Vanguard Wellesly Income

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WaldenAshes
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Vanguard Wellesly Income

Post by WaldenAshes » Sat Dec 08, 2018 12:38 pm

Love the forum.

I am 65 and want to address my retirement.
I have SS and a small annuity and $650K in Cash; 175k IRA Rollover and 474K Taxable. (Plus I have ~ $90k for emergency but don't include).

All my money is in Fidelity and I'm getting all sorts of advice about bond ladders, managed accounts etc.

But from all my own research (a great deal), the Vanguard Wellesley Income Fund is the solution for me. Great asset allocation and inexpensive. Plus, they were only down ~9.8% in 2008! I could definitely handle that psychologically.

Between SS, a small annuity and the TTM Yield of 2.97% of VWINX - I could live simply and not touch the principal.
No need to rebalance.
VWINX is 22bps. (The Admiral version is only 15bps but I don't think Fidelty sells it.)

Why is this a bad idea?????

I meet on Monday morning and plan on telling them this is my plan.
Any advice appreciated!

Thanks for reading
Peter

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mhadden1
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Re: Vanguard Wellesly Income

Post by mhadden1 » Sat Dec 08, 2018 1:25 pm

Although I tend to like Wellesley, I would not go 100% - some random thoughts:

About 40/60 stocks/bonds, around 100 value-ey stocks, mostly investment grade bonds. Is this part of the "secret sauce" that accounts for Wellesley success through the years? Maybe so, probably so. Will it remain secret, and saucy? I certainly can't say.

Not sure I would want 100% of my equity allocation in 100 stocks.

While it is actively managed, the expenses are relatively low.

Can produce unwanted capital gains distributions.

Very light (zero?) international component. I like to have more.

The lack of need to rebalance is convenient.

If I had a lot of Wellesley I would certainly hold it somewhere, like Vanguard, to get Admiral shares.

I see posters on the forum that use a portion of Wellesley along with something else: a life cycle or target date fund, 50% Wellington to get to a 50/50 allocation, etc. Schemes like this strike me as ok.

IANAEOW. (I am not an expert on Wellesley)
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

radiowave
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Re: Vanguard Wellesly Income

Post by radiowave » Sat Dec 08, 2018 1:30 pm

OP, welcome to the forum.

I just took a look and you can purchase VWINX in Fidelity, there is a $75 fee, it is showing a 0.22 Expense Ratio. I don't see any additional loads or fees but you may want to make sure by calling Fidelity. Wellesly is a commonly used fund and recommended by many here on the BH forum.

Another option with your current cash is short term Treasury bills. The 1 year bill has been yielding about 2.6%. Easy to purchase T-Bills at Fidelity and you can choose automatic roll overs, similar to CDs.
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friar1610
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Re: Vanguard Wellesly Income

Post by friar1610 » Sat Dec 08, 2018 1:35 pm

If you do a search on Wellesley you will find LOTS of discussion on the pros and cons; there are an awful lot of BHs who are convinced that Wellesley is the best thing since bottled beer. And given its consistently reliable performance over the years they have an excellent argument. The main rap against Wellesley seem to be that it's not sufficiently diversified - it holds a relatively small number of stocks (and those are primarily of the large value variety) and bonds (mainly corporate and including a few that trade quality for yield) compared to the index funds or Target Retirement/Life Cycle funds with equivalent allocations. The other hit seems to be that many think the golden age for bonds is over and it won't be able to repeat its past performance going forward.

I would recommend reading a number of earlier threads and then making up your mind. My sense is that you could do a lot worse than going with Wellesley.
Friar1610

donaldfair71
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Re: Vanguard Wellesly Income

Post by donaldfair71 » Sat Dec 08, 2018 1:37 pm

I don't think it's a bad idea at all. Just be prepared, in a downturn (this could happen in any environment) for dividends to go down at times. This happened, even with Wellesly, during the Great Recession. So having "enough" from dividends today doesn't mean you will have enough tomorrow, and so forth.

desiderium
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Re: Vanguard Wellesly Income

Post by desiderium » Sat Dec 08, 2018 1:43 pm

I would start with some tax planning, which can have a significant impact on your overall investment expenses.
If your income is relatively low, you might want to keep stocks in taxable and take qualified dividends at a preferred (or zero) rate. Also consider Roth conversions before RMDs kick in.
Wellesley is a good fund, but it has particular tax characteristics that may or may not fit your needs.

