I give up! Transferring most of the nest egg into Wellesley

[target2019]

What I find to be interesting is that Wellesley is held in high regard, and it is actively managed. From the prospectus:

The investment seeks to provide long-term growth of income and a high and sustainable level of current income, along with moderate long-term capital appreciation. The fund invests approximately 60% to 65% of its assets in investment-grade corporate, U.S. Treasury, and government agency bonds, as well as mortgage-backed securities. The remaining 35% to 40% of fund assets are invested in common stocks of companies that have a history of above-average dividends or expectations of increasing dividends.

On other pages I found that the stock dividend is something like 3% compared to an S&P500 dividend of 2%. This Vanguard page will get you the complete list of stock holdings. Gives you an idea of how much research they put into the selections.

https://advisors.vanguard.com/VGApp...stments/portfoliodetails?fundId=0527#state=50

I think if you researched a few of the popular dividend ETFs, you'd find commonality with the lists of companies. But the percentages held would be different.

 

[NW-Bound]

Both Wellesley and Wellington are active funds. On the Vanguard site, in one video interview one of the managers of one of these funds emphasized that he was a stock picker. I do not have the link to post here, else I would.

They pick value stocks, and this is what gives them less volatility than the market. If you like stability, then that style is a plus. Value oriented stocks are what give the higher dividend yield.

Regarding what ejman said earlier about Wellesley underperforming the market in 1999, remember that it was the height of the dotcom mania. But what happened if you did not sell? They beat the market next year in 2000, when the bubble burst.

A $10K invested in Jan 1999 with Wellesley became $11,527 in Jan 2001. The same $10K with VFINX (S&P 500 index) gave you $11,010. A wild roller-coaster ride with the S&P to end up at the same point or a bit lower!

I only have a little bit in Wellesley and Wellington, but feel the need to point out different investment styles to novices and what conservative funds like these are about. There are other funds like these. Dodge & Cox Balanced Fund is one, and even older as it started in 1931.

 

[REWahoo]

There are other funds like these. Dodge & Cox Balanced Fund is one, and even older as it started in 1931.

I once considered Dodge & Cox Balanced a favorite fund but was very disappointed in how they fell into the old trap of chasing returns. They apparently had way too much invested in financial stocks when things went south in 08/09 and suffered a much greater loss than did Wellesley. Of course they recovered nicely but they are still considerably more volatile by comparison - and have triple the expense ratio.

The chart below compares Wellesley Admiral (VWINX) to Dodge & Cox (DODBX) over the past 10 years.

 

[NW-Bound]

And speaking of the stock mania up to the top of market in March 2000, I remember that at the late stage of the bubble, people were selling their jewelry for its gold content to put in the market. The S&P rise was nothing compared to the Nasdaq which went up 100% in 1999. Buy, buy, buy!

After the peak in March 2000 when the dotcoms with no earnings, heck some without even gross sales, toppled like dominoes, the Nasdaq proceeded to tumble to 1/3 of its peak, reaching a nadir in 2002. It is only recently that the Nasdaq comes crawling back up to its 2000 value after 14 years, and that's because the index replaces the bankrupt companies that no longer existed with the ones that survived.

Oh, just think of the money one can make if he understands the depth of the madness of the crowd. Then, when they get disillusioned with stocks, they piled into real estate. And now, they are buying stocks again. How do you like that?

 

[Lsbcal]

Several wise posts here.

For someone wanting to pick a conservative long term strategy, it is very important to identify which risks they are willing to accept. Tracking error comes in many forms. One was mentioned above where the SP500 in 1999 got distorted by a tech craze (large growth, tech industry) and large value funds were left in the dust.

So one might put their target portfolio through the M* X-ray tool to look at how much they are biased in their portfolio. The M* page for just Wellesley is here: http://quotes.morningstar.com/chart/fund/chart?t=VWIAX®ion=usa&culture=en-US

Some times when Wellesley will probably lag:
1) growth stocks surge
2) midcap and small caps surge
3) foreign stocks surge (possibly because the dollar is weakened)
4) rates rise fairly quickly

Eventually the trend changes but that can take some years. If you know what risks you are taking, it will be easier to accept (maybe) when your portfolio's style is out of style.

 

[NW-Bound]

I have a bit in Dodge & Cox too, in addition to Wellesley and Wellington. The positions are small, as I thought these were interesting funds, and wanted them to show up in my portfolio so that I would follow and see how they did.

It turned out that during the fiasco of 2008, some of my stocks were dropping hard, being material stocks that were very sensitive to economic growth. No financial stocks here. So, I did not pay any attention to my MFs and spent all the time watching and selling my own stock picks.

