Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Wellsley VWINX - Inflation Spectre
Old 10-24-2021, 06:53 PM   #1
Recycles dryer sheets
 
Join Date: May 2019
Posts: 166
Wellsley VWINX - Inflation Spectre

I have zero experience or training to know if inflation is going to get really bad. But, I do feel that energy demand may not go away soon, and higher wages - are a fixture that will stay so if energy and labor costs more, stuff is gonna cost more, not to mention QE-whatever isn't stopping.

Theory is to be out of fixed-income if you feel inflation is going to be high.

VWINX is a fund I really like for my style, my needs and goals. I love how historically it's performed especially in down markets. The diversification, the high quality boring stocks - all my cup of tea.

But...it's 60% BONDS.

If inflation is here to stay and getting higher....is VWINX still a good place to be?

FWIW all the billionaire investor gurus on CNBC last week claim to be investing for inflation.....
MichealKnight 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 10-24-2021, 07:08 PM   #2
Recycles dryer sheets
 
Join Date: Aug 2019
Location: Anytown
Posts: 311
I have a similar concern. I am not necessarily worried about inflation but I do expect interest rates to start moving up in a year or so. That would also be bad for bonds and hence VWINX.
SecondAttempt is online now   Reply With Quote
Old 10-24-2021, 08:13 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 2,377
Well, you could switch over to Wellington that has a similar investment philosophy but 40% bonds. I own both in my portfolio (Mostly in IRA's, they both generate a fair amount of dividends and cap gains) to the tune of about 40% of my portfolio. I have no intention of switching out of either one of them. Their management over the years has shown an ability to deliver good results in all kinds of weather and I am pretty certain that they have analyzed the current environment to a far greater extent than I am capable of. I'm going to let them do their job and I'll just stick to my asset allocation. I've been ER'd for 21 years now. The few times over my investment career of close to 40 years I've let emotion or the thought I know more than the next fellow guide my investment I've been bitten in the a$$ -hard.
ejman is offline   Reply With Quote
Old 10-24-2021, 08:59 PM   #4
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 48,312
It might be informative to take a look at how Wellesley performed during the last period of high inflation/high interest rates - from 1973 through 1982. I found this old spreadsheet that shows the fund's annual returns for each of those years.

EDIT: Added the performance of the S&P 500 for comparison.

Top image = S&P 500, bottom image = Wellesley
Attached Images
File Type: jpg S&P 500.JPG (18.5 KB, 72 views)
File Type: jpg Wellesley.JPG (17.9 KB, 378 views)
__________________
Numbers is hard

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 10-24-2021, 10:26 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 30,450
I entered the above return figures into a spreadsheet, and computed the cumulative return of the S&P and Wellesley over the decade of 1973-1983 as follows, for an initial investment of $10K.

Year S&P Wellesley
1973 10,000 10,000
1974 8,534 9,640
1975 6,275 9,013
1976 8,609 10,591
1977 10,662 13,058
1978 9,896 13,620
1979 10,546 14,110
1980 12,490 14,985
1981 16,539 16,768
1982 15,727 18,227
1983 19,117 22,474


Wellesley did a lot better than anyone would have guessed.

Still, before you say a 2.2X gain in 10 years is nice, I hasten to point out that the cumulative inflation was so bad that you need $23,000 in Jan 1983 to buy the same things you could with $10,000 in Jan 1973.

High inflation is very bad. If you can keep up with it, that's an accomplishment already, let alone real gain.
__________________
"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
NW-Bound is offline   Reply With Quote
Old 10-25-2021, 06:09 AM   #6
Thinks s/he gets paid by the post
VanWinkle's Avatar
 
Join Date: Oct 2017
Location: Morton
Posts: 1,908
Quote:
Originally Posted by NW-Bound View Post
I entered the above return figures into a spreadsheet, and computed the cumulative return of the S&P and Wellesley over the decade of 1973-1983 as follows, for an initial investment of $10K.