WaldenAshes
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Re: Vanguard Wellesly Income

Post by WaldenAshes » Sat Dec 08, 2018 1:53 pm

Thanks for the feeback Mhadden and Radiowave!

Interestingly I thought I had read the fund essentially used their ETF (VYM) equities which supposedly has 398 equities (high dividend) but the Morningstar write up on Wellesley says only 70 stocks and 1120 bonds? Not even 100. Still...

I didn't mention it but I was one of those idiots that lost a fortune (close to $1mm in 2007-2008) and have been in cash since. Oh well. So naturally I assume the market will tank if I go all in. But a huge selling point for me is Wellesley's 2008 performance of only being down 9.8% - definitely could handle that psychologically.

The only good thing that I have been doing is rolling my money over in 28 day T-Bills.......Fidelity does make it easy.
But they do charge $75 for a Vanguard Transaction (but that would only be $150 total).
Probably should move money to Vanguard and pick up the extra 7bps.

Would you guys dollar cost average or just go all in. I'm thinking all in.....

nix4me
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Re: Vanguard Wellesly Income

Post by nix4me » Sat Dec 08, 2018 1:55 pm

Why?

You could easily park 50% in FZROX (total stock market index) - 0% fee
And 50% in FXNAX (total bond market index) - 0.025% fee

And pull 3%-4% each year.

You would never run out of money
You save huge $$$ on fees

tibbitts
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Re: Vanguard Wellesly Income

Post by tibbitts » Sat Dec 08, 2018 1:58 pm

It's a bad idea, on all sorts of grounds, just not the worst idea you could come up with.

You don't say anything about tax implications of moving funds to this fund - are all your investments in deferred accounts?

Any one fund can go off the rails. Wellesley is managed by Wellington Management, and the way it Wellington off the rails in the past is legendary. I believe that if you buy active funds - and I do own some - you should buy a bunch of them. There are lots of good managed funds out there but there is no reason to hold only one.

Remember that a lot of the history you're looking at is during an historic bond bull market, and Wellesley is betting on a particular segment of the bond market. Not all equity bear markets are accompanied by bond bulls.

I'm not sure it's worth paying more to hold Wellesley at Fidelity vs. moving it to Vanguard, IF this is a serious amount of money - and I'm guessing you're talking millions of dollars that you'll be putting into this one fund. There is no agreement on the forum about this, but I think it's not a horrible idea to diversify by holding accounts with two or three entities - and I do that.

Wellesley has very little international exposure, and most of us consider that a disadvantage, or at least less appropriate than more diversified holdings.

I don't understand why you're having a meeting about this. This is not a plan that any managed account rep would approve of - Vanguard reps would definitely not approve of it. So if you're doing this you're saying goodbye to your rep and that's okay if you mean to do that, but I think it's just needless contentious to have a meeting to do that.

tibbitts
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Re: Vanguard Wellesly Income

Post by tibbitts » Sat Dec 08, 2018 2:00 pm

nix4me wrote:
Sat Dec 08, 2018 1:55 pm
Why?

You could easily park 50% in FZROX (total stock market index) - 0% fee
And 50% in FXNAX (total bond market index) - 0.025% fee

And pull 3%-4% each year.

You would never run out of money
You save huge $$$ on fees
I don't think you'll get much support for 3-4% being perpetual, and you'd be ending up with no international exposure.

However yes you could save fees by doing this with index funds at Fidelity.

WaldenAshes
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Re: Vanguard Wellesly Income

Post by WaldenAshes » Sat Dec 08, 2018 2:03 pm

Thanks Friar, Donald, Desiderium and Nix -

I did thoroughly read the Forum about people's take on Wellesley. Was chiming in now because I have a meeting Monday with the fidelity guy. I have been through the ringer and the poster child for what not to do market-timing wise but that is water under the bridge. It has taken almost 10 years to accept my mistakes - but I have. So want to keep it as simple as possible. Glad I found this board. Gives me some thoughts for Monday.

