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VWINX*Wellesley* - Entry point
Old 07-28-2021, 04:53 PM   #1
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VWINX*Wellesley* - Entry point

Greetings and Salutations.....

I'm thinking of adding about $200k to stock/bond investments. This would still keep me under my desired allocation into stocks and bonds, I don't want to be over 60% ever, and if I add this $200k.... it would mean I'd be around 57%...with a vast majority of that being stocks.

I'd earmark this $200k for DD's college (well, 4 years worth anyway) which hopefully would begin 5 years from now. The goals, or hopes - in reality are:

1.)Obviously, don't lose money.

2.)At least, keep up with inflation - which means 3% average year returns

3.)If it did 5% nominal, average year - it would really be delicio
us.


Any thoughts? General or specific would be very appreciated.

I love that in previous crashes - this fund seemed to lose 10% when the S/P lost 20%. But with 60% bonds, I wonder that as rates rise in the next few years - -does that make VWINX a dud?

Hoping to park this 200k in 5 year "set it and forget it" mode.....perhaps in year 2 or year 3....take a bit off the table to hedge against any potential crash that might happen the night before tuition comes due.

Any opinions, suggestions, insults, all would be much appreciated. Thanks
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Old 07-28-2021, 05:56 PM   #2
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I personally picked the Wellington fund for safety. I believe that it's a 70/30 split though.
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Old 07-28-2021, 08:19 PM   #3
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You might look at some recent new issue investment grade preferreds.

Capital One... COFNV or COF-N... 4.25% coupon, 4.288% yield
JP Morgan Chase... JPMML or JPM-M... 4.20% coupon, 4.187% yield
Wells Fargo... WFPDP or WFC-D... 4.25% coupon, 4.238% yield
First Republic... FRC-M... 4.00% coupon, 4.014% yield
and others

https://innovativeincomeinvestor.com...since-12-2020/
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Old 07-29-2021, 07:47 AM   #4
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We are heavily invested in Wellesley and Wellington for long term, but I don’t think of five years as long term. Our kids are grown now but I recall that in 2008 our 529 college fund was a real struggle as market downturns slashed the value of the kids’ college funds and it took years to recover.

If your goal is not to lose money and keep up with inflation, maxing out ibonds is a good idea. i would then think about cd ladders or short term annuities (not my personal choice) and maybe the remainder (that you won’t need until 7 to to 9years in a fund like Wellesley or Wellington.

I don’t think you can get 5% for five years without some risk of losing money.
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Old 07-29-2021, 08:03 AM   #5
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I was thinking the same thing... I'm a fan of Wellington and Wellesley and have recommended them to may people... but not for a 5 year time horizon if goal is not to lose money.

You can't really keep up with inflation with any risk-free investment these days.

I don't consider iBonds a practical solution due to purchase limits. It would take a many years to put $200k in iBonds at $30k a year ($10k * 3).
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Old 07-29-2021, 08:20 AM   #6
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Quote:
Originally Posted by pb4uski View Post

I don't consider iBonds a practical solution due to purchase limits. It would take a many years to put $200k in iBonds at $30k a year ($10k * 3).
Definitely not practical for the entire 200k but it could be part of the plan. I would probably just put in 40k over the next six month in ibonds, cd ladder for the rest of the short term, and maybe Wellesley for the intermediate years.
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Old 07-29-2021, 09:23 AM   #7
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Quote:
Originally Posted by MichealKnight View Post
Greetings and Salutations.....

I'm thinking of adding about $200k to stock/bond investments. This would still keep me under my desired allocation into stocks and bonds, I don't want to be over 60% ever, and if I add this $200k.... it would mean I'd be around 57%...with a vast majority of that being stocks.

I'd earmark this $200k for DD's college (well, 4 years worth anyway) which hopefully would begin 5 years from now. The goals, or hopes - in reality are:

1.)Obviously, don't lose money.

2.)At least, keep up with inflation - which means 3% average year returns

3.)If it did 5% nominal, average year - it would really be delicio
us.


Any thoughts? General or specific would be very appreciated.

I love that in previous crashes - this fund seemed to lose 10% when the S/P lost 20%. But with 60% bonds, I wonder that as rates rise in the next few years - -does that make VWINX a dud?