Year S&P Wellesley
1973 10,000 10,000
1974 8,534 9,640
1975 6,275 9,013
1976 8,609 10,591
1977 10,662 13,058
1978 9,896 13,620
1979 10,546 14,110
1980 12,490 14,985
1981 16,539 16,768
1982 15,727 18,227
1983 19,117 22,474


Wellesley did a lot better than anyone would have guessed.

Still, before you say a 2.2X gain in 10 years is nice, I hasten to point out that the cumulative inflation was so bad that you need $23,000 in Jan 1983 to buy the same things you could with $10,000 in Jan 1973.

High inflation is very bad. If you can keep up with it, that's an accomplishment already, let alone real gain.
Thanks NW-Bound, nice chart!!
__________________
Retired May 13th(Friday) 2016 at age 61.
VanWinkle is offline   Reply With Quote
Old 10-25-2021, 08:31 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 7,560
Here is a view of the various asset classes for the 1970's period:




LCB = large cap blend, SP500

As you can see midcap and small cap value did best in this period.

Wellington's stocks are characterized as LCV (large cap value) by Vanguard. That is about 65% of VWENX's portfolio.
Lsbcal is offline   Reply With Quote
Old 10-25-2021, 08:56 AM   #8
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 2,377
Quote:
Originally Posted by NW-Bound View Post
I entered the above return figures into a spreadsheet, and computed the cumulative return of the S&P and Wellesley over the decade of 1973-1983 as follows, for an initial investment of $10K.

Year S&P Wellesley
1973 10,000 10,000
1974 8,534 9,640
1975 6,275 9,013
1976 8,609 10,591
1977 10,662 13,058
1978 9,896 13,620
1979 10,546 14,110
1980 12,490 14,985
1981 16,539 16,768
1982 15,727 18,227
1983 19,117 22,474
Wellesley did a lot better than anyone would have guessed.

Still, before you say a 2.2X gain in 10 years is nice, I hasten to point out that the cumulative inflation was so bad that you need $23,000 in Jan 1983 to buy the same things you could with $10,000 in Jan 1973.

High inflation is very bad. If you can keep up with it, that's an accomplishment already, let alone real gain.
Good chart NW-Bound. The big question of course is to what extent current situation rhymes. Interest rates were vastly higher during that period so that helped Wellesley's return a lot. On the other hand the high bond allocation usually means that when the stock market drops big, bonds will be impacted to a much lesser degree. One interesting thing. Wellesley (during that period) kept up with inflation better than stocks. Counter intuitive no?
ejman is offline   Reply With Quote
Old 10-25-2021, 09:08 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Chuckanut's Avatar
 
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 13,063
Quote:
Originally Posted by ejman View Post
. Interest rates were vastly higher during that period so that helped Wellesley's return a lot.
+1

The Feds were not holding interest rates down like they are today. That's why I had several laddered 10 year Treasuries in double digits. I cried when they matured.
__________________
The worst decisions are usually made in times of anger and impatience.

Self proclaimed President for Life of Outliers United.
Chuckanut is offline   Reply With Quote
Old 10-25-2021, 09:16 AM   #10
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 48,312
Quote:
Originally Posted by ejman View Post
Interest rates were vastly higher during that period so that helped Wellesley's return a lot.
Higher inflation appears to be just warming up. Who knows what the Fed will do with interest rates over the next decade.
__________________
Numbers is hard

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 10-25-2021, 09:24 AM   #11
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 2,377
Quote:
Originally Posted by REWahoo View Post
Higher inflation appears to be just warming up. Who knows what the Fed will do with interest rates over the next decade.
Fair enough. If memory serves Fed Chairman Volcker controlled inflation by vastly increasing interest rates back then. I remember buying a house in 1979 and thinking that the 10.5% mortgage rate was entirely reasonable.
ejman is offline   Reply With Quote
Old 10-25-2021, 10:32 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 7,560
Quote:
Originally Posted by MichealKnight View Post
...
VWINX is a fund I really like for my style, my needs and goals. I love how historically it's performed especially in down markets. The diversification, the high quality boring stocks - all my cup of tea.

