Simple fund portfolio vs. Multi fund

[Bflotom]

I read Goldenmoms various portfolios and the responses; they lead me to some simple questions about my own portfolio. When I converted my 401k to an IRA a few years ago I dropped 100% into Vanguard. After some shifting and shuffle I ended up with Wellesley 50% and Wellington 50%. Last year retired and determined that more interest and dividend income could be had with the addition of Vanguard Dividend Growth. This led to a 60 stock-40 fixed income portfolio.
The market decline of August this year scared me straight where I am more comfortable with a 40-60 portfolio. The question I have is whether there is any substantial benefit to a portfolio with Wellesley, Wellington and Intermediate Term Bond Index or W&W and another bond fund choice vs. a multifund portfolio with multiple moving parts. Such as the recommended portfolio that Goldenmom received from Vanguard.
I think that Wellington management is much smarter then I am to make changes to W&W when necessary. i would be guessing on how much US stock to add or how much foreign bonds to subtract ect… But maybe there is some advantage to rolling your own.
Sorry about the long story..

 

[hnzw_rui]

Wellington 65/35
Wellesley Income 35/65
LifeStrategy Conservative Growth 40/60
Target Retirement Income 30/70

Personally, I like the simplicity of using a single all-in-one fund (easy to do if all your accounts are tax advantaged). Went slice and dice for a couple of months with ETFs and quickly realized that my IPS is just a worthless sheet of paper. I can easily follow the basic stock/bond ratio and stay the course but there's way too much temptation to tinker with the individual slices (large-cap, mid-cap, small-cap, REIT, value, etc).

 

[statsman]

Wellington 65/35
Wellesley Income 35/65
LifeStrategy Conservative Growth 40/60
Target Retirement Income 30/70

Personally, I like the simplicity of using a single all-in-one fund (easy to do if all your accounts are tax advantaged). Went slice and dice for a couple of months with ETFs and quickly realized that my IPS is just a worthless sheet of paper. I can easily follow the basic stock/bond ratio and stay the course but there's way too much temptation to tinker with the individual slices (large-cap, mid-cap, small-cap, REIT, value, etc).

Are you suggesting to select just one of these funds and stay the course, or possibly more than one?

 

[DEC-1982]

There are many "experts" out there (I didn't mean this in a sarcastic way). Recommendations from Vanguard and Fidelity are the sum of many years of experience. But even a target-date fund for the same person from different companies produces different asset allocations.

You could go with a Vanguard recommended portfolio.
You could go with a Wellington/Wellesley portfolio.
You could go with a Total Stock/Total Bond portfolio.
You could go with a Total Stock/Total International Stock/Total Bond portfolio.
You could go with a Total Stock/Total International Stock/Total Bond/Total International Bond portfolio.
You could have large-cap/mid-cap/small-cap/intnl stock/bond portfolio.
You could go with a Target-Date fund.
You could spice it up a little in some way (like your Dividend fund) for whatever reason.
The list of possible "good" combinations is long.

There is a good case to be made for just about every one of them. In the end one has to figure out what is right for oneself and go with that.

 

[Lsbcal]

...
The market decline of August this year scared me straight where I am more comfortable with a 40-60 portfolio. The question I have is whether there is any substantial benefit to a portfolio with Wellesley, Wellington and Intermediate Term Bond Index or W&W and another bond fund choice vs. a multifund portfolio with multiple moving parts. Such as the recommended portfolio that Goldenmom received from Vanguard.
I think that Wellington management is much smarter then I am to make changes to W&W when necessary. i would be guessing on how much US stock to add or how much foreign bonds to subtract ect… But maybe there is some advantage to rolling your own.
Sorry about the long story..

I think the (blue) sentence above sums up your dilemma. Most of us have had to struggle to come up with our own risk tolerance. Only you can guess at how you will feel in an up market where your portfolio might lag (negative tracking error) or in a down market where we all get hit to various degrees.

Maybe looking at backtest results for various combos and translating the worst case drops into dollars would help you set your risk level?

 

[Animorph]

I prefer to have at least equities and bonds in separate funds. That allows the possibility of selling only bonds if equities tank. Within equities it is also nice to be able to rebalance, which should improve your gains if all your equity funds have the same long-term gains but different short and medium-term behavior. Maybe on the order of 1%/year according to my old readings. Not something you get if everything is in one cap-weighted fund. I don't have any bonds in my AA, but I use many equity funds and rebalance between them.