Nix I will check out your suggestion.

Thanks All
Peter

UpperNwGuy
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Re: Vanguard Wellesly Income

Post by UpperNwGuy » Sat Dec 08, 2018 2:06 pm

tibbitts wrote:
Sat Dec 08, 2018 1:58 pm
I don't understand why you're having a meeting about this. This is not a plan that any managed account rep would approve of - Vanguard reps would definitely not approve of it. So if you're doing this you're saying goodbye to your rep and that's okay if you mean to do that, but I think it's just needless contentious to have a meeting to do that.
+1

Carol88888
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Re: Vanguard Wellesly Income

Post by Carol88888 » Sat Dec 08, 2018 2:11 pm

I really like the idea that you are facing your true risk tolerance and have chosen something with about 40-35% equity. Smart.

My concern is how did this fund perform in the high inflation period of late 60s and 70s? Those bonds could be hit year after in that environment.

Say you went with 35% in a broad index. Then you could split your fixed income between a total bond index and a money market (or T-bills) and that might be even safer.

WaldenAshes
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Re: Vanguard Wellesly Income

Post by WaldenAshes » Sat Dec 08, 2018 2:13 pm

Tibitts -

I posted the $$$ and where they sit (taxable/non-taxable) in my first post. I am not being contentious though - Fidelity wanted to work up a plan for me and I was simply asking what was wrong with going all in with a single fund that rebalances annually, is relatively inexpensive and has what I think is a good asset allocation.

Thanks
Peter

tibbitts
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Re: Vanguard Wellesly Income

Post by tibbitts » Sat Dec 08, 2018 2:40 pm

WaldenAshes wrote:
Sat Dec 08, 2018 2:13 pm
Tibitts -

I posted the $$$ and where they sit (taxable/non-taxable) in my first post. I am not being contentious though - Fidelity wanted to work up a plan for me and I was simply asking what was wrong with going all in with a single fund that rebalances annually, is relatively inexpensive and has what I think is a good asset allocation.

Thanks
Peter
Sorry I missed the amounts, my fault. It's kind of in-between at that level for the savings on Admiral to matter a lot, vs. the hassle of transferring. On the other hand you're already out of the market and to me that's the biggest hassle of transferring - the time it takes and being out of the market during that time, which you won't have to worry about So, no better time to do it than now - don't do it later.

Wellesley and all balanced funds rebalance continously not annually - that's arguably an advantage.

I am just saying that it's awkward having the conversation with Fidelity or anyone - you're kind of asking their advice and then saying you want to do something you know ahead of time that they will completely disagree with. And like I said Vanguard advisers would not approve of your plan either.

WaldenAshes
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Re: Vanguard Wellesly Income

Post by WaldenAshes » Sat Dec 08, 2018 6:32 pm

Tibitts -

Thanks for the follow-up. I hear what you are saying about the dynamics with the rep. I guess what I'm trying to do (which I didn't explain very well) is go into the meeting with a framework that I understand and am comfortable with (Wellesley). Then be open to his thoughts on how to develop a similar portfolio or gameplan. I would personally like to stay with Fidelity because it is a robust platform and am open to good advice.

I guess what I am really asking is......If I want to consistently generate ~ 3% per year in income and have equity exposure - is the Wellesley Fund template a good model?

When I am in meetings I easily get overwhelmed with multiple options. So I wanted to get feedback if the Wellesley Fund was a good reference portfolio to operate from.....

Really appreciate all the feedback. The more the better.

Peter

radiowave
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Re: Vanguard Wellesly Income

Post by radiowave » Sat Dec 08, 2018 7:01 pm

Peter, It's not clear to me where you are purchasing the Wellesly. If it is using the $650k cash (assuming this is in a taxable/bank account), I would strongly recommend a 1 year CD, current returns are 2.65% (https://www.ally.com/ ). These are FDIC insured to $250k/person/account. If you are looking to invest the 650k in a taxable account at Fidelity, the total stock and total international would be a good choices (FSKAX and FSGGC respectively).

