If you were in my shoes, how much would you put in the Vanguard Wellesley Income Fund?
Really appreciate your candid opinion.
Shoot...I'm never candid
Its a good question. In early january I put about 75-80% of my taxable into the fund. That enabled me to buy 'admiral shares' which have a cost of only .20%...very competitive with most indexes. I thought about DCAing in, but decided just to take the jump. Facing the same decision today, I'd probably do the same.
A few months ago with the spectre of rising interest rates, I pulled a chunk...probably 40% of that out into the short term corporate bond fund, figuring its very short bonds would take the rises better and I'd avoid some of the rising rate downdraft. It appears most of this was already priced into the fund, as it did drop down only about 1% and has as of this writing almost fully recovered. In other words, its doing exactly what I wanted it to do...throw off some cash and preserve my principal.
I'm a little undecided whether to plunge the short term corp money back into wellesley, keep it in the short term corp fund, or take some out and buy some 5 year cd's at 4.5%. I'm undecided because I'm not sure if the fed will in fact continue to raise rates because it appears the economy may be slowing and some fairly reliable indicators show that we could be heading back down into a weak economic posture.
All that having been said, the strategy to avoid losing isnt a bad one, nor is such a strategy terribly lonely. A lot of fund managers and serious investors are holding a lot of cash, cd's and short bonds...many 50% and more...and thats unheard of for fund managers to be sitting on huge piles of cash.
But what are your alternatives? Real estate in my area is hideously expensive and overpriced. I dont feel like starting or buying a small business or store. I feel like most equities, in particular broad based indexes, are overpriced...although this is extremely debatable. Money market returns stink. CD's will pay you a little more than inflation takes away. Bonds are largely paying a real return of under 2%. I feel the fed is drastically understating inflation, which makes those 1% ibond and 2% tips returns unappealing to me.
At least you get a 4+% yield out of this fund, the stocks it holds are relatively cheap at ~14.5 P/E, and the bonds are not too long and very creditworthy. Historically it will keep your principal ahead of inflation while producing a 4% or better yield. If after taxes you can live on that, then I think you're good to go.
But thats just my opinion, I could be wrong. We'll all know in 3-5 years. Then again in 7-10... Rinse and repeat.
