Wellesley & Wellington: Set it and forget it?

[Happyras]

I have a question - why is there no Wellington and Wellesley ETF ?

I like that thought, however Vanguard Admiral Shares are low ER funds and compare to ETF's except for inter-day liquidity.

I met with someone pedaling a investment in short duration First Deed of Trusts through a managed account. This lead to a review of the current Risk/Reward using a primary allocation of VWIAX and VWELX. I was looking for a little more portfolio diversity, and thought an out of market investment might be one option over a short/intermediate term bond ladder. I am considering reducing the Bond Fund exposure primarily in the high % of VWAIX.

I have a question for all those invested in these two funds;

What do you do to balance your portfolio exposure to solely stocks (Primarily US) and bonds?

I am very glad we invested primarily in these two funds and will maintain a high allocation, but right now we have 85% of our investments in these two funds, with the other 15% in indexed US stocks. The correlation is high, and the risk likely high with no offsetting sector investments. We have quite a bit also invested in rental and commercial property/small business. So I am looking for something other than REITs for balance our bond exposure going forward.

I know very little about Preferreds, PGX is on the radar. Total return bond strategies are interesting, but look too much like market timing to me. As well playing a sector rotation strategy with ETF sectors sounds great but I do not have a crystal ball and it would seem to take a lot of daily momentum monitoring.

What do others do to balance these so called balanced funds? Or not? I get kind of nervous holding so much in only two funds. But historically, they seem OK.....

 

[Alan]

I have a question for all those invested in these two funds;

What do you do to balance your portfolio exposure to solely stocks (Primarily US) and bonds?

We have these 2 Wellington/Wellesley funds in my IRA and Roth.

In DW's IRA and Roth (Fidelity) we have International bonds (FINUX) and in our after-tax account we have VG total international stocks VSUX.

 

[LOL!]

i see no need to worry about balancing balanced funds. One could have $10 million or $20 million in these and not worry about balancing.

Now if you are talking about diversification, then that is something else.

Or if you are talking about tax-efficiency for a taxable account, then that is something else.

For diversification, I think an international fund would be a good diversifier if one wanted more equities that were different from W & W.

W & W are terribly tax inefficient, so I would not hold them in a taxable account at all.

 

[mh]

Wellesley & Wellington: Set it and forget it?

i see no need to worry about balancing balanced funds. One could have $10 million or $20 million in these and not worry about balancing.

Now if you are talking about diversification, then that is something else.

Or if you are talking about tax-efficiency for a taxable account, then that is something else.

For diversification, I think an international fund would be a good diversifier if one wanted more equities that were different from W & W.

W & W are terribly tax inefficient, so I would not hold them in a taxable account at all.

Let's say for arguments sake most of your portfolio is taxable , you are retired, and you had 1M (taxable) half in Wellington and half in Wellesley what would be the "bad tax consequences" vs a target fund or some other set and forget scheme for eg ? Is the income it throws off going to put you above the 15% bracket or ??


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[Markola]

Let's say for arguments sake most of your portfolio is taxable , you are retired, and you had 1M (taxable) half in Wellington and half in Wellesley what would be the "bad tax consequences" vs a target fund or some other set and forget scheme for eg ? Is the income it throws off going to put you above the 15% bracket or ??

Just a note that Vanguard has a 50/50 Tax-Managed Balanced Fund in Admiral Shares (VTMFX) at .12 ER with a pretty good track record. To achieve tax-efficiency, the stock portion is indexed and the bond portion is in tax-exempt municipals. The description says it is intended for investors in higher tax brackets. I'm curious for my DM's situation about opinions from more tax-savvy investors than me about whether owning, say, $500,000 of a tax-efficient fund in a taxable account vs. Wellesley or Wellington would potentially make much of a difference to someone in a 15% bracket whose only other income is SS. To build on the OP's question, does Wellesley/Wellington's inefficiency always matter in taxable accounts, or only at a certain higher tax bracket?

 

[Mulligan]

I like that thought, however Vanguard Admiral Shares are low ER funds and compare to ETF's except for inter-day liquidity.



