What to pair with Wellesley for 10 year Horizon?

[Stillwater007]

I have posted on here before about trying to decide how to reinvest my soon to be liquidated EJ Fund.
It's around 34k and it's an tIRA.
I am 50 and will retire in about 6-7 years.
Pension should cover most expenses and cost of living.
If I need to, will start withdrawing at 59.5, so basically ten years from now.
Still a little risk averse so I like Wellesley for most of my allocation. I was shocked how well it has returns despite being conservative.
Despite this, I wonder if I should have a little balance to this and maybe invest a portion of the liquidity into something more moderate, like the VBIAX or even a Target Date Fund.
Yes, set it forget it.

 

[pb4uski]

Nah, Wellesley is fine... K.I.S.S.

 

[Midpack]

Nah, Wellesley is fine... K.I.S.S.

+1. I was going to say more Wellesley, plenty diversified. Some Wellington, but why bother?

 

[Stillwater007]

Nah, Wellesley is fine... K.I.S.S.

I had to look up the KISS acronym. Ha! Yeah, you're right. It's crazy how I can't shake the feeling like I am marrying my decision.

I will have some extra $$ to be able to open a 403b Roth and a ROTH IRA. these 2 I don't want to touch (withdraw) for at least 15-20 years if everything goes ok.

I was thinking of going a little more aggressive, like a Balanced Index Fund and even VTSAX/ VBILX.

 

[Stillwater007]

Oh, and don't hate me for asking this...
Should I go ahead and liquidate and invest it into Wellesley TODAY. Or should I try to time it on a good day in the Market. The current fund, albeit with a 1.05 fee, is all Stocks. Don't they say, buy low and sell high?

 

[pb4uski]

All at once. If you were talking about millions it might be a different story.

 

[RunningBum]

Oh, and don't hate me for asking this...
Should I go ahead and liquidate and invest it into Wellesley TODAY. Or should I try to time it on a good day in the Market. The current fund, albeit with a 1.05 fee, is all Stocks. Don't they say, buy low and sell high?

Yeah, but you don't know when those highs and lows will be.

 

[homestead]

Look at VTMFX, it a balanced fund between Wellesley and Wellington but has done better than both of those funds during the pandemic probably because it has a lot of Amazon in it.

 

[LXEX55]

I am fifty fifty Wellington and Wellesley in my traditional IRA. That's it.

 

[mrfeh]

Doesn't make sense to consider AA for an individual account. Determine the AA you want for your portfolio and then choose funds for tax efficiency.

 

[Murf2]

Doesn't make sense to consider AA for an individual account. Determine the AA you want for your portfolio and then choose funds for tax efficiency.

Wouldn’t it be better to hold stock funds and bond funds in each account instead of a “balanced” fund like Wellesley? That way you could withdraw from either sector in any account, depending on the situation. Or is it not worth the trouble?

I ask because, I’m in a similar situation as the OP. I hope this doesn’t derail the OP’s thread.

Thanks
Murf

 

[mrfeh]

Wouldn’t it be better to hold stock funds and bond funds in each account instead of a “balanced” fund like Wellesley?

One reason to hold equities and bonds in separate funds is that the expenses are generally lower.

That way you could withdraw from either sector in any account, depending on the situation. Or is it not worth the trouble?

I ask because, I’m in a similar situation as the OP. I hope this doesn’t derail the OP’s thread.

Thanks
Murf

This isn't a reason to hold equity and bond funds in the same account.

Let's say you can only withdraw from taxable accounts, and your taxable accounts are all equities. Also, for whatever reason, you want to sell bonds (maybe to maintain your desired AA). You simply withdraw equities from your taxable account, then in your tax-advantaged account (which you cannot withdraw from) you exchange bonds for equities (the exchange being the same amount you withdrew from the taxable account).

In this way you have effectively sold bonds, even though you didn't have any in your taxable account.

