Wellesley vs. everything else in ER

[UpAnchor]

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

You're quite right on that. But I would think more experienced investors preferring to use a target date fund for part or all of their portfolios would "pick their own AA" and to heck with the labelled retirement date. Still, they've given up some control which can be a bad or good thing.

 

[samclem]

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.

The record of Wellesley and Wellington (and BRK, too) is quite good. But I'd never put all my faith (and money) in one manager or management team. Things change, people don't live forever, priorities and incentives shift. So, back to the OP, I'd be okay with having a "chunk" under active management in either W or W, but would want a majority in a well-diversified AA of equities and bonds, with rebalancing done mechanically. If the managers can add value and (especially) avoid a stock or bond bubble, I'll be happy to take advantage of that, but I wouldn't bet everything on their abilities.
So, if a person owns W or W and has the bulk in low-cost indexed funds, does one rebalance after taking account of the internal holdings of these two actively-managed funds, or is it smarter to just fence them off and rebalance only the other parts of one's portfolio? On the face of it, I'd say fence them off, or else you'll be rebalancing against the efforts of their managers (i.e. when they increase LCV, you'd have to reduce LCV in the index holdings) and might just as well save the management fees and have everything in index funds.

 

[braumeister]

When I look at my allocations, I consider the average percentage of bonds and equities in both Welling and Welles. Breaking it out this way gives me a better handle on my overall allocation. Probably not necessary, but that's what I do.

 

[FANOFJESUS]

Wellesley is great if you bought in 1980. Today I think rates are headed up. Wellesley would also cost me 2k more in taxes each year. But I am thinking about paying more in taxes to buy the wellington so I can't throw rocks in a glass house.

 

[UpAnchor]

So, if a person owns W or W and has the bulk in low-cost indexed funds, does one rebalance after taking account of the internal holdings of these two actively-managed funds, or is it smarter to just fence them off and rebalance only the other parts of one's portfolio? On the face of it, I'd say fence them off, or else you'll be rebalancing against the efforts of their managers (i.e. when they increase LCV, you'd have to reduce LCV in the index holdings) and might just as well save the management fees and have everything in index funds.

That's an interesting question and I'd be interested to know how others handle that. In our case, Wellesley and VTINX make up approximately half our portfolio with the remainder being mostly low-cost index funds. I sort of "fence them off" as you say and let them handle their own internal rebalancing. I pay no attention to the aggregate percentages of the asset classes across those two. However, I do pay attention when deciding how much international, emerging markets, reits and small cap value to hold or "tilt to" outside of the two balanced funds. And I occasionally "cross the fence" to rebalance between those "core" balanced funds and their "satellites" so as to keep our overall asset allocation where we want it.

 

[W2R]

So, if a person owns W or W and has the bulk in low-cost indexed funds, does one rebalance after taking account of the internal holdings of these two actively-managed funds, or is it smarter to just fence them off and rebalance only the other parts of one's portfolio?

I take the internal holdings into account because my AA is 45:55, and Wellesley does not have that same balance.

Excel makes that balancing chore pretty trivial. Basically, Wellesley is 30% of my total portfolio. I can't change its internal balance so I enter that in one cell of my balancing spreadsheet.

 

[Happyras]

For the few that do not yet know of this site;
PerfCharts - StockCharts.com - Free Charts

It really is a great tool to evaluate funds over specific time frames. I like the the comparison of the SPY, and VFIAX to VWELX and VWIAX from 2001 to date. It is hard to argue risk/performance for these two funds versus the S&P. If you use an underscore like _VWIAX, it will show performance without dividends reinvested.

 

[ejman]

For the few that do not yet know of this site;
PerfCharts - StockCharts.com - Free Charts

It really is a great tool to evaluate funds over specific time frames. I like the the comparison of the SPY, and VFIAX to VWELX and VWIAX from 2001 to date. It is hard to argue risk/performance for these two funds versus the S&P. If you use an underscore like _VWIAX, it will show performance without dividends reinvested.

Thank you. Kind of fun to play with the time scale. When set to the 15 year period (2001 on) W/W are nothing short of amazing.

 

[Sunset]

..... As for ETF's, not a fan from being burnt so badly on market spread. My former accountant started the Madrona Fund ETF's, put all of accounts in his own ETF's, charged his normal 0.8%, on top of very high ETF costs and we lost mucho dinero trying to get out of low volume ETFs when we ran away.

Your former accountant sounds like a moron to me.
Compare those ETF's he put you in, to VTI and it is like night to day.
My quick check of Madrona funds (with expense of 1.25%) is crazy.

There are plenty of broad, high volume, very low cost ETF's (think 0.155 - 0.05% expense).

