividends aren't taxed as regular income if held long-term, but rather as CGs, correct? Or do I still have a lot to learn? (very likely and not mutually exclusive). Thanks.

Nothing is clear cut as Kevink thinks it is. In my case with no earned income i need to meet the min income requirement for Obamacare as my state did not expand medicare for low income folks.

 

[Badger]

Presently we have 29% in Wellington (my tIRA and rIRA), 24.5% in Wellesley (her tIRA and rIRA) all admiral shares, and 11.5% in my tIRA TRP retirement fund. Then 35% in various stocks (taxable holdings). The IRAs were paired down from a number of different managed funds over the last few years in effort to simplify for retirement. I will probably move the TRP IRA into the Wellington. We are not going to buy any more individual stocks but are not selling either at this time. We probably won't need to since they provide dividends that we haven't even used for the past few years. We haven't tapped into the IRAs either but that will soon change next year when we have to take RMD. We still haven't gotten out of a frugal mindset but are trying.
We may not have the ideal AA or investment picks but I'm doing the best I can by reading posts here. Some posts can be too technical and go right over my head but there are many that are easy to understand and make sense to me. I don't think we would be in as good a financial shape if it wasn't for them.

Cheers!

 

[Alan]

I understand it is actively managed so there are lot of trades but those dividends aren't taxed as regular income if held long-term, but rather as CGs, correct? Or do I still have a lot to learn? (very likely and not mutually exclusive). Thanks.

The dividends from the bonds within the Wellesley fund are taxed as regular income and the dividends from the stocks are taxed as qualified dividends. At the end of most years there is also a capital gain distribution reflecting the trading that has gone on within the fund.

The year end 1099-DIV will indicate how much of the dividend paid out was qualified dividends (lower tax rate).

ETA
At least that is how I understand it.

 

[pb4uski]

While I am a big fan of Wellesley and Wellington I have not held them because my AA is more of a slice & dice and due to tax efficiency considerations. That said, I just looked at my IRA and domestic equities and bonds are about 50/50 so I could go 50/50 with Wellesley and Wellington.... something to consider next time I rebalance though I admit that the duration of the bonds is more than I would like.

 

[Senator]

I checked out Greaney's site and it looks like the Buffett portfolio is the way to go in both scenarios The WB portfolio is: 75% Stock/25% Fixed Income, rebalanced annually consisting of:75% BRKa 21% VFSTX, 4% VMMXX

It has most success over both periods, 1994 to 2016 and 1999 to 2016.

BRKA does not pay a dividend. I wonder if that S&P portfolio has dividends reinvested, or not? Even Warren advises to stick with an S&P fund.

Otherwise the Harry Dent portfolio seems to blow away the competition...for this period looked at anyway.

They should have also compared the S&P by itself, I see a $508,761 ending balance...

 

[samclem]

For the fans of Wellington/Wellesley: Is the bond duration less of a concern because you are counting on the managers to reduce duration before rates start their rise? If the managers are being counted on to be smarter than the average stock buyer, is it any different to ask them to be smarter than bond buyers?

 

[mathjak107]

like all balanced funds that is likely the case .

 

[eytonxav]

I do admit that it did shake me up a bit when unclemick sold his pssst Wellesley to buy a Target date account. (I think I got that right).

Pssst, that surprised me too, but glad I stayed the course.

 

[mathjak107]

i would not buy a target date fund in retirement . last thing i want is a fund loading me up on bonds regardless of where interest rates are going .

 

[eta2020]

i would not buy a target date fund in retirement . last thing i want is a fund loading me up on bonds regardless of where interest rates are going .

Nothing stops you from having Vanguard Target 2045 at age 70.

That has negligible amount of bonds compared to Wellesley. Even Target 2015 has less bonds then Wellesley.

 

[mathjak107]

well you can always mix and match target date funds but the idea preached is you pick "your own retirement date"

 

[Lsbcal]

For the fans of Wellington/Wellesley: Is the bond duration less of a concern because you are counting on the managers to reduce duration before rates start their rise? If the managers are being counted on to be smarter than the average stock buyer, is it any different to ask them to be smarter than than bond buyers?

I am not invested in these but I would say the answer is murky at best. First these are balanced funds so it is hard to know how the funds will manage a rate rise and how to separate performance due to bond portfolio changes and stock portfolio changes. I think they can somewhat adjust AA's too but have not read the prospectus.

And how fast will the rates rise? If rates rise slowly (like in April 2004 to June 2006) Wellesley could still go up due to the stock component. Might not be as outstanding but most here are probably not into bragging about their home runs, or are they?

 

[eta2020]

well you can always mix and match target date funds but the idea preached is you pick "your own retirement date"

But you are on track. Wellesley is a great income fund, but I would be worried about future of 60% bonds in it.

 

[NW-Bound]

well you can always mix and match target date funds but the idea preached is you pick "your own retirement date"

I am already retired. I have problems picking up my death date.

Oh wait! That's for determining WR.

 

[Chuckanut]

Wellesley is not a "diversified" portfolio in itself. I have heard that Vanguard would not recommend holding Wellesley or Wellington as the whole portfolio. Don't get me wrong, I like both funds.
There just are other holdings needed to diversify properly.

+1

I agree. It is tempting to put it all into Wellesley and just have them send one a check every month. And certainly 100% in Wellesley is a better investment than many of the 'products' that have been sold to people in the past and even now. But, the future is unpredictable so having some diversification is important.

Still keeping it simple is also important. A Wellesley fan could do 60% in Wellesley, 20% in the Total USA Stock Index, and the remaining 20% in an International Stock Index.

 

[kevink]

For the fans of Wellington/Wellesley: Is the bond duration less of a concern because you are counting on the managers to reduce duration before rates start their rise? If the managers are being counted on to be smarter than the average stock buyer, is it any different to ask them to be smarter than bond buyers?

Looking just at Wellesley since I don't have any interest in Wellington the average bond duration is only a bit longer than Vanguard's Intermediate Term Treasury fund. As I recall Annette Thau ("The Bond Book") deems IT bonds (and Treasuries specifically) as the risk:return "sweet spot." Anyway, it looks to me like the answer to your question is a qualified yes: they're pushing the maturity envelope a little in search of yield at the moment.

I generally prefer index funds myself and have the same objections in principle to both active management and the small number of bonds and stocks included in Wellesley, but maybe given the fund's track record over 46 years one might regard it as kind of a Berkshire Hathaway exception.