Poll: Does Your AA Outperform Wellington and/or Wellesley?

[Midpack]

Based on the recent 2014 returns thread, many (self included) might be interested in the short and long term returns of the two Vanguard Funds.

I have always planned to simplify my AA, maybe I'll consider sooner rather than later...

Period|Wellesley|Wellington
1 yr|8.07%|9.82%
3 yr|9.10%|13.94%
5 yr|9.51%|11.25%
10 yr|7.20%|7.97%

 

[W2R]

I think Wellesley is an excellent fund. I keep 30% in Wellesley, because I would never put more than 30% in any one actively managed fund.

In another thread you mentioned,

Real rookie mistake, chasing returns (though duration was my MO), time will tell...

So, I would suggest making sure that you are not chasing yield this time too. But gosh, I can't fault anyone who might want to invest up to 30% in Wellesley. It has been "the apple of my eye", so to speak, for many years.

 

[braumeister]

I don't have 10 year numbers handy, only five year totals. But for these five, I've outperformed Wellington. Not by much, and I've had much more volatility and risk. That's why I'm also gradually simplifying things.

 

[pb4uski]

My benchmark did not for the last year, but I'm not sure about 3/5/10 years. The 6% I hold in cash now that I'm retired is a minor drag. I have also thought about how to integrate Wellesley or Wellington into my portfolio without reducing tax efficiency, but as I keep doing Roth conversion and our Roths grow to become a larger part of the whole it may become viable.


Edited to add: I went back and looked at actual returns and I did outperform them for 3 and 5 years. Not sure about 10 years as my data is a bit suspect going that far back. That makes me feel better.

 

[bUU]

Where do you draw the line, though? We have about 1/3 of our investments divided between Wellington and one other mutual fund that I trust just as much, and has performed better than Wellington in the 3 yr, 5 yr and 10 yr periods - Wellington chosen because I'm too uncertain to pick my own bond positions and the other mutual fund chosen because I'm too uncertain to pick my own international positions. Do we just put it all in this other mutual fund because except for the short term it is "better" than Wellington or Wellesley?

I sure wish I could put the rest into those funds but unfortunately most of the rest of our investments are in current employer 401(k)s.

 

[GreenER]

I have recently transferred a fair chunk to these two. They seem a good bet for "set it and forget it". My previous Year's return on my AA was midway between these two but with quite a bit more risk.

 

[Texas Proud]

What time period

I am over for all years Wellesley...

I am a bit below for 1 year and 10 year.... but way over for 3 and 5 vs Wellington... but, this is only my Vanguard holdings (which is the big majority)....

 

[REWahoo]

I suppose I have to say no, since for the past several years my AA has been 1/3 Wellesley, 1/3 Wellington, 1/3 in short term bonds and PenFed CD's.

 

[donheff]

I guess the real question is would a 60% S&P index and a 40% total Bond come up about he same or a little better. Most people who underperformed Wellesly had substantial international holdings - duh.

 

[Which Roger]

Most people who underperformed Wellesly had substantial international holdings - duh.

People like me. But I was also taking on less risk, since I was more diversified. So adjusting returns for risk level might paint a different picture.

 

[big-papa]

No for 1 year for either. Yes for 5 and 10 year. But I'd like to also see standard deviation compared - in other words, regardless of whether I outperformed or underperformed, was my ride smoother?

 

[Midpack]

No for 1 year for either. Yes for 5 and 10 year. But I'd like to also see standard deviation compared - in other words, regardless of whether I outperformed or underperformed, was my ride smoother?

Certainly worth knowing. Comparing beta's might be easiest.

Period|Wellesley|Wellington
1 yr|.62|.87
3 yr|.52|.89
5 yr|.47|.97
10 yr|.57|.99

Calculating your portfolio's beta will give you a measure of its overall market risk. To do so, find the betas for all your funds/stocks. Each beta is then multiplied by the percentage of your total portfolio that stock represents (i.e., a stock with a beta of 1.2 that comprises 10% of your portfolio would have a weighted beta of 1.2 times 10% or .12). Add all the weighted betas together to arrive at your portfolio's overall beta.

 

[big-papa]

Morningstar lists Wellesley's standard deviation as
3 yr: 4.01
5 yr: 4.69
10 yr: 6.17
Wellington
3 yr: 6.0
5yr: 8.41
10yr: 9.76

 

[Ronstar]

My vg 3 fund 1 year average was 7.85. I don't have my exact AA with me, but I think I'm at 40 total stock, 20 int, 40 total bond. I'm going to get some Wellesley soon. When I first got into vanguard a few years ago, the vg guy talked me into the 3 fund approach in lieu of Wellesley and Wellington, saying that expenses were less.


Sent from my iPhone .using Early Retirement .//82339)

 

[Cobra9777]

Don't know about 5-10 years, but for 1 and 3 years, my AA outperformed Wellesley, but underperformed Wellington. Since my AA falls between the two, this is not a big surprise. However, if I dig deeper... my actual 2014 return is 9.3%. It would have taken a 70/30 mix of Wellington/Wellesley to equal that, which according to M* is a 56/44 AA. Depending on how you count the real estate in my AA (I assume most would call it equity), that appears to be a less risky AA for the same return. If I crank up the Wellington/Wellesley mix to 80/20, which equates to my 60/40 AA, the 2014 return is 9.5%, which says my portfolio slightly underperformed a risk-equivalent mix of Wellington/Wellesley. I suspect that's related to my international equities and high-yield bonds, both of which performed poorly in 2014. I also include 5% cash in my return figures, which is a lot more than these funds hold. Overall, I'm fairly happy with the comparison. But it does make you wonder about simplification.

