Poll: Wellesley Where?

[LakeTravis]

VWIAX = 9% of portfolio
VWENX = 28% of portfolio

 

[racy]

25% of our 40 stock/60 bond portfolio is in Wellesley, the rest in index funds. So, we have professional management of 25% of our bonds and 25% of our stocks.

 

[racy]

I have ~20% of my IRA in Wellesley Fund. I am very concerned what will happen if Interest rate start going up? Any thoughts on this question will be appreciated.

I have Wellesley managing 25% of my bond allocation, the rest in short term and intermediate term index funds. Hopefully, staying away from longer durations and having some professional help will mitigate the damage when bond prices rise.

This is a quote form Wellesley's prospectus:
"Management selects investment-grade bonds that it believes will generate a reasonable and sustainable level of current income. These may include short-,
intermediate-, and long-term corporate, U.S. Treasury, government agency, and asset-
backed bonds, as well as mortgage-backed securities. The bonds are bought and sold
according to the advisor’s judgment about bond issuers and the general direction of
interest rates, within the context of the economy in general."

 

[eytonxav]

Wellesley and Wellington represent ~ 10% of my port

 

[Dawg52]

Don't own the fund as of now, but can see moving in that direction one day. Currently I am a little more hands on which is probably not a good thing. But doing alright and satisfied with my returns. One day I'm sure I will want to put on full autopilot and Wellesley seems like a good choice for a large slice of the portfolio.

 

[Midpack]

Well I confirmed what I suspected. I've never owned Wellesley because I don't have room for it in my tax deferred accounts, all committed to bond funds. I have never owned bonds in my taxable accounts (yet). And it appears most people who own a significant chunk of pssst...Wellesley prefer to place it in deferred, and avoid it in taxable. Thanks to those who participated.

 

[arebelspy]

And it appears most people who own a significant chunk of pssst...Wellesley prefer to place it in deferred, and avoid it in taxable. Thanks to those who participated.

I don't know what conclusions you can draw from that, as I bet if you surveyed just those people, they would have more in deferred accounts in general, so of course they'd also tend to have more pssst... in those type of accounts...

 

[Midpack]

I don't know what conclusions you can draw from that, as I bet if you surveyed just those people, they would have more in deferred accounts in general, so of course they'd also tend to have more pssst... in those type of accounts...

Could very well be. But in general Wellesley would be more tax efficient than a bond fund, but less than most all equity funds, hence my interpretation. Just general placement strategy. Thanks...

 

[Accidental Retiree]

Could very well be. But in general Wellesley would be more tax efficient than a bond fund, but less than most all equity funds, hence my interpretation. Just normal placement strategy. Thanks...

Why would this be the case? I am very new to mutual funds held outside of tax-deferred accounts, so the answer isn't readily apparent to me, and I will appreciate understanding what I'm missing here.

Based on what I've seen with these two types of funds so far, both types of funds will pay STCG, LTCG, and dividends, as I've seen in our IRAs, and withdrawals will be taxed at our normal tax rates.

With the little bit of VWINX we now hold outside tax-deferred, I would expect to pay 0% on LTCG and dividends if we stay within the 15% bracket, and normal tax rate on the STCG.

The only other difference in tax efficiency I understand is that which exists between actively managed funds and index funds, where fewer STCGs get generated because of less trading.

What am I missing here with respect to tax efficiency? Thanks!

 

[W2R]

Could very well be. But in general Wellesley would be more tax efficient than a bond fund, but less than most all equity funds, hence my interpretation. Just normal placement strategy. Thanks...

Right, in that bond funds are generally less tax efficient than equity index funds.

If one's tax deferred accounts are completely full with bond funds only, and one's asset allocation requires more bond funds than that, then some bond funds or balanced funds will have to end up in taxable accounts. One can easily end up with Wellesley in taxable accounts this way. But that result has a lot to do with the relative size of one's taxable vs tax deferred accounts, and AA, and not much to do with the "Where should I put my Wellesley?" or "Should I get Wellesley?" questions that sometimes arise.

In other words, I would not let the size of one's tax deferred accounts determine one's asset allocation.

 

[Midpack]

Why would this be the case? I am very new to mutual funds held outside of tax-deferred accounts, so the answer isn't readily apparent to me, and I will appreciate understanding what I'm missing here.

Based on what I've seen with these two types of funds so far, both types of funds will pay STCG, LTCG, and dividends, as I've seen in our IRAs, and withdrawals will be taxed at our normal tax rates.

With the little bit of VWINX we now hold outside tax-deferred, I would expect to pay 0% on LTCG and dividends if we stay within the 15% bracket, and normal tax rate on the STCG.

The only other difference in tax efficiency I understand is that which exists between actively managed funds and index funds, where fewer STCGs get generated because of less trading.

What am I missing here with respect to tax efficiency? Thanks!

This is a better explanation than I could probably provide... Principles of Tax-Efficient Fund Placement - Bogleheads

I would consider Wellesley a balanced fund. I think Wellesley is a great fund, but you may be giving away some placement flexibility/tax efficiency when you own any balanced fund vs owning equity and bonds in separate funds with equivalent net AA to the balanced fund.

And I'm not advocating letting placement take priority over asset allocation or selected funds, it should be a secondary decision. It's something to consider when selecting funds, but in the end you can only put the least efficient in whatever sheltered accounts you have and the rest in taxable.

 

[ducky911]

Hi ,

I have vwinx in both my tax and non tax accounts.

lots

would be willing to change the portion in my taxable account...but to what...I thought to total stock market and a muni bond fund.

so I tryed the math and vwinx beats the two funds on an average of 28% over the last three years.

so maybe I am not doing the math right...Tell me what two or three funds can come close to beating vwinx without adding risk.

 

[Accidental Retiree]

Right, in that bond funds are generally less tax efficient than equity index funds.

Thanks, W2R. That much I do understand, and I would expect VWINX to be less tax efficient than an equity index fund. So far, so good.

I didn't see where Midpack made that distinction, though, so it makes me wonder what else I may be missing.

I am still not clear on why actively managed bond funds are less tax efficient than actively managed mutual funds.

I'll browse through that link Midpack posted and see whether the answer becomes evident. Thanks!

 

[prototype]

My tax deferred portfolioI is currently 25% VWIAX and 25% VWEHX. Investigating changing that to either 20%/30% or 15%/20% which would include after tax investment moves from various funds into Wellesley and Wellington (e.g. 5%/10%). I currently have no after tax investments in either.

So I have a lot of my total porfolio invested/exposed in Wellesley and Wellington. Perhaps too much (about 25% or 30%), but I do like their holidings/diversication. My overall Bond/Equity AA needs a tweak towards equities so that is why I am looking at a shift to Wellington.