Is this AA a mistake right now?

[Carpediem]

I currently have approx an $800k traditional IRA at Vanguard split 50/50 between Wellsley and Wellington. I chose these two funds based on their somewhat consistent performance and their dividend payouts. Dividends are currently being reinvested. I won't need to touch this account for 4-5 years.

I noticed this IRA hasn't benefited very much from the recent market run-up so I was wondering if I should be more aggressive in my fund choices given the current financial climate.

Thoughts?

Thank you.

 

[REWahoo]

I noticed this IRA hasn't benefited very much from the recent market run-up so I was wondering if I should be more aggressive in my fund choices given the current financial climate.

No, don't chase market returns. My experience is you'll end up zigging when you should have zagged...

 

[FiveDriver]

I don't follow Vanguard that closely, and would love to see the internal AA breakdown of those two funds. Therein lies the answer.

I'd also like to see the Expense Ratios of the big two.

 

[OverThinkMuch]

Vanguard Wellesley Income Fund costs 0.16%/year and is allocated 62% bonds, 37% stocks (1% cash).
Vanguard Wellington Fund costs 0.18%/year and flips that allocation around to 65% stocks and 32% bonds (2% cash).

If you plan to sell it all in 4 years, the 62% bond allocation makes more sense. If you're accumulating for retirement, the 65% stocks allocation makes more sense. I'd favor allocating in index funds myself (Vanguard Total Stock / Total Bond) where you could also diversify to international.

 

[FiveDriver]

Ouch....that's pretty heavy on the Bond side for Wellesley in this environment. Wouldn't an Expense Ratio of 0.18% on $800K be on the high end at $1500 ??

 

[HadEnuff]

If you are more aggressive, you will get hurt more should the market drop significantly.
Are you OK with that possibility?

 

[Carpediem]

If you are more aggressive, you will get hurt more should the market drop significantly.
Are you OK with that possibility?

If I changed funds, it would probably be 70% total stock mkt and 30% bonds. So yes, I'd be okay with some risk.

I guess I'm somewhat surprised and disappointed that I haven't seen more growth in the Wellington fund since it's 65% stocks.

 

[REWahoo]

I guess I'm somewhat surprised and disappointed that I haven't seen more growth in the Wellington fund since it's 65% stocks.

The bond portion of both Wellesley and Wellington took a big hit over the past couple of weeks. That really hurt returns compared to equity only funds.

 

[pb4uski]

WADR, IMO it is foolish to make a move based on anything less than a year's performance... and preferable 3-5 years, but I'm a long-term investor.

Besides comparing it to "the recent market run-up" is inappropriate... you should compare it to other 50/50 portfolios.

You say you bought these because of their somewhat consistent performance and their dividend payouts... none of that has changed... so stay the course.

 

[Carpediem]

Thank you all for your replies. As suggested, I believe I will stay the course.

 

[Jerry1]

The bond portion of both Wellesley and Wellington took a big hit over the past couple of weeks. That really hurt returns compared to equity only funds.

I've seen and experienced the same thing in my 401K. Why is it not time to lighten up on bonds? Rates have been low for a very long time. It seems like that's about to change, which has been suspected for quite some time as well.

I'm thinking about cutting my bond exposure by about half. No?

 

[Johnora]

No, don't chase market returns. My experience is you'll end up zigging when you should have zagged...

+1 - Don't ever try and chase the puck.....

Stay the course, it was a good decision when you made it for a reason.

 

[REWahoo]

I've seen and experienced the same thing in my 401K. Why is it not time to lighten up on bonds? Rates have been low for a very long time. It seems like that's about to change, which has been suspected for quite some time as well.

I'm thinking about cutting my bond exposure by about half. No?

You may be correct - or like the many gurus who have been predicting higher interest rates and increased inflaton "any minute now" for the past several years, you may be wrong.

Many of us choose to select an asset allocation for a reason, and stick with it - rebalancing as needed. Others choose to attempt to time the market and some may do well using that strategy. I'm not one of those, you may be.

 

[W2R]

No, don't chase market returns. My experience is you'll end up zigging when you should have zagged...