Hoping to park this 200k in 5 year "set it and forget it" mode.....perhaps in year 2 or year 3....take a bit off the table to hedge against any potential crash that might happen the night before tuition comes due.

Any opinions, suggestions, insults, all would be much appreciated. Thanks
1) Your total can be less than your initial invetment in five years. Vanguard assigns this risk 3 out of 5.
2) Keep up with inflation? That could happen, and it could fall behind inflation. You have 35% in equities, which hopefully exceed inflation. OTH there is 65% in bonds. Morningstar analysis of VWINX interest sensitivity should back me up.
3) Again, Vanguard shows 9.7% nominal since 1970. 10-year and 5-year are less than that, about 7.5%. And of course that is all in the past...
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Old 07-29-2021, 09:30 AM   #8
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I have used Wellesly as a recommendation for people who need to get their feet wet in the area of bonds and equities. It's long term record seems to calm the jitters some of the newbies get.
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Old 07-29-2021, 08:16 PM   #9
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Quote:
Originally Posted by pb4uski View Post
You might look at some recent new issue investment grade preferreds.

Capital One... COFNV or COF-N... 4.25% coupon, 4.288% yield
JP Morgan Chase... JPMML or JPM-M... 4.20% coupon, 4.187% yield
Wells Fargo... WFPDP or WFC-D... 4.25% coupon, 4.238% yield
First Republic... FRC-M... 4.00% coupon, 4.014% yield
and others

https://innovativeincomeinvestor.com...since-12-2020/
Thanks for the useful info. I bought some today. However, there are interest rate rise concerns with this plan.
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Old 07-29-2021, 08:47 PM   #10
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Wellesley is not a bad choice. You could also pick a target retirement fund. That is what our 529 funds do for our grandkids.
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Old 07-29-2021, 08:53 PM   #11
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Thanks for the useful info. I bought some today. However, there are interest rate rise concerns with this plan.
True, but they don't seem to be as interest rate sensitive in real life as one would think.... and I'm not totally sure why.

I recently looked at the advertised durations of PGX, a preferred stock ETF and I was surprised that it was only 3.6.... and LPXAX claims a 2.5 duration.

Also see https://www.early-retirement.org/for...ml#post2609037

and https://www.early-retirement.org/for...ml#post2609036

https://www.invesco.com/us/financial...tor&ticker=PGX

https://assets.cohenandsteers.com/as..._Sheet_LPX.pdf
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Old 07-29-2021, 10:53 PM   #12
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Quote:
Originally Posted by Trailwalker View Post
Definitely not practical for the entire 200k but it could be part of the plan. I would probably just put in 40k over the next six month in ibonds, cd ladder for the rest of the short term, and maybe Wellesley for the intermediate years.
TreasuryDirect limits ibond purchases to $10K / yr per person.
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Old 07-29-2021, 11:14 PM   #13
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Withdrawal would start in year 5, end in year 9. Does that change anyone's thoughts?

I'd be more bullish and lean heavily to stocks. I did this with my kids 529 accounts and it worked out well so far.
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PB thanks
Old 07-30-2021, 05:37 AM   #14
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PB thanks

Quote:
Originally Posted by pb4uski View Post
You might look at some recent new issue investment grade preferreds.

Capital One... COFNV or COF-N... 4.25% coupon, 4.288% yield
JP Morgan Chase... JPMML or JPM-M... 4.20% coupon, 4.187% yield
Wells Fargo... WFPDP or WFC-D... 4.25% coupon, 4.238% yield
First Republic... FRC-M... 4.00% coupon, 4.014% yield
and others

https://innovativeincomeinvestor.com...since-12-2020/
Being sort of a rookie - I need to understand how preferreds work, and also - how to buy them Wondering what the effects are on this investment should interest rates start to move up
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HarveyS great point
Old 07-30-2021, 05:40 AM   #15
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HarveyS great point

Quote:
Originally Posted by HarveyS View Post
Withdrawal would start in year 5, end in year 9. Does that change anyone's thoughts?

I'd be more bullish and lean heavily to stocks. I did this with my kids 529 accounts and it worked out well so far.