So don't throw out the baby with the bathwater .

 

[Masquernom]

Not wanting to hijack this thread, but what's the thoughts on Vanguard Tax Managed Fund for a taxable account? It's 50% stock and 50% municipal bonds.

 

[FANOFJESUS]

Not wanting to hijack this thread, but what's the thoughts on Vanguard Tax Managed Fund for a taxable account? It's 50% stock and 50% municipal bonds.

Looks like a good fund. Would cut my tax bill to zero.

 

[Cobra9777]

We don't own Wellesley or Wellington. Reasons are similar to what others have stated:

1. We only own ETFs, primarily to avoid year-end CG distributions.
2. It's more difficult to slice/dice and maximize tax efficiency with stocks and bonds in the same fund.
3. The expense ratio, while low by most standards, is still quite a bit higher than our index ETFs.
4. We prefer to house everything at Fidelity, where Vanguard MFs would be costly to trade.
5. Despite the excellent track record, we prefer highly diversified index funds over actively managed funds.

Our portfolio is pretty straightforward with the largest positions in VTI and AGG, with a good chunk of LQD as well. We also have 15% in real estate (VNQ plus 2 rental houses). For a slight boost in dividends, we own some high-dividend ETFs (VYM and others) and some high-yield corporate (HYG). We have smaller positions in international stocks, international bonds, and some municipal.

 

[Happyras]

I don't have Wellesley. I called Vanguard a few years ago, wanting to buy Wellesley and Wellington. The agent talked me out of these and into the 3 fund portfolio. (Vanguard Total Stock Market Index Fund (VTSMX), Vanguard Total International Stock Index Fund (VGTSX), Vanguard Total Bond Market Fund (VBMFX)). Agent said that the 3 fund was more cost effective- less fees than Wellesley and Wellington. I haven't verified this.


Sent from my iPad using Early Retirement Forum

HMMMM....Back to the original post. When Kevin stated he saw the returns to be better than the Boglehead 3 fund, no one really showed an argument. In the following link I entered the two W's in a chart against the 3 Bogle funds since 2001. Over the long haul what can be argued? I really am open to more allocation diversity with indexing, but the chart is fairly clear on what did best over time.
PerfCharts - StockCharts.com - Free Charts

 

[RunningBum]

"Past performance is not a guarantee of future results."

 

[Happyras]

"Past performance is not a guarantee of future results."

Touche'----But a negative yield curve in the bond market is a great indicator of a following recession.

 

[REWahoo]

"Past performance is not a guarantee of future results."

True. No matter what investment strategy, fund, AA, FA or dart board you select, it's a crapshoot.

 

[kevink]

Of course past performance guarantees nothing, but its disingenuous to pretend that allocations are constructed on anything other than careful backtesting combined with the best forward-looking guesstimates one can come up with.

There's data on Wellesley that goes back long before many asset classes we incorporate into modern slice-and-dice portfolios could even be invested in (sector ETFs, EM, value, small and micro-cap stocks, paper gold, etc. etc.). One of the amazing things is just how much better - with far, far less volatility - VWINX does than a classic 60:40 stock:bond portfolio that inverts Wellesley's asset blend:

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2016&lastMonth=12&endDate=07%2F04%2F2016&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&showYield=false&reinvestDividends=true&symbol1=VBMFX&allocation1_1=40&symbol2=VTSMX&allocation2_1=60&symbol3=VWINX&allocation3_2=100

 

[braumeister]

True. No matter what investment strategy, fund, AA, FA or dart board you select, it's a crapshoot.

And even in craps, the house always has an edge.
Thank goodness for my Ameriprise rep -- by trusting him I never have to think about any of this.

 

[REWahoo]

Thank goodness for my Ameriprise rep -- by trusting him I never have to think about any of this.

A textbook example of the house having the edge...

 

[UpAnchor]

And even in craps, the house always has an edge.

And thus the inspiration for the name Merrill "Edge"...

 

[RunningBum]

Of course past performance guarantees nothing, but its disingenuous to pretend that allocations are constructed on anything other than careful backtesting combined with the best forward-looking guesstimates one can come up with.

There's data on Wellesley that goes back long before many asset classes we incorporate into modern slice-and-dice portfolios could even be invested in (sector ETFs, EM, value, small and micro-cap stocks, paper gold, etc. etc.). One of the amazing things is just how much better - with far, far less volatility - VWINX does than a classic 60:40 stock:bond portfolio that inverts Wellesley's asset blend:

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2016&lastMonth=12&endDate=07%2F04%2F2016&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&showYield=false&reinvestDividends=true&symbol1=VBMFX&allocation1_1=40&symbol2=VTSMX&allocation2_1=60&symbol3=VWINX&allocation3_2=100

OK, that my "past returns" comment was quick and pithy, but what is the magic that says Wellesley will do better in the future? I am also amazed at how well the more conservative Wellesley compares, but as you say, you also have to make forward guesstimates. Past results alone does not close the argument, as per the sentiment I thought (perhaps mistakenly) I was reading.

