If not Wellesley then what?

[ejman]

Over the years my % allocation to Wellesley has increased to where it's now 35% of assets. I'm reluctant to continue to increase this as I simplify my fund ownership in anticipation of geezerhood (currently 62). I don't really have a good reason for not increasing Wellesley's share other than "don't put all your eggs in one basket" syndrome. Also, since it's actively managed, maybe someday they'll get a manager that will really screw things up.

Browsing at the Vanguard website, the two obvious index based candidates are Life Strategy Conservative Growth (VSCGX) and Vanguard Target Retirement 2010 (VTENX). The problem that I have with these two is that although the % bonds/equities is very similar, their performance over time is not as good as Wellesley. It would appear to me that Wellesley management is in fact adding value both in the historical return and in the yield (I spend all dividends).
What do other folks that use conservative allocation funds do?
Suggestions? Ideas? thanks

 

[REWahoo]

How about some Wellington plus a Vanguard bond fund to keep your AA where you want it?

 

[ejman]

How about some Wellington plus a Vanguard bond fund to keep your AA where you want it?

A possibility but I would like to keep it simple without having to rebalance between Wellington and the bond fund. The thing with Wellington is that it's also actively managed so it would share my two concerns with Wellesley.

 

[Alan]

Wellesley is about 40% of my total, Wellington and Target date funds account for 50%, and I have ~10% in cash (mostly I-Bonds)

 

[ejman]

Wellesley is about 40% of my total, Wellington and Target date funds account for 50%, and I have ~10% in cash (mostly I-Bonds)

A nice simple solution. Which target date funds?

 

[Alan]

A nice simple solution. Which target date funds?

VG Target date 2010 in my IRA's and Fidelity Freedom 2010 in DW's IRA's. (I think they currently have an AA of ~50/50, and it brings our overall AA up to my target of 40/50/10)

 

[ejman]

VG Target date 2010 in my IRA's and Fidelity Freedom 2010 in DW's IRA's. (I think they currently have an AA of ~50/50, and it brings our overall AA up to my target of 40/50/10)

Thanks. I hadn't considered going outside Vanguard for the alternatives. I see the Fidelity Freedom 2010 has a .59% expense ratio vs. .16% for the Vanguard offering. Were there other factors that led to that fund?

 

[Alan]

Thanks. I hadn't considered going outside Vanguard for the alternatives. I see the Fidelity Freedom 2010 has a .59% expense ratio vs. .16% for the Vanguard offering. Were there other factors that led to that fund?

When DW first started working here in the US back in '92 she set up a SEP-IRA with Fidelity as recommended by a friend. Fidelity have been very good to work with, and it just didn't seem too big a price to pay for a little brokerage diversification. 20 years on I am a lot more knowledgeable and don't really think there is a need to use both Fidelity and Vanguard, but there is a Fidelity office where we live and DW would be much more comfortable sitting down with a real person should/when something happen to me. (The Fidelity fund accounts for ~15% of our investments).

 

[fritz]

A possibility but I would like to keep it simple without having to rebalance between Wellington and the bond fund. The thing with Wellington is that it's also actively managed so it would share my two concerns with Wellesley.

What are your retirement stock/bond percentages you look to maintain? If you look to maintain stocks no higher than 65%, and no lower than 40% throughout retirement - you could divide assets between Wellington (currently aro. 65S/35B) and Wellesley (currently aro. 40S/60B). This will allow you to maintain your preferred stock to bond percentages that requires almost no rebalancing by you - until you wish to change your stock to bond percentage as you age.

This would provide your preferred dividend income stream - from both of them (as you mentioned you desire from Wellesley). Wellesley has been around since 1970 and Wellington since 1929. This is a pretty good history of stable performance. They are both managed by Wellington Mgt. but not identical holdings, and have very low annual expenses. Balanced mutual funds like Wels. and Wel. offer low expenses, hands-off rebalancing, and decent dividends and growth.

You've mentioned your concern about not all your eggs in one basket, but I see a balanced mutual fund as a pretty safe middle of the road type retirement fund. You can't select and go away from any investment, but Wels. and Wel. have been reliable for a long time. Alternatives are index versions of balanced funds (target date and VG balanced index) to have a form of auto rebalancing, but as you've mentioned - they aren't currently providing the divideds you can get from Wels. and Wel.

