50% Wellesley/50 % Wellington - So Simple Why didn't I do it?

[ejman]

Spending dividends/interest as an ER proxy for SWR may make sense,but spending dividends/interest and Capital Gains makes less sense, as the Cgains distributions are really fairly random, and a function largely of the trading strategies of the mutual fund over the course of a bull market and not much else.

Also, all the SWR studies assume all those capital gains stay invested, so spending them along with dividends is not really as bullteproof as it might seem in terms of preserving a spending standard of living over the long haul from your assets. I'm guessing those who use this approach know all this, but I wouldn't want others to be lured into some sort of new approach to spending money in ER.

Anyway, this approach will give a lot less to spend this year or next year, if current market conditions continue. I suspect few capital gains distributions from funds over the next few years as a result of all the losses in stock indexes. Of course all that could change by year-end.

True, Although it's interesting to see that a combination of Wellsi/Welltn results in more uniform distributions than with a lot of other funds. From a practical standpoint, I take the dividends+ CG from my taxable funds only since I'm already paying taxes on those distributions and that's what I live on. My dividends and CG in my retirement funds are reinvested and I don't intend in drawing those out until needed (or RD for my IRA). (Incidentally, my overall withdrawal rate when looking at the pot of both taxable and tax deferred investments is 3.5% Like I said I like to sleep soundly at night)

I see no point on being taxed on my dividend and CG for my taxable funds, reinvesting my CG and then being taxed again on whatever distribution on top of dividends I need to live on. That makes absolutely no sense to me.

Looking at Wellsi/Welltn only the distributions for 2000 - 2007 were as follows

2000 div 4.7% CG 4%
2001 div 4.2% CG 4.2%
2002 div 3.8 %
2003 div 4.3%
2004 div 3.5% CG 1.7%
2005 div 3.9% CG 2.8%
2006 div 3.8% CG 3.9%
2007 div 3.8% CG 2.9%

(all of the above based on $ at the beginning of the year)

Obviously, from the numbers listed above if the desired annual withdrawal rate is say between 4-5 % most of that would come from the dividend portion and only some of the CG would be needed in some years assuming the entire pot is Wellsi/Welltn and its large enough to support one's income requirements.

As indicated at the start of the thread, I now wish all of my money had gone into a 50/50 Wellsi/Welltn pot instead of the 15 different funds I'm now wrestling with

 

[cute fuzzy bunny]

My dividends and CG in my retirement funds are reinvested and I don't intend in drawing those out until needed (or RD for my IRA). (Incidentally, my overall withdrawal rate when looking at the pot of both taxable and tax deferred investments is 3.5% Like I said I like to sleep soundly at night)

Two+ bucket strategy, its a little incoherent to the traditionalists and the tax freaks but I get it.

Dang good way to get predictable results with excellent 8 hour sleeping patterns.

We're going the same way. First bucket is a lot of yield with some related music towards holding on to capital value but with an intention towards some principal consumption and low volatility. Second bucket is a whole bunch of capital appreciation and I'll revisit it again in 2020. Third bucket is balls to the wall. We'll talk about that in 2040.

 

[ejman]

CFB: right on!

 

[cute fuzzy bunny]

I got your back, man. Sometimes obscure good things can make for exceptionally happy times...

 

[ESRBob]

TFrom a practical standpoint, I take the dividends+ CG from my taxable funds only since I'm already paying taxes on those distributions and that's what I live on. My dividends and CG in my retirement funds are reinvested and I don't intend in drawing those out until needed (or RD for my IRA). (Incidentally, my overall withdrawal rate when looking at the pot of both taxable and tax deferred investments is 3.5% Like I said I like to sleep soundly at night)

I see no point on being taxed on my dividend and CG for my taxable funds, reinvesting my CG and then being taxed again on whatever distribution on top of dividends I need to live on. That makes absolutely no sense to me.

L

Completely agree re: taxes and I do the same thing. If the cash shows up in your account, from wherever, then go ahead and spend it. Top up those asset classes later at rebalancing time if need be.

The key is to keep your overall withdrawals from the portfolio within the safe range(4-5% in my research).

I don't have dividends and capgains reinvested in my taxable funds any more but funnel them all into the Money Market fund for spending. My original comment was in case anybody reading your post was thinking it was OK to have, for example, a single mutual fund for their portfolio, spend all the distributions from it, and have a guaranteed 'safe' plan because they were only spending distributions. Inflation will nail you if nothing else.

