Low risk tax efficient short term investment - is it Wellesley

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nonamer800
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Low risk tax efficient short term investment - is it Wellesley

Post by nonamer800 » Sun Mar 04, 2018 12:17 am

Hi, I have about 15% of my money in a taxable account invested in Wellesley Income fund.

I want a low risk investment that hopefully tries to preserve capital. When I checked Wellesley during the 2008 crisis, it dropped only about 10%.

I want to use this money for a down payment if I need to buy a home(which could be this year or next)

I didn’t invest in short term bonds, because essentially I was taking a gamble that the market will not drop this year or next, and therefore I can better returns with Wellesley.

I’m starting to dislike Wellesley because it is increasing my taxable income every year(with dividends) instead of the year when I sell the investment. Any suggestions on a better fund?

Also any feedback regarding my strategy to invest in Wellesley for money that I might need to withdraw this year or next?

Thank you

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BL
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Re: Low risk tax efficient short term investment - is it Wellesley

Post by BL » Sun Mar 04, 2018 1:34 am

I suggest you invest in FDIC insured CDs for something you need to be available that soon. Search for online banks or CUs that have better interest rates and short terms. Hi-rate money market or savings account may be what you need to have it instantly available. I have heard that Ally bank has breakable CDs at decent rates for now.

Lafder
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Re: Low risk tax efficient short term investment - is it Wellesley

Post by Lafder » Sun Mar 04, 2018 1:49 am

Wellesley is 60% bonds, and that helps buffer drops in stock market crashes.

Wellesley pays a lot of dividends so it is not tax efficient if you are looking to minimize taxes.

Lower risk would be:cash, bonds, money market, CDs.

lafder

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randomizer
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Re: Low risk tax efficient short term investment - is it Wellesley

Post by randomizer » Sun Mar 04, 2018 1:57 am

Tax-managed balanced fund? It's about 50:50 (really, 52:48 or something like that). Risk is still there of course, but nothing like a 90:10 portfolio.

You could go for short-term treasuries, which are considered "risk free" if you hold them to maturity, and state-tax exempt, so relatively tax-efficient.
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mega317
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Re: Low risk tax efficient short term investment - is it Wellesley

Post by mega317 » Sun Mar 04, 2018 3:39 am

You wouldn't be the first person on this board to use Wellesley for something like this. At least one prominent poster has a large chunk of his emergency fund there. Sounds like you understand there are risks, though I'm puzzled how you can want to gamble and also preserve "principle".

No it's not particularly tax efficient. Neither are most investments that people will suggest you use instead.

aristotelian
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Re: Low risk tax efficient short term investment - is it Wellesley

Post by aristotelian » Sun Mar 04, 2018 7:19 am

Muni bonds, either the fund that is exempt for your state or intermediate duration. Note that even with bonds you are taking risk especially in a rising interest rate environment.

mega317
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Re: Low risk tax efficient short term investment - is it Wellesley

Post by mega317 » Sun Mar 04, 2018 7:21 am

Can't recommend munis without knowing OPs marginal tax rate.

aristotelian
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Re: Low risk tax efficient short term investment - is it Wellesley

Post by aristotelian » Sun Mar 04, 2018 8:26 am

mega317 wrote:
Sun Mar 04, 2018 7:21 am
Can't recommend munis without knowing OPs marginal tax rate.
True, although he is worried about taxes on the dividends, so Munis would be the solution.

tibbitts
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Re: Low risk tax efficient short term investment - is it Wellesley

Post by tibbitts » Sun Mar 04, 2018 8:44 am

nonamer800 wrote:
Sun Mar 04, 2018 12:17 am

Also any feedback regarding my strategy to invest in Wellesley for money that I might need to withdraw this year or next?
That's a poor strategy. You know the money has to be in a cash equivalent (CD, money market, etc.), tax exempt or otherwise. You also know that 2008 is not a good model for future market downturns. You also know that the problem with Wellesley isn't the taxes as much as it is paying those taxes while your account balance plunges at the same time. You're just hoping someone will tell you otherwise.

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BL
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Re: Low risk tax efficient short term investment - is it Wellesley

Post by BL » Sun Mar 04, 2018 9:06 am

From my Vanguard Watch List:
Name Symbol Price as of 03/02/2018 SEC Yield YTD Returns as of 03/02/2018

Wellesley Income Fund Adm VWIAX $63.61 3.00% B –2.59%
So YTD (year-to-date), Wellesley is down -2.59%, even more than the -2.08% for Total Bond Market. Not great for money needed soon.

(I have some in a retirement account I don't plan to access for quite a while. Past performance does not guarantee future performance.)

Edward Joseph
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Re: Low risk tax efficient short term investment - is it Wellesley

Post by Edward Joseph » Sun Mar 04, 2018 9:55 am

I would not use Wellesley Income for money that I may need for a down payment in 1-2 years. If you're not satisfied with FDIC insured bank products, you may want to consider the bulk of the portfolio in Ultra Short Term bond (VUSFX) or partly in Short Term Bond (BSV). For some upside potential, you can have 20%-30% allocated to Total World stock or Total US Stock market.

The duration of the bonds in Wellesley Inc are intermediate term (6.5 years). You want to work on limiting the duration of your Bond holdings to roughly match your time horizon. Ultra Short Term Bond (VUSFX) is about 1 year duration. Short Term Bond (BSV) is 2.7 years.

dbr
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Re: Low risk tax efficient short term investment - is it Wellesley

Post by dbr » Sun Mar 04, 2018 10:02 am

Wellesley is NOT a low risk, tax efficient investment.

haban01
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Re: Low risk tax efficient short term investment - is it Wellesley

Post by haban01 » Sun Mar 04, 2018 10:09 am

dbr wrote:
Sun Mar 04, 2018 10:02 am
Wellesley is NOT a low risk, tax efficient investment.
Asset Allocation should be the main driver. How much in stocks vs. Bonds rather than throwing a fund name out there as recommendations.

Great fund and AA with a longer term time frame as mentioned above. Could be huge tax issue as well depending on brackets.
Eric Haban | | "Stay the Course" | "Press on Regardless" | | Wisconsin Bogleheads Chapter Coordinator

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grabiner
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Re: Low risk tax efficient short term investment - is it Wellesley

Post by grabiner » Sun Mar 04, 2018 5:45 pm

Wellesley is not suitable as a short-term investment. It holds fairly long-term bonds, so if interest rates rise, the bond portion of Wellesley will lose value.

If you are planning to spend money in less than five years, it should be in bond funds of similar duration to your time horizon, such as CDs or short-term bond funds. In a high tax bracket, Vanguard Limited-Term Tax-Exempt is a reasonable choice.
Wiki David Grabiner

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