VG High-Yield - 1% Fee To Sell

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investor.saver1
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VG High-Yield - 1% Fee To Sell

Post by investor.saver1 »

I need some advice with respect to (Vanguard High-Yield) VWEAX. I currently have about $60K of VWEAX in my portfolio which I started accumulating beginning in November, 2010. I've learned much on this board and have concluded the risk is too high. I'm wondering if it's worth the 1% hit that I will take to purge it from my portfolio or if it would be more prudent to wait for the required 1 year holding period to elapse. My current portfolio is 40% equities, 50% bonds and 10% cash. I'm counting the high-yield as bonds and this holding is approx 4% of my portfolio. It's in a tax advantaged account.

What would you advise?
1. Wait it out and sell later to avoid the 1% fee?
2. Sell now, pay the fee and move forward?
4. Count it as an equity and sell of 4% of an equity holding.
3. If not 1, 2 or 3 above, what do you suggest?

Thanks
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Boglenaut
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Post by Boglenaut »

This close to November 2011, I'd hold on to it. Maybe temporarily reduce risks in other parts of the portfolio to compensate until then.

Make sure not to do something like sell 1 day early by accident when the time comes.

When did you STOP accumulating?
Tuxx
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Post by Tuxx »

Take the dividend as cash.

As shares meet the 1 year min - sale them.
xerty24
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Post by xerty24 »

Next time buy someone else's HY fund without a stupid 1% fee. Most funds don't charge one.
Tuxx
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Post by Tuxx »

xerty24 wrote:Next time buy someone else's HY fund without a stupid 1% fee. Most funds don't charge one.
Most half decent high yield funds charge a load. The category avg load is 4.42%.
Sidney
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Post by Sidney »

xerty24 wrote:Next time buy someone else's HY fund without a stupid 1% fee. Most funds don't charge one.
He has concluded that HY is not the place to be (for him). There won't be a "next time."
I always wanted to be a procrastinator.
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Boglenaut
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Post by Boglenaut »

Tuxx wrote:Take the dividend as cash.
+1
xerty24
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Post by xerty24 »

Tuxx wrote:
xerty24 wrote:Next time buy someone else's HY fund without a stupid 1% fee. Most funds don't charge one.
Most half decent high yield funds charge a load. The category avg load is 4.42%.
Sure there are lots of load stock funds in the world, but you don't have buy those either. Pimco's high yield fund is no load and no fee and not obviously bad. I'm not sure why you would buy Vanguard's if you had to give up the tax-loss harvesting option due to this 1% fee.
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SpringMan
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Post by SpringMan »

Any reinvested dividends can be sold without being subject to the redemption fee. You can take the dividends in cash or just sell the value of those that were reinvested, it amounts to about the same thing in a tax advantaged account. You can test to see if there is a redemption fee and sell the amount that does not trigger it. I would avoid paying the redemption fee. The fund is not all that horrible in my opinion.
Best Wishes, SpringMan
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nisiprius
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Post by nisiprius »

I don't like "high yield," i.e. non-investment-grade bonds. However, whether they are too risky depends on what the rest of your allocation is. They're sorta-kinda in between stocks and bonds. They're definitely not as risky as stocks.

Here is one option to consider. You are concerned because you think they are too risky, but you don't want to pay the redemption fee. I don't think you said what you wanted to exchange it for, but for the sake of discussion let's say you wanted to exchange it for Total Bond Market (VTSMX).

OK. Suppose you think of nour non-investment-grade fund as if it were 50% stocks, 50% bonds. You've been thinking of it as bonds, now you've "discovered" it is half stocks. (I don't know if 50% is the very best, most accurate percentage). How about this, then.

1) Exchange $30,000 worth of your stock funds for Total Bond. Now your total portfolio risk is about where you want it.

2) Wait for the non-investment-grade bond fund to ripen (i.e. be a year old).

3) Exchange the non-investment-grade bond fund for $30,000 of the stock fund and $30,000 of total bond fund.

Just a thought.

I suggest waiting out the year on the simple grounds that it's good to get in the habit of patience. Maybe the high yield was a mistake, but you shouldn't feel any urgency about correcting it.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
pkcrafter
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Post by pkcrafter »

I'm counting the high-yield as bonds and this holding is approx 4% of my portfolio. It's in a tax advantaged

Since high-yield represents only 4% of your portfolio, I'd suggest you just hold until you can sell without a redemption fee. High-yield does act like a stock fund in a market drop; however, VWEHX dropped 22% compared to the category average of 26% and the market's 37%. If you are uncomfortable with that, you could reduce equity, but a 4% equity change isn't going to make much difference either way.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
motodoc42
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Post by motodoc42 »

Tuxx wrote:Take the dividend as cash.

