Wellesley and Wellington long term details Vs Indexes

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btenny
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Wellesley and Wellington long term details Vs Indexes

Post by btenny »

I posted earlier about the Fed raising the fed rate to 3% over the next year or two. I get it that that may or may not have much effect on longer term bond prices and lots of other things. But I also think old retired investors like me are going to get hammered if we do not handle our bond allocation well. I am very concerned about multi year periods of -6% or so real returns on 65% of my assets. It only takes -3% actual along with 3% inflation to start hammering a portfolio a bunch.

So I was looking around and wondering how Wellesley and Wellington did in the 1970s in a raising interest rate environment? I cannot find the details on those funds for that time period. Where do I look? Same for the index funds that existed back then if you know of them.

Thanks.
Grt2bOutdoors
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Re: Wellesley and Wellington long term details Vs Indexes

Post by Grt2bOutdoors »

https://www.vanguard.com/bogle_site/sp2 ... onbth.html

Read this - in it's entirety, then as Mr. Bogle says "Stay the Course" and "Press on Regardless".
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Levett
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Re: Wellesley and Wellington long term details Vs Indexes

Post by Levett »

You asked about the past (who knows about the future?).

I hope these two links from Morningstar post correctly.

http://beta.morningstar.com/funds/XNAS/VWINX/quote.html

http://beta.morningstar.com/funds/xnas/vwelx/quote.html

Click on "maximum" for the charts.

Lev
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Sheepdog
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Re: Wellesley and Wellington long term details Vs Indexes

Post by Sheepdog »

btenny wrote:I posted earlier about the Fed raising the fed rate to 3% over the next year or two. I get it that that may or may not have much effect on longer term bond prices and lots of other things. But I also think old retired investors like me are going to get hammered if we do not handle our bond allocation well. I am very concerned about multi year periods of -6% or so real returns on 65% of my assets. It only takes -3% actual along with 3% inflation to start hammering a portfolio a bunch.

So I was looking around and wondering how Wellesley and Wellington did in the 1970s in a raising interest rate environment? I cannot find the details on those funds for that time period. Where do I look? Same for the index funds that existed back then if you know of them.

Thanks.
I will write only about Wellesley in an increasing interest rate environment.
Past does not equate to the future, I know, but this is worth telling. The fund was founded in 1970. I do not have their history in the 1970s, but I can for later bond market drops. In 1994, a year with a major bond market collapse, the 30 year treasury interest rate increased 150 basis points. That year, Wellesley lost 4.4%. The rally in 1995, however, yielded a +29% total return for the fund....quite a turnaround. Many sold then and look at their probable losses because they missed the runup. (1999 also had a bond market drop causing a 4.1% drop in Wellesley. That recovered soon after.)

Wellesley did far worse in 2008 with the stock market drop that year to cause a loss of 10.3% in the fund . It also recovered. In the last 36 years, there have only been 4 years with losses with Wellesley. The 4th one not listed here was in 1987 due to bonds with a 1.9% loss.
Time is the school in which we learn, time is the fire in which we burn.~ Delmore Schwartz
CWhea1775
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Re: Wellesley and Wellington long term details Vs Indexes

Post by CWhea1775 »

Thanks to Lev's posts it looks like for Wellington there was a period from 1966 to 1974 where returns were essentially zero. Assuming that the chart is based on reinvested dividends and capital gains, with inflation running 3 - 8% in that period your real value was decreasing at the rate of inflation. If you relied on distributions then the nominal value decreased by at least 25% during that period as well. So to the OP's question - if the future exactly replicated that worst case scenario you would lose about 25 - 50% of actual value in Wellington in the next 8 years, depending on if you reinvest or use dividends and capital gains distributions.

A lot of "ifs" but I guess for the purpose of asking yourself "how would I feel?" it might be a useful question.
Grt2bOutdoors
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Re: Wellesley and Wellington long term details Vs Indexes

Post by Grt2bOutdoors »

CWhea1775 wrote:Thanks to Lev's posts it looks like for Wellington there was a period from 1966 to 1974 where returns were essentially zero. Assuming that the chart is based on reinvested dividends and capital gains, with inflation running 3 - 8% in that period your real value was decreasing at the rate of inflation. If you relied on distributions then the nominal value decreased by at least 25% during that period as well. So to the OP's question - if the future exactly replicated that worst case scenario you would lose about 25 - 50% of actual value in Wellington in the next 8 years, depending on if you reinvest or use dividends and capital gains distributions.

