The first choice you have to make is exactly what your risk tolerance is. Second, you have to determine what your philosophy regarding active and passive management is. Bogle's essential hypothesis, which we all know to be true, is that COSTS matter. Indexing is a convenient means to reduce the costs incurred in a portfolio. After costs, it is rare to find an actively managed fund that can consistently beat an index fund over prolonged periods of time. What is less clear is when costs are equal or virtually equal. It is also clear that both the Wellington Fund and Wellesley have amazing track records for balanced funds. The only balanced fund that even comes close is the Fidelity Purtian Fund (FPURX), which, since inception (1947) has outperformed the Wellington Fund. Yet over the last ten years it has trailed Wellington, both with 60% stock/40% bond allocations (though they both seem to be free to allocate 5% each direction).
Wellesley is 37.43% stock, 61.04% bonds, and 1.53% cash reserves. Its stock portfolio is large cap value tilted, with particular emphasis on dividend yielding stocks, and its bond allocation is 100% investment grade corporate bonds. Expense ratio (ER) is 0.25% for Investor Shares, Admiral Shares is 0.18%.
Target Retirement Income is 44.9% Total Bond Market Index (70% government bonds/mortgage backed securities and 30% investment grade corporates), all with a duration of slightly less than intermediate term (the fund holds short term and long term bonds as well). It is 21.2% total stock market index, 19.9% TIPS, 9.1% Total International Stock Market Index, and 4.9% money market fund. So 64.8% bonds, 4.9% money market, and 30.3% stock. ER is 0.17%
Compare the two funds since Wellesley's inception in 1970. http://tinyurl.com/cuffexd
The last decade creates some "tracking error" if you will due to having two bear markets, but what you see is that it, essentially, performs as well as the S&P 500 over time, missing out on the heights of bull markets. Of course, it could be argued that the time period between 1970 to 2012 is not long enough to be representative of this trend, but I don't believe it. This is not to say that the past is predictive of future performance, of course.
Now this chart compares the performance of the two since 2003:http://tinyurl.com/cps6s3t
Given that VTINX has only been around since 2003 it's hard to judge what it's typical behavior will be in bear and bull markets as it has only seen one bear market, 2008. What you see, however, in terms of total returns is this:
Year VTINX VWIAX
Total Return 2007 8.17% 5.76%
2008 –10.93% –9.79%
2009 14.28% 16.14%
2010 9.39% 10.71%
2011 5.25% 9.74%
A more accurate comparision would actually be with VSCGX, which is the conservative growth fund in the Vanguard Life Strategy Series. It is 40.45% stocks and 59.54% bondshttp://tinyurl.com/d76pgfh
As you can see from the graph, Wellesley still outperforms.
Year VSCGX VWIAX
Total Return 2007 6.99% 5.76%
2008 –19.52% -9.79%
2009 17.06% 16.14%
2010 11.14% 10.71%
2011 1.76% 9.74%
From 2007-2011 the value of Wellesley is $13,128.65 and the value of VSCGX is $11,331.01. Wellesley is considerably less volatile and solely by its strategy in 2011 and in 2008 it produced less losses and thus more total return.
I certainly can't tell you what to do but I can tell you what is the plan for my wife and I. I'm only 30 at the moment but provided that I live to retirement age and I pre-decease her, her instructions are to move all of our holdings (I'm assuming by that point we will have exhausted our taxable portfolio and will only have the Roth's and TIRA's) into VWIAX and the Lifestrategy Income Fund (VASIX), 50% to 50%. I'm tempted to just tell her to use Wellesley exclusively. However I hopefully have at least another 30-40 years to see the performance of Wellesley to determine if that is a risk worth taking. I'm still very conscious of manager risk and the risks of asset bloat. Time will tell. Incidentally, should I pre-decease her before retirement age (and thus we have taxable holdings remaining and the complication of multiple accounts), her instructions are to move everything over to to Portfolio Solutions with Rick Ferri.
In conclusion, my suggestion for you is to combine VWIAX with VASIX or VTINX. That is, of course, if all of your holdings are exclusively in tax-deferred. If you have a good social security check coming in or a pension from a previous employer then VSCGX is probably a better option because you have the ability to take more risk. There is also a fair argument that if you are currently collecting social security, then the TIPS allocation in VTINX is less useful because you are already receiving an inflation adjustment with SS. The inflation adjustment may be more of a moot point, however, if the "fiscal cliff" talks go as they seem to be, with the current inflation adjustment based upon CPI being replaced with chained-CPI. Also, if you choose a higher equity allocation then it's arguable the the equity allocation effectively gives you inflation protection.