 

[JoeWras]

Wouldn’t it be better to hold stock funds and bond funds in each account instead of a “balanced” fund like Wellesley? That way you could withdraw from either sector in any account, depending on the situation. Or is it not worth the trouble?

I ask because, I’m in a similar situation as the OP. I hope this doesn’t derail the OP’s thread.

Thanks
Murf

Well, sure, you can do that. You'll have to monitor and manage your AA.

Here we talk a lot about index funds. Wellesley is not an index fund. It is actively managed, and has commensurately higher fees. On this board, it might be somewhat unique that people actually are invested in something actively managed. The managers are targeting some pretty old school, large, dividend stocks. You won't find the big boys (Apple, Microsoft, Alphabet, Telsa!) in the portfolio. Zero of those 4.

If you decide to "roll your own," you will likely pick an index fund and the above 4 will be a big part of your portfolio.

If you want balance other than Wellsely, it is easier to just put it in VBIAX and not worry about it.

I like the fact Wellesley is currently out of the FAANGT race. It provides a bit of stock balance for me.

Just as a comparison. Top 10 stocks of Wellesley:

• J & J
• Pfizer
• Cisco
• Comcast
• P & G
• JP Morgan
• Verizon
• Bank of A
• Medtronic
• Progressive

VBIAX (Balanced Fund):

• Apple
• Microsoft
• Amazon
• Facebook
• Alphabet-A
• Alphabet-C
• Telsa
• Berkshire H
• J & J
• JP Morgan

 

[Stillwater007]

This is some good advice. I am still quite shocked how well Wellesley does on it's returns despite being 40/60. I've noticed the Wellington too and it seems like a smart choice.

I do have 2 other questions.
1. Doesn't VTMFX makes sense going into a taxable account? It does look like a good fund, but the term "tax managed" makes it sound tax friendly for a taxable account. Which I might use if I am lucky to exhaust my RothIRA and 403b Roth.

2. I heard that the trick is being able to invest in a way where if you stuck to the 4% rule, you will NEVER run out of your investments. What is that called and is that possible?? I think the suggestion was going ALL in on Stocks to get higher returns, yet having cash reserves when the market is taking a s@#t.

 

[Badger]

You say you are risk averse and pleased with Wellesley. Seems like you already have your answer.

At our ages we are also risk averse and pleased with Wellesley. My wife and I have our tIRAs in Wellesley and Wellington. She has one and I the other. It is just the way it worked out a few years ago. That generally gives us a 50/50 mix. I am comfortable with this balance in our tIRA although others may require a different approach. If we were younger I would most likely take a different AA. But now this makes the most sense to us.



Cheers!

 

[Stillwater007]

You say you are risk averse and pleased with Wellesley. Seems like you already have your answer.

At our ages we are also risk averse and pleased with Wellesley. My wife and I have our tIRAs in Wellesley and Wellington. She has one and I the other. It is just the way it worked out a few years ago. That generally gives us a 50/50 mix. I am comfortable with this balance in our tIRA although others may require a different approach. If we were younger I would most likely take a different AA. But now this makes the most sense to us.



Cheers!

Yes, I am risk averse by nature. With 7 or so years left before retirement, I wonder if I am maybe being too conservative. In a perfect scenario, my pension and supplemental withdrawl from my tIRA and 403b would cover me till I kick the bucket. Then with my ROTH IRA, that could be my risk investment as I likely let it sit and not touch for decades and let my kids inherit it.
Speaking of buckets, that's probably what I'm trying to say:

Bucket 1- tIRA- supplements pension for first 10 years (VWINX/Wellington)
Bucket 2- 403bRoth- supplements for 20+ years (Wellington or VBIAX)
Bucket 3 Roth IRA- Likely inheritance for kids (VTSAX or VFIAX)
Bucket 4- Taxable Acct- VTMFX
Bucket 5- Cash/CD reserves to cover 12 months expenses

Too many buckets?
Illogical?