 

[ejman]

Completely agree re: taxes and I do the same thing. If the cash shows up in your account, from wherever, then go ahead and spend it. Top up those asset classes later at rebalancing time if need be.

The key is to keep your overall withdrawals from the portfolio within the safe range(4-5% in my research).

I don't have dividends and capgains reinvested in my taxable funds any more but funnel them all into the Money Market fund for spending. My original comment was in case anybody reading your post was thinking it was OK to have, for example, a single mutual fund for their portfolio, spend all the distributions from it, and have a guaranteed 'safe' plan because they were only spending distributions. Inflation will nail you if nothing else.

Thanks for the clarification. I now understand your comment and agree. For myself I actually feel more comfortable if my overall withdrawal rate is below 4% but even then, as Luis R used to say no guarantees from the management...

It is nonetheless interesting to see that even taking as income all div/CG distributions from my taxable pot the basket size is still 1/3 greater than it was when I retired 6 years ago. Of course, if the market drops another 25-50% that'll take care of that....

 

[Alan]

I also like simplicity and plan on moving to mostly Welles/Welli once I roll over my 401k in 20 months on RE. We've held them both for 5 years now and I wish I'd been using them much longer.

However I plan to continue keeping 15% of our stock allocation to international as I believe that global markets will continue to be important going forward. DW ESR'ed a few years ago and rolled her 401k and pension lump sum to Fidelity where we use the Fidelity Spartan International Index to hold our 15% allocation to international.

 

[ESRBob]

Alan,
20 months -- that's almost soon enough to set up one of those little ticker things to count down the days. Good luck and hope Mr Market doesn't pull any unpleasant tricks out that delays that too much.
Agree on the need for international -- not sure if 15% is the right number, but the more I see of the US$ underpinnings, the more I feel it's essential to diversify into other currencies, both stock and bond (and maybe other investments like real estate -- just bought our first foreign REIT during the last rebalancing)

 

[ejman]

However I plan to continue keeping 15% of our stock allocation to international as I believe that global markets will continue to be important going forward. DW ESR'ed a few years ago and rolled her 401k and pension lump sum to Fidelity where we use the Fidelity Spartan International Index to hold our 15% allocation to international.

Good point. I wonder if there is an international/global market fund comparable in concept to Wellsi/Welltn that owns a relatively fixed proportion of stocks to bonds at very low cost while furnishing substantial dividends. Is Fidelity Spartan along those lines?

 

[Tiger]

I find the Wellington/Wellesley combo intriguing and I checked some numbers and found that LSBRX (Loomis Sayles Bond Fund) has outperformed the combo on a 3, 5 and 10 year basis.

10 yr returns
LSBRX - +8.30%
Wells/Welli - +6.45%

Last Bear Mkt (3/31/02 - 4/30/03
LSBRX - +22.76%
Wells/Welli - -3.08%

What do you think of a portfolio made up of only LSBRX an Intn'l fund & a TIPS fund.

I am retired and all of my funds are in IRAs.

 

[ejman]

I find the Wellington/Wellesley combo intriguing and I checked some numbers and found that LSBRX (Loomis Sayles Bond Fund) has outperformed the combo on a 3, 5 and 10 year basis.

10 yr returns
LSBRX - +8.30%
Wells/Welli - +6.45%

Last Bear Mkt (3/31/02 - 4/30/03
LSBRX - +22.76%
Wells/Welli - -3.08%

What do you think of a portfolio made up of only LSBRX an Intn'l fund & a TIPS fund.

I am retired and all of my funds are in IRAs.

I am not familiar with the LSBRX fund specifically but I would imagine that's probably not too hard to find a whole raft of funds that have better 3/5/10 returns than a Wellsi/Welltn combo. The point of the Wellsi/Welltn combo is that they show low volatility, good dividends, tend not to follow flavor of the day investment themes, have very low expenses and have long term history (Welltn all the way back to 1929!)
How does LSBRX compare in these areas?