 

[Midpack]

Don't know about 5-10 years, but for 1 and 3 years, my AA outperformed Wellesley, but underperformed Wellington. Since my AA falls between the two, this is not a big surprise. However, if I dig deeper... my actual 2014 return is 9.3%. It would have taken a 70/30 mix of Wellington/Wellesley to equal that, which according to M* is a 56/44 AA. Depending on how you count the real estate in my AA (I assume most would call it equity), that appears to be a less risky AA for the same return. If I crank up the Wellington/Wellesley mix to 80/20, which equates to my 60/40 AA, the 2014 return is 9.5%, which says my portfolio slightly underperformed a risk-equivalent mix of Wellington/Wellesley. I suspect that's related to my international equities and high-yield bonds, both of which performed poorly in 2014. I also include 5% cash in my return figures, which is a lot less than these funds hold. Overall, I'm fairly happy with the comparison. But it does make you wonder about simplification.

...and that's all I was attempting to convey.

 

[LOL!]

On a tax-adjusted basis? Yes, I think so.

These funds lose 1% to 2% a year to income taxes.

 

[RetireAge50]

1 year 2.94%
3 year 14.89%
5 year 11.2%
10 year 7.33%

1 year got killed by oil and international.

 

[Gumby]

Like many, I've outperformed Wellesley and under-performed Wellington.

1 year 8.24%
3 year 12.67%
5 year 9.67%

If it were not for the various restricted choices in our 401K, 403B, 457, etc, I might well just split my money between the two and call it a day.

 

[Lucantes]

I did not beat them last year, but did over the 3, 5 and 10 year periods:
1yr.: 7.4%
3yr. 16.4%
5yr. 12.6%
10yr.: 9.3%
Not sure how to answer your Poll however, as there does not appear to be enough choices to fit my results?

 

[mathjak107]

the problem betting the ranch on any balanced fund is they bet on good times only.
we have had falling rates for 40 years and a decent stock market so any fund holding them had decent results.

going forward is not going to be what we are all used to. at some points rates will reverse and reality will set in that the static mix that worked so well since we all became investors will come to an end.

the ability to split off the bond portion and move it into more appropriate income investments i think will be very important.

it is okay to hold a balanced fund , in fact 38% of my portfolio is fidelity balanced fund but the other 62% while in conventional bond funds now is free to be moved about where seen fit even if i keep balanced fund.


i would love nothing more than sell everything by wellesley and call it a day but i think at this junction that would not be wise.

 

[clifp]

Yes according to the Schwab portfolio tool
1 year 14.6%
3 year 16.08%
5 year 14.6%
6 years 16.9%

My 3 year standard deviation was 7.87% and 5 year 10.19% so a couple points higher than Wellington but lower than the S&P or the benchmark 80/20 allocation.


On the other hand I probably spent 20x the time managing my portfolio than the W&W investor spent. But like reading the forum does it really count as work if you enjoy it?

 

[clifp]

the problem betting the ranch on any balanced fund is they bet on good times only.
we have had falling rates for 40 years and a decent stock market so any fund holding them had decent results.

....

going forward is not going to be what we are all used to. at some points rates will reverse and reality will set in that the static mix that worked so well since we all became investors will come to an end.


i would love nothing more than sell everything by wellesley and call it a day but i think at this junction that would not be wise.

Actually Treasury rates peaked in 1982 and start going down pretty consistently after 1985. I point this out not to be netpicky but only because Wellesley started in 1970 at the beginning of a steep rise in interest rates, and despite this has managed a 10%+ annual return over the 44 years.

Wellington was started at even worse time July 1929, just 3 months before the historic crash and right before the worse performing decade for stocks.
Despite the bad timing, the fund is averaging 8.32% over the last 85 years.

If my 5 year performance every dips below W&W I hope somebody will tell me to move my money into them.

 

[sengsational]

I couldn't answer the poll accurately without a whole lot of analysis, reason being so many contributions, shifting for rebalancing, moving institutions, etc.

Besides looking at 10 years worth of old statements (for folks with everthing at one institution), how are people rolling-up this number? I have the value calculated by each institution, but I have always found those to be suspect when there are transactions in and out during the year.

 

[NW-Bound]

the problem betting the ranch on any balanced fund is they bet on good times only.
we have had falling rates for 40 years and a decent stock market so any fund holding them had decent results...

Actually Treasury rates peaked in 1982 and start going down pretty consistently after 1985. I point this out not to be netpicky but only because Wellesley started in 1970 at the beginning of a steep rise in interest rates, and despite this has managed a 10%+ annual return over the 44 years...

The drop in inflation and interest rates in the decades of 1980-2000 helped bond funds to gain in principal, meaning principal gain in addition to dividend, particularly long bonds that locked in the high interest rates. And of course the market performance during the same time was a hell of a bull run. Both bonds and stocks won big.

To really judge these balanced funds, we must compare them to a synthetic benchmark of the same AA by blending an index bond fund with a stock index fund. I am willing to bet that these balanced funds will show that they beat the synthetic balanced fund, if only by a small amount. I remember that looking back in the 2000-2003 crash, many active stodgy funds did so much better than the S&P because they shunned "new economy" stocks with high or negative P/E that turned out to be just flash in the pan.