Note, the dividends are not "free money" but a force sale of current assets. E.g. if you have 100,000 net value of a fund in a taxable account, and a 3% distribution occurs, when the account settles you would have 97,000 value and 3,000 in cash which is a taxable event in a taxable account. So dividends are a type of forced sale. Just FYI
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WaldenAshes
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Re: Vanguard Wellesly Income

Post by WaldenAshes » Sat Dec 08, 2018 8:06 pm

Well if in fact I bought the Wellesley.....I would likely move that money into Vanguard and and take advantage of buying the Admiral shares. Pick up 7bps and not pay transaction fee.

As to the yield and how it is a forced sale......it is an important point. I understand that the price of an equity gets adjusted downward when a dividend is paid out and it is a taxable event but here is my question. In 2016 as an example - the Wellesley Fund had a Total Return of 8.08%

Isn't it true that if I owned $100,000 during the entire 2016 year and the yield of the fund was ~ 3%. I would have $105,000 at years end. I understand I would pay tax on the $3000.

Am I thinking about this wrong?

Thanks
Peter

radiowave
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Re: Vanguard Wellesly Income

Post by radiowave » Sat Dec 08, 2018 8:16 pm

Peter, good question. Any particular fund can increase in value (unrealized gain) and stock funds tend to have both unrealized gains and dividends. So a fund like Wellesley can have both increased net asset value and dividends which decrease NAV. You only reap the unrealized gain when you sell the fund and the difference between the principal and total value at time of sale is capital gains which are taxed at a different rate than ordinary income (e.g. interest from $ in a high yield savings account).
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WaldenAshes
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Re: Vanguard Wellesly Income

Post by WaldenAshes » Sat Dec 08, 2018 8:29 pm

Thanks Radio but to continue the line of thinking

In my previous example.....if in fact the yield (dividend) was 3% that would mean the other 5.08% was unrealized capital appreciation - correct?

So I could distribute the $3,000 to myself (not reinvest dividends) and let the remainder $105,080 balance run in to the next year.
Or, additionally sell $5,080 worth of shares (paying cap gains) but still have a balance of $100K.

True?

MotoTrojan
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Re: Vanguard Wellesly Income

Post by MotoTrojan » Sat Dec 08, 2018 8:47 pm

Not very tax-efficient and lacking some diversity. Maybe go 100% Well in your tax-advantaged and a similar AA Lifestrategy or similar fund in your taxable?

Also don’t expect bonds to continue as they had; they explain a lot of its performance.

venkman
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Re: Vanguard Wellesly Income

Post by venkman » Sun Dec 09, 2018 1:26 am

WaldenAshes wrote:
Sat Dec 08, 2018 12:38 pm
But from all my own research (a great deal), the Vanguard Wellesley Income Fund is the solution for me. Great asset allocation and inexpensive. Plus, they were only down ~9.8% in 2008! I could definitely handle that psychologically.
Wellesley was down 9.8% for the calendar year 2008, but then it dropped another 9% in the first 2 months of 2009, so the total drawdown was nearly 19%. That's still better than most other blended funds did, but it's twice as high as the number you felt comfortable with, so just be aware.

gks
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Re: Vanguard Wellesly Income

Post by gks » Sun Dec 09, 2018 2:14 am

venkman wrote:
Sun Dec 09, 2018 1:26 am
WaldenAshes wrote:
Sat Dec 08, 2018 12:38 pm
But from all my own research (a great deal), the Vanguard Wellesley Income Fund is the solution for me. Great asset allocation and inexpensive. Plus, they were only down ~9.8% in 2008! I could definitely handle that psychologically.
Wellesley was down 9.8% for the calendar year 2008, but then it dropped another 9% in the first 2 months of 2009, so the total drawdown was nearly 19%. That's still better than most other blended funds did, but it's twice as high as the number you felt comfortable with, so just be aware.
Walden,

Then after the 9% decline in February, it finished the year up 15.5% per Morningstar.