But...it's 60% BONDS.

If inflation is here to stay and getting higher....is VWINX still a good place to be?

FWIW all the billionaire investor gurus on CNBC last week claim to be investing for inflation.....
Part of this depends on the active management skills at Wellington. We have had decades of downward trending interest rates as everyone knows. Maybe the Fed manages this by upward trending rates but at such a slow pace as to make bond duration risk less of a factor? Just a guess but who understands rates and inflation ... not me.

FWIW, I think midcap and small cap value stocks are a good deal here. That is based on PE history for those sectors too. Neither Wellesley nor Wellington have much exposure to these sectors. If one Wellesley or Wellington I'd spread my bets more to pick up exposure to the other asset classes.
Lsbcal is offline   Reply With Quote
Old 10-27-2021, 10:34 AM   #13
Thinks s/he gets paid by the post
 
Join Date: Jun 2017
Location: Western NC
Posts: 3,001
Quote:
Originally Posted by Lsbcal View Post
Here is a view of the various asset classes for the 1970's period:




LCB = large cap blend, SP500

As you can see midcap and small cap value did best in this period.

Wellington's stocks are characterized as LCV (large cap value) by Vanguard. That is about 65% of VWENX's portfolio.
IIRC, on Paul Merriman's website the portfolio that did the best in backtesting was a blend of 50% SCV / 50% LCV.

Of course, value hasn't done much of anything over the last decade.
ncbill is offline   Reply With Quote
Old 10-27-2021, 11:18 AM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 7,560
Quote:
Originally Posted by ncbill View Post
IIRC, on Paul Merriman's website the portfolio that did the best in backtesting was a blend of 50% SCV / 50% LCV.

Of course, value hasn't done much of anything over the last decade.
My investment style is not a buy hold one but I would opt for 50% SCV / 50% MCV. That has done better in the last 25 years or so then using the LCV asset class. And it appears MCV did better then LCV in the 1970's as well. But I do these things based on the overall portfolio plan and not just in isolation.

The fact that value has been a poor 2nd to growth over the last decade could be a clue ... maybe. PE's as shown above for value have actually gone down over the decade whereas they have gone up for growth. I don't pretend to know what is coming in the future and I employ my own brand of trend following in tax advantaged accounts to move with the times. Not recommending for anyone here though as most are buy hold investors which is fine too.
Lsbcal is offline   Reply With Quote
Old 10-27-2021, 02:54 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 7,560
Here is something that is relevant to this discussion that I posted elsewhere:

Value stock PE's are much less inflated relative to the past 10 years. Here is my data for PE comparisons of Vanguard funds. I usually do this data collection once a year so the last column is for the ratio of the fund's current average PE to the average PE ratio for the last 11 years.

Lsbcal is offline   Reply With Quote
Old 10-27-2021, 03:20 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 30,450
Quote:
Originally Posted by ejman View Post
Good chart NW-Bound. The big question of course is to what extent current situation rhymes. Interest rates were vastly higher during that period so that helped Wellesley's return a lot. On the other hand the high bond allocation usually means that when the stock market drops big, bonds will be impacted to a much lesser degree. One interesting thing. Wellesley (during that period) kept up with inflation better than stocks. Counter intuitive no?


Thanks to ReWahoo's posted data, I was astonished to learn Wellesley did so well.

I don't know how it will work out this time, but it is going interesting to see. Never a dull moment.

Even before 1973, inflation already started to rise. A lot of bad things were going on before my time as an investor, such as the Vietnam War, and the oil embargo.

Year Inflation
1968 4.3%
1969 5.5%
1970 5.8%
1971 4.3%
1972 3.3%
1973 6.2%
1974 11.1%
1975 9.1%
1976 5.7%
1977 6.5%
1978 7.6%
1979 11.3%
1980 13.5%
1981 10.3%
1982 6.1%
1983 3.2%
1984 4.3%



Here's the historical data on various rates for a perspective.