A lot of "ifs" but I guess for the purpose of asking yourself "how would I feel?" it might be a useful question.
Not quite, if you read the history of the Wellington fund which I posted up top, read in it's entirety will explain why there was a shortfall in performance.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
sambb
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Re: Wellesley and Wellington long term details Vs Indexes

Post by sambb »

people have been telling me for years that interest rates were at historic lows, and to invest in short term bonds. Years.
Meanwhile, total return has been better in long term bonds for the same period of years.
Im glad I didnt listen to people and invested in the intermediate term and long term bonds.
bigred77
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Re: Wellesley and Wellington long term details Vs Indexes

Post by bigred77 »

btenny wrote:I posted earlier about the Fed raising the fed rate to 3% over the next year or two. I get it that that may or may not have much effect on longer term bond prices and lots of other things. But I also think old retired investors like me are going to get hammered if we do not handle our bond allocation well. I am very concerned about multi year periods of -6% or so real returns on 65% of my assets. It only takes -3% actual along with 3% inflation to start hammering a portfolio a bunch.

So I was looking around and wondering how Wellesley and Wellington did in the 1970s in a raising interest rate environment? I cannot find the details on those funds for that time period. Where do I look? Same for the index funds that existed back then if you know of them.

Thanks.
OP,

Most total bond funds and ETFs track the Barclays U.S. Aggregate Bond Index (or something incredibly close to it).

Per the Wiki (https://www.bogleheads.org/wiki/Barclay ... Bond_Index) from 1976 forward:
- This index has never had a loss of 3% (worse year was -2.92%).
- Has never had back to back years of negative returns.

Current inflation estimates are well under 3% moving forward. It's been about 5 years since we've even seen 2% inflation.

I think bond investments will be fine going forward. I think fixed income heavy portfolios will be fine going forward. Concerns about unexpected inflation can be addressed by holding some TIPS. I would not make any drastic changes to my portfolio as a result of planned fed rate changes. This too, is just noise.
Topic Author
btenny
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Re: Wellesley and Wellington long term details Vs Indexes

Post by btenny »

Thanks guys. Very nice data on MStar. The report on Wellington is also very enlightening. It should be must reading for Bogleheads. Can someone add this to the WIKI? It shows what happens in a really bad market with raising interest rates and other head winds. I enjoyed reading how Mr. Bogle handled the shortfall in Wellington performance from 1966 to 1995ish. I hate to say it but the fund was a dog. The fund under performed so bad 50% of the balanced funds beat them. They basically lost 75% of their investor customers. But the startling thing was it taking 20 years and falling interest rates to get Wellington performance up to benchmarks. They redid the investing plan in 1978 and should have seen catch up soon but that did not come until 1995. So it took 20 years of tuning and so forth to get to 50% performance versus benchmarks.

So beware how bad things can happen in raising interest rate environments is my main conclusion.

Oh and based on that report alone I am not sure "Stay the course" is a good mantra if you own lot of bonds in 40/60 portfolio.

Good Luck.
Bfwolf
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Re: Wellesley and Wellington long term details Vs Indexes

Post by Bfwolf »

btenny wrote:Thanks guys. Very nice data on MStar. The report on Wellington is also very enlightening. It should be must reading for Bogleheads. Can someone add this to the WIKI? It shows what happens in a really bad market with raising interest rates and other head winds. I enjoyed reading how Mr. Bogle handled the shortfall in Wellington performance from 1966 to 1995ish. I hate to say it but the fund was a dog. The fund under performed so bad 50% of the balanced funds beat them. They basically lost 75% of their investor customers. But the startling thing was it taking 20 years and falling interest rates to get Wellington performance up to benchmarks. They redid the investing plan in 1978 and should have seen catch up soon but that did not come until 1995. So it took 20 years of tuning and so forth to get to 50% performance versus benchmarks.

So beware how bad things can happen in raising interest rate environments is my main conclusion.

Oh and based on that report alone I am not sure "Stay the course" is a good mantra if you own lot of bonds in 40/60 portfolio.

Good Luck.
If one is holding intermediate bonds, they are unlikely to get hammered in an unexpected rising interest rate environment, unless the unexpected rise is quite large and rapid. Rises the market expects will have no/limited impact.

I'm not sure what you mean by "stay the course" is not a good mantra if you own a lot of bonds. Are you suggesting that today it's a bad idea for somebody to own a lot of bonds? Or are you suggesting that if bonds drop significantly, staying the course would be a bad idea at that point?
Trev H
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Re: Wellesley and Wellington long term details Vs Indexes

Post by Trev H »

   
Returns for W&W that I have saved...