 

[Alan]

Alan,
20 months -- that's almost soon enough to set up one of those little ticker things to count down the days. Good luck and hope Mr Market doesn't pull any unpleasant tricks out that delays that too much.
Agree on the need for international -- not sure if 15% is the right number, but the more I see of the US$ underpinnings, the more I feel it's essential to diversify into other currencies, both stock and bond (and maybe other investments like real estate -- just bought our first foreign REIT during the last rebalancing)

thanks Bob, I'm certainly counting down the months and come 2009 I'll be counting down the weeks. Since I am only in Stocks as 40% of total the international portion is only ~6% of total so I don't feel over-exposed. Only time will tell.

 

[Tiger]

I am not familiar with the LSBRX fund specifically but I would imagine that's probably not too hard to find a whole raft of funds that have better 3/5/10 returns than a Wellsi/Welltn combo. The point of the Wellsi/Welltn combo is that they show low volatility, good dividends, tend not to follow flavor of the day investment themes, have very low expenses and have long term history (Welltn all the way back to 1929!)
How does LSBRX compare in these areas?

LSBRX is a multi-sector bond fund. It started in 1991. The fund's yield is 6.72%.

 

[cute fuzzy bunny]

In a nutshell, LSBRX invests a sizable (more than 1/3) amount in junk bonds, has 20% in preferred stocks, and charges a .95% expense ratio.

Kinda expensive, and certainly a good bit more credit risk is inherent, but in the ten years its been in existence its done well enough.

 

[ejman]

In a nutshell, LSBRX invests a sizable (more than 1/3) amount in junk bonds, has 20% in preferred stocks, and charges a .95% expense ratio.

Kinda expensive, and certainly a good bit more credit risk is inherent, but in the ten years its been in existence its done well enough.

Thanks CFB. My computer decided to freeze up when I tried to look up LSBRX so I couldn't access the data (Hum maybe my computer is trying to protect me ) Anyway, this is a good illustration of the danger of looking just at returns 1/3 junk bonds Jeez! That would really interfere with my sound spleeping program.

 

[Tiger]

CFB the fund has been in existence since 1991 and it's total return in that time is 8.66%.

 

[cute fuzzy bunny]

Nothing really horrifying about good quality junk. I have a hunk of vanguards junk fund. Basically when the credit quality is just below investment grade and the yields are running about 5% over treasuries, they're okay.

But junk funds can have an awful lot of correlation with stocks and arent quite like ordinary bonds as far as diversification goes.

You could own a hunk of wellesley, a hunk of vanguards junk bond fund and a small slice of the vanguard convertibles fund and sort of end up in the same place for about 1/4 the expense ratio.

 

[ejman]

I understand that to be truly diversified one should have some presence in most (all?)asset classes. But with some of the more aggresive asset classes I have shown in the past a tendency to buy high and sell low (such as junk bonds and gold) so -knowing my foibles- I'll watch with envy as the other folks rake in the big bucks

 

[cute fuzzy bunny]

I have shown in the past a tendency to buy high and sell low

Try it the other way for a while, its a lot more fun

 

[cute fuzzy bunny]

CFB the fund has been in existence since 1991 and it's total return in that time is 8.66%.

I see the confusion. The fund was available for institutional investment since 1991, but only since 1997 for retail investors. Looks like they changed managers at that time, and again last year.

 

[Tiger]

I see the confusion. The fund was available for institutional investment since 1991, but only since 1997 for retail investors. Looks like they changed managers at that time, and again last year.

Daniel J. Fuss has been the manager since the fund began.

Does a hunk of wellesley, a hunk of vanguards junk bond fund and a small slice of the vanguard convertibles fund give you the same total gain that LSBRX does?

 

[cute fuzzy bunny]

I'll have to direct you to the clip from the Loomis Sayles web site below on fund managers.

Cant answer your other question without doing a bunch of work that I'm not that interested in doing.

 

[Tiger]

cfb,

Daniel Fuss has been the head manager of the fund since it's inception.

Is VWEHX Vanguard's junk bond fund? Which fund is Vanguard's convertibles fund?

 

[ejman]

CFB the fund has been in existence since 1991 and it's total return in that time is 8.66%.

Tiger, I just ran the numbers for Wellsi/Welltn from 1/1/91 to today and I get a return (per Quicken) of 9.8% I'm not sure exactly what that shows (if anything) but there your are

 

[cute fuzzy bunny]

the head manager

Is that anything like the head nurse?

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