 

[Stanley]

What about the tax considerations? If that is an issue then a low turnover index fund might be better than a managed one.

 

[ejman]

What are your retirement stock/bond percentages you look to maintain? If you look to maintain stocks no higher than 65%, and no lower than 40% throughout retirement - you could divide assets between Wellington (currently aro. 65S/35B) and Wellesley (currently aro. 40S/60B). This will allow you to maintain your preferred stock to bond percentages that requires almost no rebalancing by you - until you wish to change your stock to bond percentage as you age.

This would provide your preferred dividend income stream - from both of them (as you mentioned you desire from Wellesley). Wellesley has been around since 1970 and Wellington since 1929. This is a pretty good history of stable performance. They are both managed by Wellington Mgt. but not identical holdings, and have very low annual expenses. Balanced mutual funds like Wels. and Wel. offer low expenses, hands-off rebalancing, and decent dividends and growth.

You've mentioned your concern about not all your eggs in one basket, but I see a balanced mutual fund as a pretty safe middle of the road type retirement fund. You can't select and go away from any investment, but Wels. and Wel. have been reliable for a long time. Alternatives are index versions of balanced funds (target date and VG balanced index) to have a form of auto rebalancing, but as you've mentioned - they aren't currently providing the divideds you can get from Wels. and Wel.

My overall target allocation is 50/50 with wide 10% reallocation bands. Overall, I'm currently at 55% equities and 45% bonds. I note your comments on Wellsi/Welltn and agree with them ( About 5% of my allocation is Wellington so between the two of them I have 40% of my total liquid NW).

The problem I have with just splitting between Wellsi and Welltn, which would give me an automatic 50/50 on autopilot is this. Both are managed by the same advisor under hire by the same company (Vanguard). Although given the structure of Vanguard I have no concerns over malfeasance or such, I am concerned about the deleterious effects of "group think" in actively managed funds as I am of the effects of selection of a poor manager.

Many years ago I owned Vanguards US Growth fund. For a long long time this was an excellent fund. As the late 90's roaring market got going, this fund started lagging because it didn't own all the crazy tech stocks. Management finally gave in an piled into the tech wreck just as it was about to crash. The results weren't pretty and I learned that just because past management was level headed doesn't mean that's a permanent trait. Hence my reluctance to pile it all into Wellsi/Welltn

 

[ejman]

What about the tax considerations? If that is an issue then a low turnover index fund might be better than a managed one.

My portfolio is about 45% taxable rest IRA's. I currently expend all my dividends and CG from my taxable funds. I also happen to live in a State (Oregon) that has a very high almost 10% income tax on practically all income except for SS. To be honest I'm not overly concerned about tax implications as I have no clue what the tax environment will be a year from now let alone 38 years (my planning horizon). i.e I don't let the tax tail wag the investment dog.

 

[Midpack]

It sounds like you

• don't want to rebalance even between two funds,
• you don't want another fund managed by the same team as Wellesley, and maybe an index fund vs another actively managed fund (though that wasn't entirely clear) and
• you're looking for a fund(s) that performs as well or better than Wellesley and/or Wellington with a similar AA.

So here are your VG choices https://personal.vanguard.com/us/fu...t=true&sort=name&sortorder=asc&assetclass=bal

You can screen all the funds to see what might meet your expectations, but they're all arguably underperforming Wellesley & Wellington at present. And even if you find an alternative that looks great at present, it can always underperform for whatever reason in the future - just like your VG US Growth Fund experience.

Having more than one fund is a good idea, but you seem to be also looking for performance that no one can guarantee. There's every chance your new fund will underperform Wellesley, as long as you're comfortable with that.

When VG US Growth Fund was performing, did you have doubts about Wellesley?

 

[ejman]

It sounds like you

• don't want to rebalance even between two funds,
• you don't want another fund managed by the same team as Wellesley, and maybe an index fund vs another actively managed fund (though that wasn't entirely clear) and
• you're looking for a fund(s) that performs as well or better than Wellesley and/or Wellington with a similar AA.

