Sell VG Wellington ?

[wanaberetiree]

Hello all,

My VG advisor after reviewing my portfolio suggested considering selling Wellington and replacing it with a mix of value and foreign MF and some bonds (to stay in line with my AA)


Something like this:
Sell
VGWAX 100%

Buy
VVIAX 30%
VFIDX 40%
VTIAX 30%

I am 59 and still working. It would represent about 10% of my portfolio and will trigger tax liability on 20-25K

Anybody has done this or have any comments and/or pro or counter argument ?

Thx

 

[ERD50]

If it (VGWAX) only represents 10% of your portfolio, why bother? Why pay taxes now (when you retire, you may be able to manage 0% LTCG)?

-ERD50

 

[wanaberetiree]

Good point, but that’s unlikely
Then it would minimize the current tax liabilities. Wellington pays a lot of CG

 

[coveredbridge]

IMHO Vanguard places too much emphasis on 1) index funds vs managed funds and 2) large allocations to international markets. I own large portions of my portfolio in Wellington because it is a very low cost managed fund and frankly I like the notion that an "expert" is actively managing the fund, even though I know that studies show managers rarely if ever beat the indexes over time. Also I am not confident enough in the systemic management and regulation of international markets to allocate 30-50% of my assets there, as Vanguard recommends. My international allocation is about 10% equities and 0% bonds, and I'm ok with that.

If you like Wellington and want to get foreign exposure, you might consider allocating new funds to the recently established Global Wellington fund. The management fee is higher than Wellington, but I expect it to come down over time. I'm not a big fan of taking cap gains hits for reallocation. I prefer to reallocate over time with new investments from dividends, etc.

 

[DrRoy]

If it (VGWAX) only represents 10% of your portfolio, why bother?

+1

 

[Another Reader]

Good luck with those foreign stocks, especially the emerging markets. Yes, many of those countries are growing, but that does not mean that the companies there are well managed or the governments will support the companies sharing their profits with you.

I have invested in Wellington for a long time. It's well managed and reasonably diversified. Cost of management is low. I get my exposure to foreign growth through owning strong companies that sell things to the growing populations and governments of these countries or that buy some products from manufacturers there and sell everywhere.

No way would I pay those capital gains to buy unmanaged indexes of companies in countries where generally accepted accounting principles are subject to the whims of the current government. Want to add foreign investments? Divert some new money there.

I agree with coveredbridge's comments. I think management is especially important in foreign stock investing and if I felt I needed the exposure, the Wellington managers are where I would go first.

ETA: I don't think think the current direction of Vanguard is what Bogle had in mind when he first proposed index funds. Index funds were a way to get around the parasites taking most of the individual investor's returns. You got the performance of a growing stable market at very little cost to you with index funds. The current Vanguard folks drank the Kool Aid, and stupidly assumed the same approach applies to growing but unstable markets.

 

[target2019]

Hello all,

My VG advisor after reviewing my portfolio suggested considering selling Wellington and replacing it with a mix of value and foreign MF and some bonds (to stay in line with my AA)

Something like this:
Sell
VGWAX 100%

Buy
VVIAX 30%
VFIDX 40%
VTIAX 30%

I am 59 and still working. It would represent about 10% of my portfolio and will trigger tax liability on 20-25K

Anybody has done this or have any comments and/or pro or counter argument ?

I haven't done much trading of mutual funds, just steady investing.

VGWAX is Global Wellington.

https://investor.vanguard.com/mutual-funds/profile/vgwax

That means it excludes US. Since you mention nothing about the other 90% of your portfolio, hard to say what you might do to improve the overall asset allocation.

They are saying to reduce int'l (VGWAX) as it applies to this 10% of your investments.

Maybe their recommendation applies if your Global Wellington is in a taxable account?

I would go slow in making a decision like this. Need more analysis for the tax hit if you sell Wellington.

 

[wanaberetiree]

I agree with many of point you all are making.

(BTW I misspoke and meant VWENX Wellington Fund Admiral 0.17%)

But here is his justification.

5 Year performance after taxes:

VVIAX (Value Index Fund exp 0.05%) - 7.11%
VFIDX (Intermediate-Term Investment-Grade Fund exp 0.10%) - 1.53%

Accounting for Wellington 66%/34% (stock/bonds) split, VVIAX 66% + VFIDX 34% == ~5.2%

Now VWENX (Wellington Fund Admiral 0.17%) 5 year after taxes 4.41%

So you get better performance, on lower taxes and less CG

Comments ?

 

[Which Roger]

Good luck with those foreign stocks, especially the emerging markets. Yes, many of those countries are growing, but that does not mean that the companies there are well managed or the governments will support the companies sharing their profits with you.

I agree regarding the risks you mention, but the market already knows all this and so the risks should be priced in accordingly.

 

[ERD50]

I agree with many of point you all are making.

(BTW I misspoke and meant VWENX Wellington Fund Admiral 0.17%)

But here is his justification.