I'm embarrassed to say - I never thought about how it's a 4 year withdrawal period, I keep framing it in my mind as "200k, ready to go all in one day, 5 years from now" so while not huge ,it does add a bit more duration than my 5 year countdown.
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Old 07-30-2021, 07:12 AM   #16
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Quote:
Originally Posted by pb4uski View Post
True, but they don't seem to be as interest rate sensitive in real life as one would think.... and I'm not totally sure why.

I recently looked at the advertised durations of PGX, a preferred stock ETF and I was surprised that it was only 3.6.... and LPXAX claims a 2.5 duration.

Also see https://www.early-retirement.org/for...ml#post2609037

and https://www.early-retirement.org/for...ml#post2609036

https://www.invesco.com/us/financial...tor&ticker=PGX

https://assets.cohenandsteers.com/as..._Sheet_LPX.pdf
I see your point. Wellesley Admiral's duration is 7.77.
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Old 07-30-2021, 07:33 AM   #17
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Being sort of a rookie - I need to understand how preferreds work, and also - how to buy them Wondering what the effects are on this investment should interest rates start to move up
Preferreds are hybrids that sit between bonds and stocks in the issuer's capital structure. Similar to bonds, they have a stated value and pay dividends similar to interest, usually quarterly. Unlike bonds, preferred dividends don't get paid automatically, they must be declared by the issuing company's board of directors. However, common shareholders can't receive any dividends until preferreds are paid. Some preferreds require any undeclared and unpaid dividends be paid before common dividends can be paid (referred to as cumulative preferreds)... other preferreds are non-cumulative and if a dividend is missed it doesn't need to be caught up later before common dividned can be paid. Dividend suspensions are rare but not unheard of... for example, troubled utility PG&E has a number of cumulative preferreds that haven't paid dividends for years but hopefully will resume paying dividends soon. The term preferred refers to the fact that they get preferential treatment with respect to dividends and with respect to liquidation in the event bankruptcy.... they must be paid before common stockholders get anything.

Since they sit behind bonds in the event of bankruptcy their credit ratings are typically a couple notches lower than the issuer's debt.

Some issues are callable as well, so for seasoned issues it is important to look at yield-to-call or yield-to-worst in addition to market yield when buying.

Most issues have par value of $25, though some are $10, $50, $100 or $1,000. They trade like stocks or ETFs. Most people use limit orders rather than market orders when they buy.

There are also kissing cousins to preferred stocks that operate similarly that are called baby bonds, in part because they are $25 par and traded like stocks (price includes accrued interest) rather than bonds (which are price plus accrued interest). Substantively, baby bonds are the same as preferred stocks.

Occasionally, you might run into preferred issues that have a stated interest rate for a number of years and then the rate floats as a specified rate (like LIBOR) plus a spread.

These all pay substantially more than corporate bonds from the same issuer in this low interest rate environment. Another plus is that many, but not all, preferreds pay dividends that are qualified and therefore get preferrential treatment for tax purposes (like domestic equity qualified dividends and LTCG).

There are a handful of ETFs that specialize in preferreds... the biggest is PFF.

See post#11 with respect to interest sensitivity.
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Old 07-30-2021, 08:00 AM   #18
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I started my sons 529 plans when they were infants with an AA of about 80/20. About halfway I tapered down to about 60/40. When they started high school, I wanted to be sure the funds were there when I needed them to cover tuition etc. and moved the funds to 80% stable value funds, 20% stock. I had been successfully planning for 20 years, did not wish to accept the risk of a market meltdown so close to the goal. Worked very well, even had some funds left at the end which I split with the two sons. Last funds distributed just a few month ago. The boys were only a year difference in school so for many years I had two in college at same time.
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Old 07-30-2021, 09:48 AM   #19
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529

Pb thanks for listing some of the finer points of Preferred I will keep reading on it and figure out how to buy them

RE2 boys, I was planning on starting, albeit late by 529 stuff this year....if nothing else I figured it'll save some state taxes. I know I can Google this.....but I figured you will know the concise answer to this:

I live in PA.... so let's say I do a 529 fair and square and contribute each year.

Then when college time comes - let's say the kid or kids - just don't want to go to a school in PA and end up going to a different state. Is there some sort of penalty for that? Thanks
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Old 07-30-2021, 06:49 PM   #20
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I like the whole idea of investing on stocks. But my long abusing principle is investing in stocks of businesses I patronize for my most important needs. That way it feels more than just an investment
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