So here are your VG choices https://personal.vanguard.com/us/fu...t=true&sort=name&sortorder=asc&assetclass=bal

You can screen all the funds to see what might meet your expectations, but they're all arguably underperforming Wellesley & Wellington at present. And even if you find an alternative that looks great at present, it can always underperform for whatever reason in the future - just like your VG US Growth Fund experience.

Having more than one fund is a good idea, but you seem to be also looking for performance that no one can guarantee. There's every chance your new fund will underperform Wellesley, as long as you're comfortable with that.

Yes, you are right. There are no guarantees of anything. I think a reasonable option is to go with the target 2010 or the life strategy conservative fund, accept slightly lower performance (for now anyway) as the price for getting away from active management and same advisor.

When VG US Growth Fund was performing, did you have doubts about Wellesley?

No, I've always felt comfortable with Wellesley, it just that it's growing to be too much of my NW

 

[In-control]

I have the majority of my assets between Wellesley and index funds/VG and Fidelity. I manage a 40% Stock 50% Bond and 10% Cash portfolio moving $ between funds. I use the portfolio testing feature in the tracker tool to establish were to re-allocate to.

 

[Midpack]

Yes, you are right. There are no guarantees of anything. I think a reasonable option is to go with the target 2010 or the life strategy conservative fund, accept slightly lower performance (for now anyway) as the price for getting away from active management and same advisor.

Probably so. We all secretly wish our whole portfolios were in our best performing fund at all times, but knowing it can't be - we diversify. And if one day Wellesley 'gets a(n active) manager that will really screw things up' as you fear, you'll be glad you did. Best of luck...

 

[Stanley]

The problem I have with just splitting between Wellsi and Welltn, which would give me an automatic 50/50 on autopilot is this. Both are managed by the same advisor under hire by the same company (Vanguard). Although given the structure of Vanguard I have no concerns over malfeasance or such, I am concerned about the deleterious effects of "group think" in actively managed funds as I am of the effects of selection of a poor manager.

I see your point. Diversification is one of those obvious, simple rules that many people just don't seem to remember. Do you remember all of those people who had most of their assets with Bernie Madoff? Sheesh! Therefore, I tend to agree with you, and would chose different advisers.

 

[smjsl]

I would not invest in any actively managed fund, even the ones that happened to perform well, including the "popular" ones like the ones you mention here. Not sure what kind of risks Wellington/Wesley are taking vs their benchmarks, but in any case, past performance does not guarantee future results, managers change, etc...

 

[fritz]

Yes, you are right. There are no guarantees of anything. I think a reasonable option is to go with the target 2010 or the life strategy conservative fund, accept slightly lower performance (for now anyway) as the price for getting away from active management and same advisor.



No, I've always felt comfortable with Wellesley, it just that it's growing to be too much of my NW

All VG Target Retirement Date funds eventually move their asset allocation to match Vanguard Retirement Income fund - so they're not static funds (until they become clones of Vanguard Target Retirement Income). Life Strategy Conservative Growth is static - you still have to choose one Life Strategy fund over the other. All These funds pretty much have the same investment advisors.

I have never had any actively managed stock or bond funds - using index funds during my accumulation phase, but have always had Wellesley, and Welllington (and did have Dodge and Cox Balanced fund). Although actively managed, they have a much different focus than US Growth, which is a much riskier 100% stock fund. For grins, I looked it up and it has (for the most part) kept up with the 500 Index Fund since inception.

Good luck with your selection, and retirement.

 

[ejman]

I have never had any actively managed stock or bond funds - using index funds during my accumulation phase, but have always had Wellesley, and Welllington (and did have Dodge and Cox Balanced fund). Although actively managed, they have a much different focus than US Growth, which is a much riskier 100% stock fund. For grins, I looked it up and it has (for the most part) kept up with the 500 Index Fund since inception.

If you have invested in Wellesley, Wellington and Dodge and Cox Balanced funds then you have been in actively managed funds. (another way of saying I don't understand your comment "I have never had any actively managed stock or bond funds" US Growth performance is difficult to gather from the information presented but the 5 and 10 year performance compared to their recently revised benchmark show not all was well back then. A chart of the performance in the 1999 -2003 time period vs the SP 500 (The benchmark at the time) it would show a less than pretty picture.

Good luck with your selection, and retirement.