I met with someone pedaling a investment in short duration First Deed of Trusts through a managed account. This lead to a review of the current Risk/Reward using a primary allocation of VWIAX and VWELX. I was looking for a little more portfolio diversity, and thought an out of market investment might be one option over a short/intermediate term bond ladder. I am considering reducing the Bond Fund exposure primarily in the high % of VWAIX.



I have a question for all those invested in these two funds;



What do you do to balance your portfolio exposure to solely stocks (Primarily US) and bonds?



I am very glad we invested primarily in these two funds and will maintain a high allocation, but right now we have 85% of our investments in these two funds, with the other 15% in indexed US stocks. The correlation is high, and the risk likely high with no offsetting sector investments. We have quite a bit also invested in rental and commercial property/small business. So I am looking for something other than REITs for balance our bond exposure going forward.



I know very little about Preferreds, PGX is on the radar. Total return bond strategies are interesting, but look too much like market timing to me. As well playing a sector rotation strategy with ETF sectors sounds great but I do not have a crystal ball and it would seem to take a lot of daily momentum monitoring.



What do others do to balance these so called balanced funds? Or not? I get kind of nervous holding so much in only two funds. But historically, they seem OK.....

As an investor who probably has close to 80% of my money in preferreds, I wouldnt be investing in PGX or nearly any preferred stock mutual fund. These are loaded to the gills in noncumulative bank preferreds. Look at the 10 year price chart of PGX and look at 2009. These collapse in unison with market shake downs and will sink if rates rise. Maybe as a small tiny percentage play in portfolio at very most.
The only preferreds that have shown to be somewhat immune to movements in market and economy are electrical utility preferreds, which what I own. However, the good ones take many months if not years to acquire a meaningful amount at a decent price point which is what I have had to do.


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[Happyras]

As an investor who probably has close to 80% of my money in preferreds, I wouldnt be investing in PGX or nearly any preferred stock mutual fund. These are loaded to the gills in noncumulative bank preferreds. Look at the 10 year price chart of PGX and look at 2009. These collapse in unison with market shake downs and will sink if rates rise. Maybe as a small tiny percentage play in portfolio at very most.
The only preferreds that have shown to be somewhat immune to movements in market and economy are electrical utility preferreds, which what I own. However, the good ones take many months if not years to acquire a meaningful amount at a decent price point which is what I have had to do.


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Thanks so much for your input on preferreds, and everyones input on increasing foreign exposure for diversity. As for our accounts, we are invested in 401K, IRA, and Roth IRA/401k, so we do not have the tax concerns for distributions from W/W.

 

[Mulligan]

Thanks so much for your input on preferreds, and everyones input on increasing foreign exposure for diversity. As for our accounts, we are invested in 401K, IRA, and Roth IRA/401k, so we do not have the tax concerns for distributions from W/W.

Happyras, I know I sound a bit hypocritical in being skeptical of preferreds while basically having my entire stash in them. But one must be a bit wary of them in that their only value is as an income provider. But they are the lowest on the totem pole in terms of payment responsibility from company with exception of the common dividend. The '09 bank crisis got papered over with preferrdeds because back then most were "trust preferreds" which meant they were bonds with legal obligations. The Feds changed bank capitalization rules and now banks only offer non cummulative true preferreds with no trust preferreds allowed. So in other words, if banks run into problems this time, there is no bank preferred bailouts coming. Just "no soup for you". And a preferred that doesnt pay a dividend is not worth much more than toilet tissue.
Other issued preferreds from non financial entities are basically higher yield junk. This is the only way they can access capital, because either the bank/bond market wont loan them money for risk purposes or they will not loan them anymore.. This are not risk averse investments.
Utility preferreds are low risk due to monopoly and guaranteed return on equity. When a bank screws up they can go bankrupt. When a utility screws up the customers pony up the cash from a rate increase and still give me my much deserved dividend.


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[hotwired]

I didn't read all the posts, so excuse me if I am repeating: Especially with retirement withdrawals, wouldn't it be better to separate your fixed income holdings from stock holdings (vs. all in one AA like Wellington or Wellesley) so that if bonds go down & stocks go up, you can draw from stock portion (sell high) and let bonds recover, and of course vice versa. Perhaps the difference, over time, would be negligible...only so much time...so many things to analyze!