 

[friar1610]

OP,

I have a different situation but the same dilemma. Just did my first Roth conversion at the tender age of 75. Moved Tot Bond shares in-kind from t-IRA to new Roth with the idea of kicking up the aggressiveness a bit. Can’t go all-equity or it would mess up the overall AA. I’ve got it down to Wellesley or VG Balanced Index. Don’t suppose it makes a helluva lot of difference over the long-haul. One day Balanced looks good; the next day Wellesley. Probably should flip a coin and be done with it.

 

[Murf2]

mrfeh, JoeWras

Thanks for you explanations!

To the OP, thanks for the indulgence.

Murf

 

[RunningBum]

2. I heard that the trick is being able to invest in a way where if you stuck to the 4% rule, you will NEVER run out of your investments. What is that called and is that possible?? I think the suggestion was going ALL in on Stocks to get higher returns, yet having cash reserves when the market is taking a s@#t.

No. Rules based on back testing of data give no guarantees for the future. Common sense should tell you that. "probably never" would be accurate. I haven't heard of a variant that's all stocks and some cash.

 

[GravitySucks]

This is some good advice. I am still quite shocked how well Wellesley does on it's returns despite being 40/60.

2. I heard that the trick is being able to invest in a way where if you stuck to the 4% rule, you will NEVER run out of your investments. What is that called and is that possible?? I think the suggestion was going ALL in on Stocks to get higher returns, yet having cash reserves when the market is taking a s@#t.

I can't find the articles, but I remember Bengen, the fellow who did the initial SAFEMAX work, found 68/32 to be the ideal AA based on historical. He also said in the same paper he didn't find a large difference in survivability from 40/60 to 80/20 and of course the past does not product the future. The bonds in that portfolio were 5 yr treasuries. Lots of corporates defaulted on the 1929 and 1933 periods.
In an AMA Reddit interview a few years ago he also claimed he found a 4% WR will last forever.

 

[kevink]

Thanks to the OP and to all who've posted here for this excellent thread.

Like many others here I have great respect for the two W's (Wellesley and Wellington) and Wellington Management's many decades of great management of these and other funds.

Wellesley is designed to be a set-it-and-forget-it complete conservative portfolio - but that doesn't mean one has to use it that way. It is important to bear in mind that it is Wellesley INCOME Fund meaning tax efficiency isn't a goal, so it's certainly best to hold it in a tax-deferred account if possible (though not the end of the world if not, for most folks) AND (more important, IMHO) to buy Admiral shares (VWIAX) directly at Vanguard, which saves you .05% in ER over the Investor shares available from other brokers.

If you're risk-averse enough to go all-in on Wellesley you might be interested in looking at what adding a slice of gold does to the historical returns and SWR (scroll down to the charts provided by Tyler of "Portfolio Charts"):

https://www.gyroscopicinvesting.com/forum/viewtopic.php?f=10&t=11196

Personally I've chosen to diversify across both asset classes and investment strategies. As a dyed-in-the-wool index fund fan at heart I have about 40% of our portfolio in a plain vanilla Total U.S./Total International Stock mix balanced with short-term Treasuries and iBonds, which is then "bookended" by having nearly 45% of our total nest egg in Wellesley which is actively-managed, highly-concentrated and (on the bond side) intermediate-duration and credit quality. 15% gold hedges against sequence-of-returns risk and continued currency debasement by the Fed.

We all know the old saw about past performance being no guarantee of future results and have valid concerns about paying a premium for actively-managed funds but I think this recent interview with the folks who manage Wellesley makes a pretty compelling argument for continuity of management at Wellington. The way look at is is for the .16% ER I pay for VWIAX I have a whole team of great FA's looking out for my best interests and following macroeconomic trends, with the ability to respond quickly to events like the pandemic.

https://www.morningstar.com/podcasts/the-long-view/75

That said, I can't imagine any actively-managed funds other than the two W's that would make me deviate from a pure index fund strategy. And there are plenty of happy retirees out there who own only Wellesley or one of the Vanguard LifeStrategy or Target Retirement Income funds-of-funds who do perfectly well without the need to rebalance, while also preventing themselves from tweaking allocations or second-guessing themselves in the event of market panics or age-related cognitive decline. K.I.S.S. is rarely a bad idea.