01-02-09 10,051.60
12-31-09 11,613.52

Not a bad return for a fund that is ~35ish stocks.

And to correct above posts about no international, Morningstar lists international as ~5.5%.

Greg

international001
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Re: Vanguard Wellesly Income

Post by international001 » Sun Dec 09, 2018 4:40 am

I haven't see any passive combination of funds beat Wellesly.

Said that, it should be not used on a taxable account. It's very tax inefficient (by design)

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nativenewenglander
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Re: Vanguard Wellesly Income

Post by nativenewenglander » Sun Dec 09, 2018 9:01 am

donaldfair71 wrote:
Sat Dec 08, 2018 1:37 pm
I don't think it's a bad idea at all. Just be prepared, in a downturn (this could happen in any environment) for dividends to go down at times. This happened, even with Wellesly, during the Great Recession. So having "enough" from dividends today doesn't mean you will have enough tomorrow, and so forth.
The dividends on VWINX were not lowered during the recession of 2008-09.
Jun 25, 2009 0.219 Dividend
Mar 26, 2009 0.233 Dividend
Dec 16, 2008 0.585 Dividend
Sep 25, 2008 0.24 Dividend
Jun 26, 2008 0.252 Dividend
Mar 27, 2008 0.23 Dividend
Dec 13, 2007 0.538 Dividend
Sep 21, 2007 0.23 Dividend
Jun 22, 2007 0.23 Dividend
Mar 23, 2007 0.2 Dividend
Dec 15, 2006 0.938 Dividend
Sep 22, 2006 0.23 Dividend
Jun 23, 2006 0.22 Dividend
Mar 24, 2006 0.2 Dividend
Dec 16, 2005 0.637 Dividend
Sep 23, 2005 0.215 Dividend
Jun 24, 2005 0.21 Dividend

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bilperk
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Re: Vanguard Wellesly Income

Post by bilperk » Sun Dec 09, 2018 10:39 am

Peter,
Wellesley is a great fund. Right now might not be the best time, with FED raising rates, however. On the tax issue, don't let the tax tail wag the dog. If you need the yield income, then your tax will be at dividend rates, based on your income. Any money you take from selling shares of index funds as suggested will be taxed as ordinary income. While you will need to pay tax on capital gains with Wellesley, you have the option to take them in cash or reinvest them. Opinions differ, but a fund that generates capital gains on a regular basis means the managers are setting price goals and selling when they reach them. I consider this a good thing. As for 2008, there are things that happen once a lifetime, like the inflation in the 80's. It is rare that both intermediate bonds and stocks fall at the same time in a recession. This was an unusual one. And although we can't be sure, I would bet the next recession won't see bond NAVs fall like that.
For a retiree, 90K seems like a very large emergency fund. In fact, why would you even need an emergency fund, as all your holdings are liquid with a couple of clicks. I would decide on an AA that includes some cash if you want, but include the rest in your AA.
Again, opinions vary, but I think Wellesley is diversified enough for someone who wants/needs so little from their assets. Not sure about 100%, but it isn't a bad choice, based on Wellesley's history. Now some will tell you that Wellesley's large returns are in the past and that the past isn't prologue. I agree with Bogle that we will likely see muted return for some time in the future. However, I also agree with Bogle that the bond portion of Wellesley (63%) Will pretty much get the total return over its duration, based on its current yield. So you pretty much know what the bond portion of the return will be going in. You can expect the equity portion to do pretty close to whatever the equity market does.
Just my 2 cents. Good luck.
Bill

tibbitts
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Re: Vanguard Wellesly Income

Post by tibbitts » Sun Dec 09, 2018 10:55 am

WaldenAshes wrote:
Sat Dec 08, 2018 6:32 pm
Tibitts -

Thanks for the follow-up. I hear what you are saying about the dynamics with the rep. I guess what I'm trying to do (which I didn't explain very well) is go into the meeting with a framework that I understand and am comfortable with (Wellesley). Then be open to his thoughts on how to develop a similar portfolio or gameplan. I would personally like to stay with Fidelity because it is a robust platform and am open to good advice.