But back on these balanced funds, it is true that Dodge & Cox is more aggressive than W & W, hence more volatile. And volatility is what comes to mind when I see so many posters say "my stock/ETF/MF" goes up faster than yours. I am getting more and more leery of the market, or at least some sectors of it. It's a sense of déjà vu, and damned it if I have not learned from past experience.

 

[REWahoo]

And volatility is what comes to mind when I see so many posters say "my stock/ETF/MF" goes up faster than yours.

I want to be able to tout the reverse when the time comes: "my stock/ETF/MF goes down slower than yours."

 

[NW-Bound]

Good!

Let's keep up talk like this, so that more people will get scared and sell. And if more sell, it keeps a bubble from inflating, and it saves me the trouble of having to sell mine.

 

[target2019]

I figured out what those Wellesley peeps is doin.

I looked at the Vanguard site and found the 11/30/2014 sector holdings. Then ran down the sector holdings that Morningstar is showing (9/30/2014). In late November they dialed down IT sector holdings. In sept, 12.53%, or slightly underweight of their internal benchmark of 13.59%. In nov, 13.2%, or well short of the benchmark of 19.6%.

Wait, they moved the benchmark! LOL

Just put it in Wellesley and let them figure this stuff out.

 

[unclemick]

Funny, I thought that was the definition of "verbose".


Ah. Makes sense to me...

heh heh heh -

 

[audreyh1]

I once considered Dodge & Cox Balanced a favorite fund but was very disappointed in how they fell into the old trap of chasing returns. They apparently had way too much invested in financial stocks when things went south in 08/09 and suffered a much greater loss than did Wellesley. Of course they recovered nicely but they are still considerably more volatile by comparison - and have triple the expense ratio.

The chart below compares Wellesley Admiral (VWINX) to Dodge & Cox (DODBX) over the past 10 years.

This is a fund I have held as a benchmark with 5% of my portfolio. And yes, they fell pretty hard in 2008, and a major contributor was their income fund DODIX on top of the equity crash. But I'm glad I hung in there, because they did come roaring back.

 

[tuixiu]

I'd be intrigued with set-and-forget Wellesly/Wellington but for the better tax efficiency of roll your own across asset classes and taxable vs. tax deferred savings vehicles.

 

[NW-Bound]

I have a bit in Dodge & Cox Balanced, W & W, and never traded them. I rarely looked at their portfolio composition because I do not have a lot at stake there, plus I do not want to second guess an active fund manager. Out of curiosity, I may look if they trail or far exceed their peers, and in the case of Dodge & Cox, I just let it go.

In a recent post here, nwsteve mentioned FBALX which is a balanced fund offered by Fidelity. The fund expense is 0.56% vs. 0.26% of Wellesley, but despite that they run neck to neck. So, there are many choices out there.

 

[Gearhead Jim]

I'm thinking that a disadvantage of Wellesley, or a similar home-brew combo of other funds, is that a significant rise in interest rates would presumably cause both the stock and the bond sections of the account to drop. Ifyou are retired and living off the account, you would be forced into selling during a down market for both parts of the mix.


If you have a similar stock selection through VG but use a ladder of CDs or actual bonds (more complicated), you could live off the maturing ladder for a number of years and that would automatically be raising your stock AA percentage when (theoretically) that's a good thing to do.


Comments?

 

[clifp]

I'm thinking that a disadvantage of Wellesley, or a similar home-brew combo of other funds, is that a significant rise in interest rates would presumably cause both the stock and the bond sections of the account to drop. Ifyou are retired and living off the account, you would be forced into selling during a down market for both parts of the mix.


If you have a similar stock selection through VG but use a ladder of CDs or actual bonds (more complicated), you could live off the maturing ladder for a number of years and that would automatically be raising your stock AA percentage when (theoretically) that's a good thing to do.


Comments?

Yup you've outlined the nightmare scenario rising interest rates cause declines in both markets. Fortunately it is a pretty rare scenario, I'm too lazy check when it happened last. I have been a fan of CD over bonds for the last few years for many reason including the scenario you outlined.

I have 5 year CD maturing in April the current interest rate is 3% the best Penfed is offering for 5 year now is 1.75% which after taxes is inflation is a negative real return. I actually have a slim chance of running out of money before I die with a 2.5-2.7% withdrawal and <0% return.

That number is considerably below Wellesley current yield of 2.6% and last 12 month yield of 3.2% so it seems difficult to outperform them with CDs now.

I think the W&W team has three ways of providing Alpha (risk adjusted return). They are good stick pickers, they are very good bond pickers, and they make modest but significant shifts in their AA, which generally are well timed.