I started working full-time in 1980, right at the time Volker, the Fed chairman then, raised the hell out of interest rate to slay inflation, and he surely succeeded. My 1st mortgage was in April 1980, and I paid 14% for an FHA loan. Don't remember if the 0.5% mortgage insurance was already included, or added on top of it.



__________________
"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
NW-Bound is offline   Reply With Quote
Old 10-27-2021, 04:33 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 7,560
Quote:
Originally Posted by NW-Bound View Post
...

Even before 1973, inflation already started to rise. A lot of bad things were going on before my time as an investor, such as the Vietnam War, and the oil embargo.
...
And the small matter of Watergate.
Lsbcal is offline   Reply With Quote
Old 10-29-2021, 12:50 AM   #18
Recycles dryer sheets
 
Join Date: Aug 2019
Location: Anytown
Posts: 311
So something I almost never see discussed is what caused the high inflation of the 1970s and early 80s. I read a book by Volker years ago where he blames it on going off the gold standard and the fact the the US had racked up serious hidden debts to mainain European military bases for 30+years after WW2. I don't have a way to judge if this is correct except by accepting the claims of one of teh only people who would know. But it explains a lot including why we did not see big inflation when the Fed wound up h eprinting presses in 2008.
SecondAttempt is online now   Reply With Quote
Old 10-29-2021, 05:40 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
target2019's Avatar
 
Join Date: Dec 2008
Location: Stuck in the mud somewhere in the NJ swamp
Posts: 7,531
Quote:
Originally Posted by MichealKnight View Post
I have zero experience or training to know if inflation is going to get really bad. But, I do feel that energy demand may not go away soon, and higher wages - are a fixture that will stay so if energy and labor costs more, stuff is gonna cost more, not to mention QE-whatever isn't stopping.

Theory is to be out of fixed-income if you feel inflation is going to be high.

VWINX is a fund I really like for my style, my needs and goals. I love how historically it's performed especially in down markets. The diversification, the high quality boring stocks - all my cup of tea.

But...it's 60% BONDS.

If inflation is here to stay and getting higher....is VWINX still a good place to be?

FWIW all the billionaire investor gurus on CNBC last week claim to be investing for inflation.....
VWINX has a target of 65% bonds.

As pointed out by others Wellesley (VWINX) has performed well. I don't think BOND is a bad word when INFLATION kicks up. But I've had a nagging feeling about our bond allocation when interest rates went to zero.

I'm ok with 11-12% of invested accounts in Wellesley today. That is about 2X's what we have in US Total Bond. The ratio of Wellesley to Total Bond has been increasing for several reasons, one being that we rebalance into Wellesley now instead of Total Bond.

On the way to retirement we increased bond allocation each year. In early stage of retirement we are at 50% bond and income. Now with inflation returning I am leaning towards letting the equity allocation drift higher, and re-evaluating when we get to 40% bond.
target2019 is offline   Reply With Quote
Old 10-29-2021, 06:20 AM   #20
Thinks s/he gets paid by the post
 
Join Date: Oct 2019
Posts: 1,966
Quote:
Originally Posted by ejman View Post
Fair enough. If memory serves Fed Chairman Volcker controlled inflation by vastly increasing interest rates back then. I remember buying a house in 1979 and thinking that the 10.5% mortgage rate was entirely reasonable.

It was, when compared to 83/84s 16-3/4% mortgage. I chose a 13-3/4% three year balloon mortgage.
Time2 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
Global Wellington and Wellsley funds explanade FIRE and Money 26 11-07-2017 03:07 PM
Tips and treasuries or Wellsley?...or? antmary FIRE and Money 24 04-07-2013 11:13 AM
Pssst... Interview with VWINX managers ats5g FIRE and Money 15 08-04-2008 06:18 PM
DODIX vs. VWINX redduck Active Investing, Market Strategies & Alternative Assets 12 04-15-2008 09:20 PM
Wellington and Wellsley Tim Bates FIRE and Money 26 03-18-2006 12:49 AM

» Quick Links

 
All times are GMT -6. The time now is 01:35 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.