As shares meet the 1 year min - sale them.
According to the prospectus "Redemption fees will not apply to Vanguard fund account redemptions in the following circumstances:(1) redemptions of shares purchased with reinvested dividend and capital gains distributions; etc etc"
So, no need to worry except on the initial purchase date.

motodoc42
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Dale_G
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Post by Dale_G »

Bill Sharpe's Financial Engines does "returns based Style Analysis" to determine how funds behave.
Fund style
To analyze the style of a fund, we compare the return of the fund to the returns of all the asset classes for the same period of time. The results show which combination of asset classes best describe the fund's performance. This is the fund's style, which may be different from the fund's name or stated objective.
Financial Engines says Vanguard's High Yield fund behaves as if it were:

6% cash
67% bonds
2% large cap stocks
9% international stocks
16% small/medium stocks

So, the junk bond fund behaves as if it were 27% stocks - not 50%. And most of those stocks are probably the small and mid values stocks that folks here love from time to time.

I own Junk and don't mind holding it through thick and thin.

For the OP, the 1% fee might amount to .04% of the portfolio. If it makes him sleep better, he should sell.

Dale
Volatility is my friend
letsgobobby
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Post by letsgobobby »

I'd just change my AA to 44/46/10 and call it a day.
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investor.saver1
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Post by investor.saver1 »

Financial Engines says Vanguard's High Yield fund behaves as if it were:

6% cash
67% bonds
2% large cap stocks
9% international stocks
16% small/medium stocks

So, the junk bond fund behaves as if it were 27% stocks - not 50%. And most of those stocks are probably the small and mid values stocks that folks here love from time to time.
Apparently, I'm a lot smarter than I thought I was. I'm now glad that I have High Yield in my portfolio. This board is GREAT!!!!!

Thanks everyone for your input. I guess I'll be keeping this one in my portfolio. It's time to call it a day!!!!!!!!
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stratton
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Post by stratton »

Dale_G wrote:Bill Sharpe's Financial Engines does "returns based Style Analysis" to determine how funds behave.
Fund style
To analyze the style of a fund, we compare the return of the fund to the returns of all the asset classes for the same period of time. The results show which combination of asset classes best describe the fund's performance. This is the fund's style, which may be different from the fund's name or stated objective.
Financial Engines says Vanguard's High Yield fund behaves as if it were:

6% cash
67% bonds
2% large cap stocks
9% international stocks
16% small/medium stocks

So, the junk bond fund behaves as if it were 27% stocks - not 50%. And most of those stocks are probably the small and mid values stocks that folks here love from time to time.
What kind of bonds in that Financial Engines analysis? I mean it's analyzing a bond fund of type "junk." Saying "bonds" with no qualifier is not helpful and in this context conveys zero information.

The trashier junk bond funds are around 50%. Higher quality ones are similar to Vanguards with a lower equity like component.

Paul
...and then Buffy staked Edward. The end.
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NoRoboGuy
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Post by NoRoboGuy »

There is a great deal of debate here whether high yield belongs in a portfolio, and there is no 'right' answer. On one point most agree: they are not as safe as investment grade bonds and they are not as risky as stocks.
There is no free lunch.
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abuss368
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Post by abuss368 »

We prefer to take our risk with stocks. Bonds are for safety. Besides, the risks taken with stocks has the potential for better rewards.

Read Unconventional Success by David Swensen to udnerstand why he does not like Junk Bonds and prefer's US Treasury bonds and TIPS.

Start taking the dividend in cash and sell off as the one year timeframe begins. In the meantime watch the basket.
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Dale_G
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Post by Dale_G »

stratton wrote:
What kind of bonds in that Financial Engines analysis? I mean it's analyzing a bond fund of type "junk." Saying "bonds" with no qualifier is not helpful and in this context conveys zero information.

The trashier junk bond funds are around 50%. Higher quality ones are similar to Vanguards with a lower equity like component.

Paul
The information conveyed is that Vanguard's junk fund behaves like 27% stock, not 50%.

I am not privy to the precise factors that Financial Engines uses today, but in a 1992 paper found at:http://www.stanford.edu/~wfsharpe/art/sa/sa.htm
Sharpe used as bond proxies:
Intermediate-term Government Bonds
Government bonds with less than 10 years to maturity
Index: Lehman Brothers' Intermediate-term Government Bond Index

Long-term Government Bonds
Government bonds with more than 10 years to maturity
Index: Lehman Brothers' Long-term Government Bond Index

Corporate Bonds
Corporate bonds with ratings of at least Baa by Moody's or BBB by Standard & Poor's
Index: Lehman Brothers' Corporate Bond Index
I am sure the corporate bonds have much higher regression coefficients than treasuries with respect to the junk fund. :lol:

Dale
Volatility is my friend
motodoc42
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Post by motodoc42 »

abuss368 wrote:We prefer to take our risk with stocks. Bonds are for safety. Besides, the risks taken with stocks has the potential for better rewards.