 

[Midpack]

I prefer to have at least equities and bonds in separate funds. That allows the possibility of selling only bonds if equities tank. Within equities it is also nice to be able to rebalance, which should improve your gains if all your equity funds have the same long-term gains but different short and medium-term behavior. Maybe on the order of 1%/year according to my old readings. Not something you get if everything is in one cap-weighted fund. I don't have any bonds in my AA, but I use many equity funds and rebalance between them.

I can't tell from the OP, but the other reason to keep pure equity and bond funds separate IMO is to control taxes. Many people keep pure equity funds (paper capital appreciation is not taxable, and can be carried indefinitely) in taxable accounts and bond funds (they typically throw off more annual taxable income than equity funds) in tax deferred accounts. That allows a portfolio owner to sell equity funds when he/she chooses, to control capital gains each year. It's often possible to offset capital gains with (capital) losses, generating cash, with no net taxable gain. Or at the very least keep CG/dividends plus other income below the 15% bracket taxable limit - many people here do that with current CG/dividend rules.

However, Wellesley and Wellington are not optimal choices for controlling taxable events though, since they are balanced funds holding both equities and bonds. Holding Wellesley plus pure bond funds only makes sense to me if you want an equity allocation of less than 40%. I don't follow the logic of holding any Wellington if the target equity allocation is 40%.

If all or most of your portfolio is tax deferred, there's less of a need to keep equity and bond funds separate.

 

[Markola]

The question I have is whether there is any substantial benefit to a portfolio with Wellesley, Wellington and Intermediate Term Bond Index or W&W and another bond fund choice vs. a multifund portfolio with multiple moving parts.....

I think that Wellington management is much smarter then I am to make changes to W&W when necessary. i would be guessing on how much US stock to add or how much foreign bonds to subtract ect… But maybe there is some advantage to rolling your own.

I think there are two big questions here, right? The first is whether an all-in-one fund is better than a multi-fund approach like Goldenmom's. I'm curious too. Second, though, W & W are historically excellent funds, they are actively managed, which is a whole different choice that gives us index fund purists the willies to consider. Not that I'm above temptation, however, when I see how Wellington has crushed my Vanguard Life Strategy Growth Fund (a fund of index funds) over the last couple decades.




Sent from my iPad using Early Retirement Forum

 

[ejman]

Wellesley/ Wellington really pose a problem for people that would rather use index funds in similar proportions for the simple reason that there seems to be some kind of pixie dust that the W/W managers use that generally allows them to get better results than the equivalent index funds would get. Of course, this may change going forward but still the record is remarkable.

 

[pb4uski]

I prefer to us index funds because I can dial in more tax efficiency than I can with balanced funds. That said, if any of my accounts approach the composition of Wellesley or Wellington I would use them in a heartbeat.

 

[hnzw_rui]

Are you suggesting to select just one of these funds and stay the course, or possibly more than one?

No single right answer for everyone. Just stating my preference.

I like balanced funds. They prevent me from tinkering with my portfolio. Also, if the stock market drops 50% or something, it's easier to stay the course since I don't see individual performance just the aggregate. It's also easy to leave new investments on autopilot since the fund rebalances for you. I don't have to know which asset is underweight so I can redirect new contributions to the underweight asset. Heck, I can probably leave my account alone for years (just have automatic investments) and be pleasantly surprised at the account balance when I finally do check it. And yep, I have everything in VFORX (aside from some sleep at night money/EF in stable value, EE/I-Bonds and high yield savings).

Then again, all my investments are in tax deferred and Roth right now. Might need to revisit this once I start investing in taxable.

 

[Bflotom]

Are you suggesting to select just one of these funds and stay the course, or possibly more than one?

I'm looking to combine Wellesley & Wellington along with a bond fund or Wellesley and Equity Income and a bond fund. When I "M" xray: VWIAX, VEIPX and VBILX it shows 40/58/2 (cash) combination with a yield of 2.96%; when I xray: VWIAX, VWENX, and VBILX "M" shows 33/65/2 and 2.92% yield. I see myself as a dividend and income investor rather then return so yield is important. Or throw the entire mess to the wind and go 100% with Wellesley at 40/60.

Wellington mgment has been very successful managing W&W and other funds. Are there any significant reasons not to turn over 100% to Wellesley since it meets the 40/60 allocation, it has a +3% yield. I have read about funds that grow too big, drift from the allocation, and the real threat of 100% of a fund failing. But my plan is too keep eyes on the fund/account so unless Wellesley goes belly-up overnight I should be able to correct course.

