Vanguard Wellesley and Interest Rates

[SeattleRocks]

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?

[Ready]

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.

[coveredbridge]

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.

[VanWinkle]

Quote:

Originally Posted by SeattleRocks 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.

[SeattleRocks]

Quote:

Originally Posted by VanWinkle 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.

[ejman]

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.

[yakers]

Quote:

Originally Posted by ejman 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.

[Montecfo]

Quote:

Originally Posted by Ready 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.