Wellington Fund 1930-2005

(21.21) (1930)
   (26.43)
   (1.82)
   6.82
   20.36
   35.37
   31.31
   (35.41)
   19.15
   10.30
   0.14
   (3.91)
   16.62
   24.88
   19.37
   23.13
   (2.38)
   (3.46)
   3.87
   16.51
   12.77
   12.36
   11.04
   1.89
   31.01
   15.54
   4.43
   (4.30)
   28.47
   8.86
   5.18
   18.95
   (5.19)
   11.90
   10.85
   5.44
   (6.61)
   8.15
   7.92
   (7.83)
   6.40
   8.88
   10.99
   -11.83
   -17.73
   25.18
   23.36
   -4.38
   5.32
   13.54
   22.58
   2.90
   24.55
   23.57
   10.70
   28.53
   18.40
   2.28
   16.11
   21.60
   -2.81
23.65
 7.93
13.52
-0.49
32.92
16.19
23.23
12.06
4.41
10.40
4.19
-6.90
20.75
11.17
6.82 (2005)


Wellseley Income fund 1970-2013

7.10 (1970)
15.03
9.75
-3.49
-6.43
17.46
23.28
4.27
3.62
6.20
11.88
8.67
23.30
18.60
16.64
27.41
18.34
-1.92
13.61
20.93
3.76
21.57
8.67
14.65
-4.44
28.91
9.42
20.19
11.84
-4.14
16.17
7.39
4.64
9.66
7.57
3.48
11.28
5.61
-9.84
16.02
10.65
9.63
10.06
9.19 (2013)

Trev H
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willthrill81
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Re: Wellesley and Wellington long term details Vs Indexes

Post by willthrill81 »

Trev H wrote:   
Returns for W&W that I have saved...
Thanks for that data! The additional data for VWINX is 8.07, 1.28, and 8.08.

It's truly impressive for a fund like Wellesley (or ANY fund really) to only have six years out of 47 with a loss (and all of those losses under 10%) and still manage to trail the S&P 500 by just .43% over the same period.

I think that a LOT of folks out there would be very well served with this fund.
Last edited by willthrill81 on Fri Jan 27, 2017 11:05 am, edited 1 time in total.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Topic Author
btenny
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Re: Wellesley and Wellington long term details Vs Indexes

Post by btenny »

I have 20% of my money in short term bonds, some munis and some investment grade. I did this a long time ago to minimize risk. It has worked OK. But now I am learning that might not be a good solution in the current environment or going forward. By not staying the course I mean I might need to sell some or most of my short term bond funds and buy intermediate term bond funds. This is contrary to what I learned back when. Everything I investigate says short bonds are more stable and lower risk. But now I am not sure that is true. Short term bonds loose money when rates raise and sometimes they loose money for several years in a row after inflation. The issue is they do not pay enough interest to cover the inflation and the occasional loss of value when rates go up. So net net you loose money. Intermediate term bonds loose money as well in raising rate environments but pay enough interest to break even or make money most years. So they seem to do better.

I know others on here are also talking a lot about CD ladders in lieu of bond funds. That is another alternative. But from the numbers I see CDs are not any better than short term bonds. Likely to loose money after inflation. And a big change of course for me.

So what to do is my question?
Correct?

PS. The above performance data from Trev on Wellington and Wellesley can be looked at in graph form on Morningstar. See below. Note that Wellington (a 60/40 portfolio) made less than Welleseley a 40/60 portfolio over 30 years in that environment.

http://quotes.morningstar.com/chart/fun ... ture=en_US
http://quotes.morningstar.com/chart/fun ... ture=en_US
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willthrill81
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Re: Wellesley and Wellington long term details Vs Indexes

Post by willthrill81 »

btenny wrote:I have 20% of my money in short term bonds, some munis and some investment grade. I did this a long time ago to minimize risk. It has worked OK. But now I am learning that might not be a good solution in the current environment or going forward. By not staying the course I mean I might need to sell some or most of my short term bond funds and buy intermediate term bond funds. This is contrary to what I learned back when. Everything I investigate says short bonds are more stable and lower risk. But now I am not sure that is true. Short term bonds loose money when rates raise and sometimes they loose money for several years in a row after inflation. The issue is they do not pay enough interest to cover the inflation and the occasional loss of value when rates go up. So net net you loose money. Intermediate term bonds loose money as well in raising rate environments but pay enough interest to break even or make money most years. So they seem to do better.

I know others on here are also talking a lot about CD ladders in lieu of bond funds. That is another alternative. But from the numbers I see CDs are not any better than short term bonds. Likely to loose money after inflation. And a big change of course for me.

So what to do is my question?
Correct?

PS. The above performance data from Trev on Wellington and Wellesley can be looked at in graph form on Morningstar. See below. Note that Wellington (a 60/40 portfolio) made less than Welleseley a 40/60 portfolio over 30 years in that environment.

http://quotes.morningstar.com/chart/fun ... ture=en_US
http://quotes.morningstar.com/chart/fun ... ture=en_US
It seems that you're looking for a way to beat inflation that is not at risk of losing money in the short-term. I do not believe that such an investment vehicle exists.

To one of your concerns, short-term bonds are largely unaffected by interest rate hikes unless the hikes are faster and steeper than anticipated. Longer term bonds are much more impacted by interest rate hikes.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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