I guess what I am really asking is......If I want to consistently generate ~ 3% per year in income and have equity exposure - is the Wellesley Fund template a good model?

When I am in meetings I easily get overwhelmed with multiple options. So I wanted to get feedback if the Wellesley Fund was a good reference portfolio to operate from.....

Really appreciate all the feedback. The more the better.

Peter
Regarding the template, my main concern would be almost complete lack of international exposure and no inflation-indexed securities, but you could do much worse.

However remember how inflation might factor in. It wasn't that long ago that retirees in the U.S. got hit by years of double-digit inflation and losses in both their bond and stock portfolios. There are no inflation-adjusted equities in Wellesley - not that they were around in retiree portfolios back in the double-digit inflation years either. In theory yes, you should be able to take 3% of your original balance at retirement, adjusted for inflation, for 30 years - but personally I couldn't do that in the face of the economic environment of those years.

WaldenAshes
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Re: Vanguard Wellesly Income

Post by WaldenAshes » Sun Dec 09, 2018 11:41 am

Thanks Bill and everyone......

This discussion has been incredibly helpful in distilling my thoughts.
As I said, I will meet with this Fidelity rep for the first time tomorrow morning and I am sure it will be far more productive as a result of this work.

The 90K was less an emergency fund per se than money I wanted to keep out of the mix and discussion. I simply wanted the board to know it was there.

I am very lucky in that I enjoy the simple things in life; my losses 10 years ago was not really about the $$$ (greed) - it was more about the thrill. But that is behind me now.

I totally agree about not letting the tail wag the dog when it comes to taxes (although I still have a couple of hundred thousand in long term capital losses and a bit of short term losses). I want an asset allocation that makes sense to this brain and won't suffer more than a 20% drawdown.

I want to keep it simple and develop/deploy an asset allocation (sanctioned also by my Fidelity rep) that can generate ~ $18,000 per year (in today's dollars) going into the future. That would fill the gap I see in my income.

The pot is $175K (IRA Rollover) and $475K (Taxable Account).

My biggest hurdle continues to be my fear of bad timing; capital destruction moving back into the market at the wrong time.
This I think is why I gravitated to the Wellesley Fund to begin with......

Any more thoughts would be greatly appreciated.
I will update the board in any event after the meeting tomorrow.

Thanks
Peter

iamblessed
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Re: Vanguard Wellesly Income

Post by iamblessed » Sun Dec 09, 2018 6:50 pm

Wellesly in a great fund. The biggest down side I see in a bigger tax bill.

donaldfair71
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Re: Vanguard Wellesly Income

Post by donaldfair71 » Mon Dec 10, 2018 8:36 am

nativenewenglander wrote:
Sun Dec 09, 2018 9:01 am
donaldfair71 wrote:
Sat Dec 08, 2018 1:37 pm
I don't think it's a bad idea at all. Just be prepared, in a downturn (this could happen in any environment) for dividends to go down at times. This happened, even with Wellesly, during the Great Recession. So having "enough" from dividends today doesn't mean you will have enough tomorrow, and so forth.
The dividends on VWINX were not lowered during the recession of 2008-09.
Jun 25, 2009 0.219 Dividend
Mar 26, 2009 0.233 Dividend
Dec 16, 2008 0.585 Dividend
Sep 25, 2008 0.24 Dividend
Jun 26, 2008 0.252 Dividend
Mar 27, 2008 0.23 Dividend
Dec 13, 2007 0.538 Dividend
Sep 21, 2007 0.23 Dividend
Jun 22, 2007 0.23 Dividend
Mar 23, 2007 0.2 Dividend
Dec 15, 2006 0.938 Dividend
Sep 22, 2006 0.23 Dividend
Jun 23, 2006 0.22 Dividend
Mar 24, 2006 0.2 Dividend
Dec 16, 2005 0.637 Dividend
Sep 23, 2005 0.215 Dividend
Jun 24, 2005 0.21 Dividend
They absolutely were if you go out to 2010/2011.

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