 

[Bflotom]

I can't tell from the OP, but the other reason to keep pure equity and bond funds separate IMO is to control taxes. Many people keep pure equity funds (paper capital appreciation is not taxable, and can be carried indefinitely) in taxable accounts and bond funds (they typically throw off more annual taxable income than equity funds) in tax deferred accounts. That allows a portfolio owner to sell equity funds when he/she chooses, to control capital gains each year. It's often possible to offset capital gains with (capital) losses, generating cash, with no net taxable gain. Or at the very least keep CG/dividends plus other income below the 15% bracket taxable limit - many people here do that with current CG/dividend rules.

However, Wellesley and Wellington are not optimal choices for controlling taxable events though, since they are balanced funds holding both equities and bonds. Holding Wellesley plus pure bond funds only makes sense to me if you want an equity allocation of less than 40%. I don't follow the logic of holding any Wellington if the target equity allocation is 40%.

If all or most of your portfolio is tax deferred, there's less of a need to keep equity and bond funds separate.

Yes the whole folio is tax deferred

 

[unclemick]

Hindsight being a wonderful thing AND depending on one's sense of humor I wasted/entertained myself for 40 yrs investing, reading books, watching tv(Rukeyser), AAII New Orleans chapter had great pastries and 30 yrs Saint's football. Aka 1966-2006.

Without going into all the twists and turns hand grenade wise Bogle's Folly (Index 500) in my 401k counted for the bulk of my retirement success.

So in 2006 after leaving town courtesy Katrina I somewhat red faced converted all my tax deferred to Target Retirement 2015(that's full auto folks) kept a few good stocks for the male hormones and 'Let' the Saint's finally win a Superbowl well after I left town.

heh heh heh - back to the future I would index 'real money' on a now available life cycle index fund appropriate for my age and dink with play money(?Bogle's 5%) on the side cause as a male of the species the urge to tweak is in the DNA. That' my opinion.

 

[ejman]

I'm looking to combine Wellesley & Wellington along with a bond fund or Wellesley and Equity Income and a bond fund. When I "M" xray: VWIAX, VEIPX and VBILX it shows 40/58/2 (cash) combination with a yield of 2.96%; when I xray: VWIAX, VWENX, and VBILX "M" shows 33/65/2 and 2.92% yield. I see myself as a dividend and income investor rather then return so yield is important. Or throw the entire mess to the wind and go 100% with Wellesley at 40/60.

Wellington mgment has been very successful managing W&W and other funds. Are there any significant reasons not to turn over 100% to Wellesley since it meets the 40/60 allocation, it has a +3% yield. I have read about funds that grow too big, drift from the allocation, and the real threat of 100% of a fund failing. But my plan is too keep eyes on the fund/account so unless Wellesley goes belly-up overnight I should be able to correct course.

Under the very simple principle that one should never have all of one's eggs in one basket, I wouldn't place all of my nest egg into one actively managed fund even one as good as W/W. We just never know which way the future will twist (those famous unknown unknowns). Having said that, I do have 1/3 of my NW into those 2 funds (primarily Wellesley). I even have a couple of funds with about 15% of my NW outside of the Vanguard universe for the same reason.

 

[Midpack]

Under the very simple principle that one should never have all of one's eggs in one basket, I wouldn't place all of my nest egg into one actively managed fund even one as good as W/W. We just never know which way the future will twist (those famous unknown unknowns). Having said that, I do have 1/3 of my NW into those 2 funds (primarily Wellesley). I even have a couple of funds with about 15% of my NW outside of the Vanguard universe for the same reason.

While I don't disagree in principle, holding Wellesley in addition to Wellington (or vice versa) to spread one's nest egg might not be the best approach. The management companies (Wellington Management Company LLP, Boston, Massachusetts) and one of the fund managers (John C. Keogh, Senior Managing Director) are the same. And if you look at the equity holdings, many of them are the same including 5 of their top ten stocks. Same with bonds.

If you're concerned about a "future twist "that's dramatically different than the past, as alike as Wellington and Wellesley are, they're more likely to suffer similar results (good or bad). The only substantial difference will be due to equity:bond allocations.

IOW Wellesley and Wellington, as admittedly great as they have been (for decades), are much alike except for equity:bond allocations. If you hold Wellesley or Wellington, you might want to cast your fund choice net a little wider if you want to diversify. FWIW

 

[Lsbcal]

Wellington is all large cap last I checked and has a very small amount of international equities. So if one were going to cover a few more bases, they might choose a midcap emphasis and also an international.