+1

I have a tiny Roth IRA that is about $12,000 right now. I allow myself to invest within this IRA according to my hunches instead of sticking to my planned asset allocation as I do for the rest of my portfolio. It helps me by getting these market timing ideas out of my system.

So far, after many years of this, my Roth IRA has done much more poorly than my main accounts which are governed by my dull, boring, financial plan. Proof that I zigged when I should have zagged.

 

[GrayHare]

I've seen and experienced the same thing in my 401K. Why is it not time to lighten up on bonds? Rates have been low for a very long time. It seems like that's about to change, which has been suspected for quite some time as well.

I've been doing that this year. Secular trends are your friend, and over the decades I've done well making investment decisions based on them. YMMV.

 

[Bestwifeever]

Bonds have been predicted to do poorly for several years now--and now they are. Personally we have stayed the course in what was about 50/50 bonds to equities (probably not that after the past week!). That might be a mistake but we'll live with it.

 

[REWahoo]

Bonds have been predicted to do poorly for several years now--and now they are. Personally we have stayed the course in what was about 50/50 bonds to equities (probably not that after the past week!). That might be a mistake but we'll live with it.

Wouldn't that be a "rebalancing event" rather than a "mistake"?

 

[Bestwifeever]

Wouldn't that be a "rebalancing event" rather than a "mistake"?

Many many people consider me unbalanced.

 

[MichaelB]

Many many people consider me unbalanced.

Honestly?

 

[Bestwifeever]

 

[W2R]

Bonds have been predicted to do poorly for several years now--and now they are. Personally we have stayed the course in what was about 50/50 bonds to equities (probably not that after the past week!). That might be a mistake but we'll live with it.

I am just staying the course as well. My AA is supposed to be 45:55 (equities:fixed). If/when the equity portion is no longer between 42.5% and 47.5%, rebalancing will be triggered according to my written financial plan.

As of closing yesterday, it is 44.99%. (yawn) Back to the forum.

BTW, pundits have been screaming "Danger, danger, Will Robinson" about bonds and saying to get out of them since dirt was young. I guess if they say the sky is falling for years and years, eventually their predictions will be vindicated. Meanwhile I just ride the rollercoaster and enjoy the view.

 

[NW-Bound]

Bonds have been doing better than they should. Even Warren Buffett said so when he called it "Risk without reward". And even the Oracle of Omaha was wrong.

I have had very little bonds and a lot of cash (stable value, I-bonds). So, I will stay the course too, for a while. At some point, I will get more bonds, to be more like the "balanced" Joe and Jane. Not right away though. And slowly, not like this kid, or this man who makes the sign of the cross before entering.

 

[Carpediem]

The comments about bonds in this thread are surprising to me because part of the reason I chose the 50/50 split between Wellesley and Wellington was based on this thread:

http://www.early-retirement.org/forums/f28/wellesley-fund-83212.html?highlight=wellington

I'm wondering if I missed something. Or maybe the timing of my allocation was just bad.

 

[W2R]

The comments about bonds in this thread are surprising to me because part of the reason I chose the 50/50 split between Wellesley and Wellington was based on this thread:

http://www.early-retirement.org/forums/f28/wellesley-fund-83212.html?highlight=wellington

I'm wondering if I missed something. Or maybe the timing of my allocation was just bad.

What about that thread surprises you? I went back to look at it and overall, from what I can tell that thread seems to say the same things as this thread. Basically, that Wellesley and Wellington are great assets to have in one's portfolio, and not to market time. I didn't re-read every single post in it.

 

[REWahoo]

I'm wondering if I missed something. Or maybe the timing of my allocation was just bad.

You didn't miss anything other than perhaps the understanding markets go up and go down. If you own stocks, bonds, or mutual funds their values will fluctuate - including Wellington and Wellesley.

Those of us who take the long view generally don't correlate allocation and timing. As has been pointed out, bonds have taken a hit over the past couple of weeks. You bought two funds that contain bonds and they reflect what has happened in the market. Had you bought those two funds in June of 2008 you would have experienced a sharp drop in the equity portion over the following few months. That corrected itself over the following couple of years, just as I expect the current downturn in bonds to correct.

Look at the horizon, not at your feet...