5 Year performance after taxes:

VVIAX (Value Index Fund exp 0.05%) - 7.11%
VFIDX (Intermediate-Term Investment-Grade Fund exp 0.10%) - 1.53%

Accounting for Wellington 66%/34% (stock/bonds) split, VVIAX 66% + VFIDX 34% == ~5.2%

Now VWENX (Wellington Fund Admiral 0.17%) 5 year after taxes 4.41%

So you get better performance, on lower taxes and less CG

Comments ?

I would not chase 5 year performance numbers.

What will it cost you (tax-wise) to sell VWENX?

As others have asked, and I alluded, how is the other 90% of your portfolio invested? What is in taxable, what is in tax deferred? If you need to improve tax efficiency, you need to look at the whole picture.

IOW, not enough information.

-ERD50

 

[Another Reader]

I agree regarding the risks you mention, but the market already knows all this and so the risks should be priced in accordingly.

The market of people that blindly follow Vanguard's investment advice is largely comprised of people without detailed knowledge of what they are investing in.

 

[Another Reader]

I would not chase 5 year performance numbers.

What will it cost you (tax-wise) to sell VWENX?

As others have asked, and I alluded, how is the other 90% of your portfolio invested? What is in taxable, what is in tax deferred? If you need to improve tax efficiency, you need to look at the whole picture.

IOW, not enough information.

-ERD50

Agree.

What about the 20 and 30 year comparisons? What do they show?

And these numbers do not include any international funds, which the adviser is pushing.

 

[coveredbridge]

As ERD50 noted, be careful chasing 5yr performance numbers. The main difference in the alternatives is the international exposure and managed vs index. If Cap Gains Distributions is a big deal for you then look at index funds, but beware of the unique risks of investing in foreign markets.

 

[Masquernom]

I have a small amount of my savings in Wellington. Once my wife retires, and our tax bracket goes down, I'm moving it. It's in a taxable account and the capital gains are not worth holding it. For this taxable account, I'll probably move it to the Vanguard tax managed fund.

In 2018, the capital gains were almost double the 2017 amount. It was a bit of a surprise tax wise this year. Wellington must have done a lot of trading in 2018.

 

[wanaberetiree]

I would not chase 5 year performance numbers.

What will it cost you (tax-wise) to sell VWENX?

As others have asked, and I alluded, how is the other 90% of your portfolio invested? What is in taxable, what is in tax deferred? If you need to improve tax efficiency, you need to look at the whole picture.

IOW, not enough information.

-ERD50

I don't have 20+ years data, but 10 years looks as:

VVIAX 11.34%
VFIDX 4.01%

vs

VWENX 8.42%

So I'd say not bad either.

I am 100% invested with overall AA 68/32% and if I sell Wellington it'd trigger ~20-25K in addition tax liability from long term CG.

 

[OldShooter]

Good luck with those foreign stocks, especially the emerging markets. Yes, many of those countries are growing, but that does not mean that the companies there are well managed or the governments will support the companies sharing their profits with you. ...

Just curious: Have you traveled much? Have you noticed that every OECD country except one is populated by foreigners? That OECD GDP for non-US countries is about twice the GDP of the US? Seems like a lot of the investable world to be ignoring.

 

[HI Bill]

VG also wanted to reorganize my portfolio, resulting in CG. Since I did not want to pay taxes on LTCG, I’ve been selling when the cost basis is negative, and buying ETFs that don’t qualify under the wash rule. Last year, I had $14K in realized losses, and since I had no realized gains, could use $3K per year to offset dividends.

How many years of increased gains would it take you to recover the taxes? Guessing it’s not worth it. The VG plans don’t seem to take into account how close to retirement you are in their recommendations.

 

[wanaberetiree]

VG also wanted to reorganize my portfolio, resulting in CG. Since I did not want to pay taxes on LTCG, I’ve been selling when the cost basis is negative, and buying ETFs that don’t qualify under the wash rule. Last year, I had $14K in realized losses, and since I had no realized gains, could use $3K per year to offset dividends.

How many years of increased gains would it take you to recover the taxes? Guessing it’s not worth it. The VG plans don’t seem to take into account how close to retirement you are in their recommendations.

Maybe 3-4 years
I see roughly now:

Estimated Federal Tax Impact: $6,600
Estimated State Tax Impact: $2,302

 

[HI Bill]

Maybe 3-4 years
I see roughly now:

Estimated Federal Tax Impact: $6,600
Estimated State Tax Impact: $2,302

Given your proximity to retirement, and that 5-year returns do not necessarily represent future returns over the next 3-4 years, I would not make the change now, unless your future tax rates will be higher than they are currently.

 

[LOL!]

I know that the thread is NOT about global Wellington, but still ...

VGWAX is Global Wellington.

https://investor.vanguard.com/mutual-funds/profile/vgwax

That means it excludes US. Since you mention nothing about the other 90% of your portfolio, hard to say what you might do to improve the overall asset allocation.

Global means global and does not mean ex-US. Generally, international or foreign are terms used for ex-US, but Global is used for the entire world.

Global Wellington has 60% of its equities in North America which includes US and Canada. Morningstar says it is 34% US stocks and 30% non-US stocks.
Vanguard Global Wellington Fund Admiral Shares Report (VGWAX) | Asset Allocation Summary