Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Vanguard Wellesley and Interest Rates
Old 03-07-2021, 08:54 PM   #1
Recycles dryer sheets
 
Join Date: Mar 2019
Posts: 56
Vanguard Wellesley and Interest Rates

I have a large position in Wellesley and am concerned about the impact of the rising interest rates's affect on the fund.

We have the Fed saying they have no plans on raising interest rates until 2023 at the earliest, but with inflation ticking up, I think we are going to see it sooner then later.

Any thoughts on holding Wellesley throughout periods of interest rate increases?
SeattleRocks is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-07-2021, 10:13 PM   #2
Thinks s/he gets paid by the post
Ready's Avatar
 
Join Date: Mar 2013
Location: Southern California
Posts: 3,582
Why just Wellesley? Is that the only exposure you have to bonds? Any fund with bonds carries interest rate risk. But you are trying to time the market by guessing when interest rates will rise. Nobody knows, so it’s anyone’s guess how bonds will perform over the next few years. I believe that rates will rise very slowly, so I’m comfortable staying in bonds because there isn’t much else out there on the fixed income side that looks any better.

I think you would be better off establishing a long term asset allocation strategy and sticking with it.
Ready is offline   Reply With Quote
Old 03-07-2021, 10:22 PM   #3
Recycles dryer sheets
 
Join Date: May 2016
Posts: 150
Average duration of Wellesley is about 8 years and bond allocation is about 65%, so you can expect a decline in value of about 65% of 8%, or 5.2%, for every 1% increase in market interest rates. If you can't tolerate that and you believe that rates are going to spike by a significant amount, you may consider either getting out of Wellesley or be prepared to hold for 8 years until the loss in value is recovered through higher dividends as bonds in the fund roll over to higher yields. If you divest of course, you'll want to consider the return of the alternative investment and the associated risks in your decision.
__________________
Taking the rest of my life off...
coveredbridge is offline   Reply With Quote
Old 03-08-2021, 08:14 AM   #4
Thinks s/he gets paid by the post
VanWinkle's Avatar
 
Join Date: Oct 2017
Location: Brighton
Posts: 1,720
Quote:
Originally Posted by SeattleRocks View Post
I have a large position in Wellesley and am concerned about the impact of the rising interest rates's affect on the fund.

We have the Fed saying they have no plans on raising interest rates until 2023 at the earliest, but with inflation ticking up, I think we are going to see it sooner then later.

Any thoughts on holding Wellesley throughout periods of interest rate increases?
Wellesley is a long term holding and you're thinking of it in short term
timing. If you get out, when will you decide to get back in? I would
hold onto a long term holding if the only problem was a short term
event. I hold 50% of my allocation in intermediate bonds and will
only sell them to rebalance into stocks when equities are off by 5%
or more. "Stay the course" means just that. I could be wrong, but
it has worked for 45 years of investing.

Good luck to you, and remember the 35-40% stock portion is
mostly value stocks that are doing well right now.
__________________
Retired May 13th(Friday) 2016 at age 61.
VanWinkle is offline   Reply With Quote
Old 03-09-2021, 09:50 AM   #5
Recycles dryer sheets
 
Join Date: Mar 2019
Posts: 56
Quote:
Originally Posted by VanWinkle View Post
Wellesley is a long term holding and you're thinking of it in short term
timing. If you get out, when will you decide to get back in? I would
hold onto a long term holding if the only problem was a short term
event. I hold 50% of my allocation in intermediate bonds and will
only sell them to rebalance into stocks when equities are off by 5%
or more. "Stay the course" means just that. I could be wrong, but
it has worked for 45 years of investing.

Good luck to you, and remember the 35-40% stock portion is
mostly value stocks that are doing well right now.
Thanks to all. Great advice. I do tend to be too short term in my thinking and planning - been through bubbles and recessions that were painful and I think that has tainted the way I see the investing world trying to minimize damage. But as this board as reinforced many times, things recover and stay the course it the prudent strategy which has been proven out time and time again.

I am 100% in Wellesley in my IRA and wont need it until I am forced to take RMD at 72 (I am 56 now) so I am in good shape to wait out any market gyrations.
SeattleRocks is offline   Reply With Quote
Old 03-09-2021, 01:59 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 2,268
For the first time since I ER'd 19 years ago I let emotion divert me from my standard 50/50 back last year as Covid rumbled on - this time it really is different right? So I backed off to 40 stocks, 50 bonds and 10 cash. (40/50/10). Of course, I've regretted panicking ever since but I'm still siting on that 10% cash not knowing what to do. About 33% of my holdings are in Wellesley. Glad I didn't do anything with that. I sold the majority of a stock fund (Fidelity Contra) for that 10% - dumb move. As stated elsewhere, stick to an asset allocation and rebalance only when bands are breached. I should take my own advice.
ejman is offline   Reply With Quote
Old 03-09-2021, 02:24 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Jul 2003
Location: Pasadena CA
Posts: 2,985
Quote:
Originally Posted by ejman View Post
For the first time since I ER'd 19 years ago I let emotion divert me from my standard 50/50 back last year as Covid rumbled on - this time it really is different right? So I backed off to 40 stocks, 50 bonds and 10 cash. (40/50/10). Of course, I've regretted panicking ever since but I'm still siting on that 10% cash not knowing what to do. About 33% of my holdings are in Wellesley. Glad I didn't do anything with that. I sold the majority of a stock fund (Fidelity Contra) for that 10% - dumb move. As stated elsewhere, stick to an asset allocation and rebalance only when bands are breached. I should take my own advice.
Be a bit gentle there, last March did feel like something 'different this time', more like a 100 year flood Vs a 40 year flood. I didn't change much as I was already about 40-45% equities so felt Ok through the mess but then didnt gain as much as having a higher % in equitities the rest of the time.

As to what to do with cash, join the club, some less bad ideas like preferreds and CDs, just eat the loss in purchasing power as insurance to have something to rebalance from when equities decline below desired AA.
__________________
T.S. Eliot:
Old men ought to be explorers
yakers is offline   Reply With Quote
Old 03-09-2021, 03:18 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Aug 2016
Location: Northern Virginia
Posts: 2,991
Quote:
Originally Posted by Ready View Post
Why just Wellesley? Is that the only exposure you have to bonds? Any fund with bonds carries interest rate risk. But you are trying to time the market by guessing when interest rates will rise. Nobody knows, so it’s anyone’s guess how bonds will perform over the next few years. I believe that rates will rise very slowly, so I’m comfortable staying in bonds because there isn’t much else out there on the fixed income side that looks any better.

I think you would be better off establishing a long term asset allocation strategy and sticking with it.
Any fund with bonds OR Equities will be affected by interest rate changes. Higher interest rates make equities less valuable. Of course somewhat offsetting that is the equities' earnings growth.

And of course interest rates other than short-term rates are not dependent on Fed action

But I agree with your point on AA.
Montecfo is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Vanguard on lower interest rates Chuckanut FIRE and Money 0 12-18-2015 10:32 AM
Wellesley and rising interest rates David1961 FIRE and Money 29 01-14-2014 09:18 PM
Vanguard Wellington and Wellesley kmt1972 FIRE and Money 6 05-12-2013 08:25 PM
Will CD Interest Rates Rise if Borrowing Rates Rise? John Galt III FIRE and Money 5 07-29-2011 11:58 AM
Vanguard Wellesley Income and future interest rates?????? molly FIRE and Money 11 06-06-2010 04:14 PM

» Quick Links

 
All times are GMT -6. The time now is 02:46 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.