Read Unconventional Success by David Swensen to udnerstand why he does not like Junk Bonds and prefer's US Treasury bonds and TIPS.

Start taking the dividend in cash and sell off as the one year timeframe begins. In the meantime watch the basket.
See my post above Re: The prospectus
allancoleman
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Post by allancoleman »

investor.saver1 wrote:
Financial Engines says Vanguard's High Yield fund behaves as if it were:

6% cash
67% bonds
2% large cap stocks
9% international stocks
16% small/medium stocks

So, the junk bond fund behaves as if it were 27% stocks - not 50%. And most of those stocks are probably the small and mid values stocks that folks here love from time to time.
Apparently, I'm a lot smarter than I thought I was. I'm now glad that I have High Yield in my portfolio. This board is GREAT!!!!!

Thanks everyone for your input. I guess I'll be keeping this one in my portfolio. It's time to call it a day!!!!!!!!
Ditto all that , investor.saver1 . I hold this same High - Yield bond fund in my own portfolio , have always liked it , and like it even more so now too that I've read this thread . And I also agree with you that this board with all of the different input and posts from different bogleheads is great too . :!:
grayfox
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Re: VG High-Yield - 1% Fee To Sell

Post by grayfox »

investor.saver1 wrote:I need some advice with respect to (Vanguard High-Yield) VWEAX. I currently have about $60K of VWEAX in my portfolio which I started accumulating beginning in November, 2010. I've learned much on this board and have concluded the risk is too high. I'm wondering if it's worth the 1% hit that I will take to purge it from my portfolio or if it would be more prudent to wait for the required 1 year holding period to elapse. My current portfolio is 40% equities, 50% bonds and 10% cash. I'm counting the high-yield as bonds and this holding is approx 4% of my portfolio. It's in a tax advantaged account.

What would you advise?
1. Wait it out and sell later to avoid the 1% fee?
2. Sell now, pay the fee and move forward?
4. Count it as an equity and sell of 4% of an equity holding.
3. If not 1, 2 or 3 above, what do you suggest?

Thanks
Here are some facts comparing Vanguard High-Yield Corporate (VWEHX) with Total US Stock Market (VTSMX). This data is from Simba's Backtesting spreadsheet.

Code: Select all

YEAR     VTSMX     VWEHX
1985     31.95     21.78
1986     15.88     16.86
1987      1.51      2.65
1988     17.78     13.55
1989     28.66      1.89
1990    -6.18      -5.85
1991     34.44     29.01
1992      9.59     14.24
1993     10.41     18.24
1994    -0.17      -1.71
1995     35.79     19.15
1996     20.96      9.54
1997     30.99     11.91
1998     23.26      5.62
1999     23.81      2.55
2000    -10.57     -0.88
2001    -10.97      2.9
2002    -20.96      1.73
2003     31.35     17.2
2004     12.52      8.52
2005      5.98      2.77
2006     15.51      8.24
2007      5.49      2.04
2008    -37.04    -21.29 <- worst
2009     28.7      20.13
2010     17.09     12.4

                           VTSMX     VWEHX
Average                    12.15      8.2
StDEV                      18.33     10.45
CAGR                       10.5       7.69
Variance                  335.83    109.17
Correlation w/ US Mkt        1       0.79
Correlation w/ Intl Mkt     0.67     0.65
Sharpe Ratio                0.43     0.37
$1 Portfolio =            $13.41    $6.86
So the line for VTSMX is 10.5/18.33/0.43.
The line for VWEHX is 7.69/10.45/0.37
(CAGR/StdDev/Sharpe)

The correlation is high (+0.79), but the swings are less with VWEHX

In 2008, when VTSMX fell -37%, VWEHX fell only -21%
In 2009, when VTSMX rose +29%, VWEHX rose +20%

Lower return and lower risk for VWEHX compared to U.S. stocks

1. If you are going to sell, wait until there is no fee
2. Never pay a fee you can avoid. A key Boglehead principle is keep costs low.
4. You can just consider it as a replacement for part of your equity

IMO, Junk bonds are not something to buy and hold forever. They are more for trading. Look at the spread between investment-grade corporate and junk. Buy when the spread is high. Sell when the spread is narrow.
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