I guess Wellesley succeeds because they do a better than average job of weeding out the losers, while maintaining a low expense ratio for a managed fund, though not as low as an index fund. But I can also remember a time years ago looking comparing Wellesley past performance to other options and not being as impressed. I can't even begin to tell you when this was and what I compared to so take this for what very little this is worth, but I'll just say that as obvious of a choice as Wellesley would seem to be now, I don't think it's always been so clear. It's only in looking back that we can say for certain what it was, but not what it will be.

Remember how good Fido Magellan was under Lynch? You don't hear so much about it anymore. Managers change, and with it, so do results. I couldn't tell you anything about the Wellesley managers.

btw, want better backtesting results? Replace Total Stock Market with PRIMECAP, which I have in my portfolio as a nod to managed funds. The PRIMECAP/total bond mix beats Wellesley, albeit with more volatility, and not if I match the 40/60 stock/bond mix. I haven't figured out the magic in PRIMECAP either.

 

[Russman]

I own Wellesley (about 25% of my portfolio), and have found it to be a very good fund to help balance out my portfolio over the last 5 years.
I also own several other funds such as VDIGX (dividend) and VGHCX (healthcare) and a mix of stocks. Wellesley seems fairly stable during the volatile times, and helps to offset the big market drops. I guess at the same time, when the market is flying high, my returns aren't as much as they could potentially be. But that's ok with me. For instance, last week and this week, when the market was down on different days, VWINX was up.

Everybody has to be comfortable with their own asset allocation and tolerance for risk.

 

[UpAnchor]

I own Wellesley (about 25% of my portfolio), and have found it to be a very good fund to help balance out my portfolio over the last 5 years.
I also own several other funds such as VDIGX (dividend) and VGHCX (healthcare) and a mix of stocks. Wellesley seems fairly stable during the volatile times, and helps to offset the big market drops. I guess at the same time, when the market is flying high, my returns aren't as much as they could potentially be. But that's ok with me. For instance, last week and this week, when the market was down on different days, VWINX was up.

I feel the same. Although with Wellesley's roughly 65% in bonds, that is to be expected. What I find interesting is how often Wellesley and VTINX are up vs. down (like today) and vice versa. With their allocations as close as they are I wouldn't have expected that to happen all that often. Granted, the differences are small.

 

[NoiseBoy]

I really like John Greaney's site too. His charts showing the performance over time for different portfolio's during the distribution phase helped me to understand the 4% rule. Regarding the relative performance of the different portfolios that he models, it's important to compare the returns for the 1995 retiree to those of the 2000 year retiree. When you do, you'll see that the 75/25 S&P 500 portfolio was the worst plan to have if you retired into the bear market period of the 2000s.

I like the returns for the MPT portfolio too, but I'm not sure that I want to own and re-balance between 10 different funds. On that note, what do people think of Otar's recommendation to only re-balance once every 4 years during the presidential election cycle? Also, when exactly are you supposed to re-balance? Is it after the November vote, but before the January inauguration?

I own Wellesley in my ROTH. I have thought about shifting my ROTH to Wellington, and then using Wellesley for my post-tax allocation because of its dividend rate. I have 3 more years until I can FIRE so, like many here, I'm still working on what my portfolio should look like in retirement.

 

[friar1610]

I'm 71/spouse 70 with a 40/55/5 AA in a classic 3 fund portfolio. Pension and SS cover all but the most extraordinary expenses. I have started my RMD; my wife will shortly. RMDs are being/will be reinvested in taxable.

All of our IRA money (28% of total port) is currently in VG Total Bond Index. Lately I've been considering "goosing" the IRAs a bit and, in the course of so doing, taking overall AA to 45/50/5. The two things I've been most considering are:
- simply adding a slice of VG Total Stock Market Index to the IRAs.
- transferring half the money in my IRA from Total Bond to Wellesley.

In either case, I think I'll wait bit and see if either stock or bond markets drop significantly through the end of the year. 5% either way won't make a huge difference and, if I do nothing and leave things where they are (for a year or for 5 years) it won't make a big difference in our lives. I think I'm just satisfying the itch to "do something" but not too much.

Wellesley is the only managed and/or balanced fund I have seriously considered using for this purpose. Reason is its historical record which, I understand, is no guarantee....