Thank you for the good wishes. Maybe the market will dive now, removing any need for me to do anything. It usually happens just as I get ready to do something with my wide rebalance bands.

 

[foxfirev5]

My DW and I diversify to a degree. DW holds Wellesley and High Yield Bond in her Roth. I hold Wellington and REIT Index's , US and Global Ex, in mine. However our much larger 401k and rollover IRA's contain mostly broad Index stock and bond fund holdings with a good dose of Pimco Total Return Class C Inst.
We plan to keep the Roth's to the end taking the dividends for income and reinvesting any cap gains.
The 401k's and IRA's are treated as a total return investment with future withdrawals on that basis.
I think that you need a total plan to approach this subject.

 

[zoshka]

To me a good complement for a risk-averse investor would be the Target Retirement Income fund. It has US and International index funds, so you get the full world stock coverage you lack with Wellesley--about 8,000 more stocks that Wellesley. In the case of inflation, which would presumably hurt Wellesley and your standard of living, TR Income will have 17% of its assets in a short-term TIPS fund, and then another 14% in international hedged bonds, both changes made over the upcoming months. It's also eliminating its 5% stake in the prime money market fund, which has been a drag on returns and yield. The overall stock allocation is 30%, close to Wellesley's 35%, but with much greater diversification and no manager risk. If bond yields rise, the NAV will suffer, but you'll be rewarded with a higher yield, and it should have fairly limited volatility--both lost 10-11% in 2008 (Wellington lost over 22%).

The problem I have with Wellington and Wellesley is that there is substantial overlap in the stock allocation, so you're ending up with two large value funds with corporate bonds and little international allocation. Wellington has also lagged its benchmark the past 3 years, a victim of huge asset bloat as everyone rushed into it.

My own preference would be to avoid balanced funds altogether, since with no possibility of the bond returns that served as tailwinds for funds like Wellesley/Wellington over the past 30 years, it's possible that the bonds will drag down overall fund returns, which is a problem in the distribution phase. You want to withdraw from what's up for the year, but with bonds and stocks locked together, you lose that flexibility. Then there's the question of tax efficiency, such as bonds in IRA/401K accounts, and separation gives you the flexibility to adapt to future tax rates and policy. Some advisors, like Larry Swedroe and Allan Roth on CBSMoneywatch, are advocating using CDs instead of bonds now for fixed income instead of bonds, to avoid capital and NAV losses (there are tons of freaked-out retirees on the Bogleheads forum, wondering why their 'safe' bonds are losing value while stocks are soaring).

 

[fritz]

If you have invested in Wellesley, Wellington and Dodge and Cox Balanced funds then you have been in actively managed funds. (another way of saying I don't understand your comment "I have never had any actively managed stock or bond funds" US Growth performance is difficult to gather from the information presented but the 5 and 10 year performance compared to their recently revised benchmark show not all was well back then. A chart of the performance in the 1999 -2003 time period vs the SP 500 (The benchmark at the time) it would show a less than pretty picture.


Thank you for the good wishes. Maybe the market will dive now, removing any need for me to do anything. It usually happens just as I get ready to do something with my wide rebalance bands.

I was stating that I have not used any actively managed 100% stock or bond funds (like VG US Growth) - prefer stock and bond index funds. On the other hand, I hold actively managed balanced funds (Wellesley and Wellington).

As for US Growth - there will always be periods where a fund does better or worse than it's benchmark. Tough to leave it alone when you're panicked and it's doing lousy. What's kept me going over the years is solid diversification of stocks and bonds, and the feeling that (in the long run) it should all work out for the best.

 

[Tyro]

You can screen all the funds to see what might meet your expectations, but they're all arguably underperforming Wellesley & Wellington at present.

STAR is performing between the two, and appears to have characteristics of both managed and index funds -- it is comprised of 11 managed funds, but the allocation of those funds is (AFAIK) stable. Diversification is built-in, and "advisor risk" should be mitigated.

Tyro

 

[Tyro]

Maybe the market will dive now, removing any need for me to do anything. It usually happens just as I get ready to do something with my wide rebalance bands.

Now I don't know whether to suggest you procrastinate rebalancing or go ahead and do it so the market dives and I can reallocate!