 

[OldShooter]

Wouldn’t it be better to hold stock funds and bond funds in each account instead of a “balanced” fund like Wellesley? That way you could withdraw from either sector in any account, depending on the situation. Or is it not worth the trouble?

I ask because, I’m in a similar situation as the OP. I hope this doesn’t derail the OP’s thread.

Thanks
Murf

Yes, when you're dealing with taxable accounts. I avoid blended funds for another reason, however. The "Kool-Aid" problem: When you put the red and the green into the same glass, you really don't know where the resulting color or flavor is coming from. With separate funds you can monitor and benchmark their performance.

The only blended accounts where I wouldn't worry too much about benchmarking would be those where the equity portion was invested in a b broad index fund. I would no let stock-picking go unwatched. For example, Reuters/FIdelity: https://www.reuters.com/article/us-...ers-on-risky-path-to-retirement-idUSKBN1GH1SI

... Too many buckets? Illogical?

Well, only you can answer those questions for you. But you have a subtle twist on the usual idea of buckets here: Generally people speak of buckets based on liquidity and risk of assets. The immediate bucket (#1) contains cash or near-cash, going out to the last bucket which typically contains mostly or 100% equities.

I'm sure it is done, but trying to define buckets by starting with a list of investment accounts, one per bucket, seems like it could lead you astray tactically. DW and I are at the other extreme, with 90% of our assets in our tIRAs. So to the extent we think about buckets, we think about specific holdings in those two accounts. We would never consider setting up separate accounts to be associated with buckets.

 

[Chuckanut]

I can't tell others what to do. But, I have some rather financially conservative friends who have asked me what to do. They don't have pensions, big 401k/IRA accounts or millions in personal investments. They only have a few hundred grand they inherited from a favorite uncle or such. They want the earnings on that to enhance the money they get from SS. We talk. I give them options. So far the happiest are those who have about 80% in Wellesley and the other 20% in a USA Total Stock Market index fund. They get a monthly or quarterly income check from Wellesley, and have some growth prospects in the index fund. The Wellesley holdings seem to calm their jitters about owning the more volatile stock fund.

This is just one person's observations. Take what you wish and leave the rest.

 

[JoeWras]

I can't tell others what to do. But, I have some rather financially conservative friends who have asked me what to do. They don't have pensions, big 401k/IRA accounts or millions in personal investments. They only have a few hundred grand they inherited from a favorite uncle or such. They want the earnings on that to enhance the money they get from SS. We talk. I give them options. So far the happiest are those who have about 80% in Wellesley and the other 20% in a USA Total Stock Market index fund. They get a monthly or quarterly income check from Wellesley, and have some growth prospects in the index fund. The Wellesley holdings seem to calm their jitters about owning the more volatile stock fund.

This is just one person's observations. Take what you wish and leave the rest.

I think that's not a bad strategy at all.

 

[Hillbilly]

I am 50 and will retire in about 6-7 years.
Pension should cover most expenses and cost of living.
If I need to, will start withdrawing at 59.5, so basically ten years from now.
Still a little risk averse so I like Wellesley for most of my allocation.

I'm where you are talking about (retired) with around 97% of my funds in Wellesley.

My mother, age 76, is 100% Wellesley. She loves to spend her quarterly dividends whereas, several years ago, she was using CDs that paid her near to nothing.

We both re-invest the capital gains: I re-invest dividends.

At age 59.5, DW and I plan to start emptying our before tax accounts over the next 10 years. Most will still go into after tax Wellesley to start using the dividends. This will help push taking our SS towards age 70.

I haven't lost any sleep holding this fund. Mom just asks, "when will we get paid again?" Then, I know she has found something new to buy......