Move all Wellington shares to Total Stock Market Index?

[mymoneyresearch]

VWENX: Turnover rate 39%. Expense: 0.18. Ten year return: 8.38%. Estimated cap. gains 2024: 8.29%.

VTSAX: Turnover: Index fund, so hopefully low. Expense: 0.04. Ten year return: 12.38.

My share value of VTSAX: $310.6 K, taxable account. Marginal tax rate: 22%.
Please consider the subject question in isolation of all other financial aspects. As always, your input
is greatly appreciated.

[Geologist]

Do you mean your holdings of Wellington are $310.6K? (Otherwise, you don't mention what, if any, holdings you have in Wellington.) What capital gains might be realized by selling Wellington to invest in Total Stock Index?

Giving 10 year returns of each fund is not too meaningful as they are completely different kinds of funds. Wellington is a balanced fund (roughly 60% stock, 40% bonds, I think) and Total Stock Index is 100% stocks.

Why would you want to do this?

[Beensabu]

That would be a change in your AA towards a more equity heavy allocation.

[jebmke]

I agree; the historical results are irrelevant. In addition to being two different investments, they are historical results; without special equipment one cannot go back and invest in the past.

[jackholloway]

There is not much to analyze, as this should be a question of what asset allocation you want.

From their webpage:
* Balanced asset allocation: 60%–70% stocks, 30%–40% bonds.
* Large- and mid-cap value stocks.
* Intermediate-, short-, and long-term government and investment-grade corporate bonds.

This is not the same as the total stock market index. If you want a 60/40 fund with the stocks in large and mid value, it's a decent one. Not as cheap as an index, but still reasonably priced.

The returns were lower than a total market index, but that's what investing in bonds does in a rising market. Had rates stayed at or near zero, and the market collapsed like many were predicting, then Wellington would have looked like a smart play.

My AA allows for moving anywhere in 40/60 to 60/40, depending on expected cash flow needs, so this would be a reasonable choice for me. I am instead using broad index funds, TIPS, and CA munis, based on where the assets are located. I'm not sure you should ask me for investment advice, though, as I moved my portfolio to 50/50 just in time to get nailed by rising rates. It's now at about 60/40, and I think I'll keep it there.

[KlangFool]

OP,

/Sarcasm on

In order to make money, you should "Buy Low and Sell High". Given the historical result, it would seem like you should put even more money into the Wellington Fund!

/Sarcasm off.

30% of my portfolio is in the Wellington Fund. I am not selling.

KlangFool

[123]

Of course Wellington is actively managed versus the Total Stock Market being an index. The investments are not comparable and would represent a substantial increase in your risk exposure by eliminating the bond component. Could be a very rocky ride if trouble hits the stock market without the calming effects of fixed income which helps to steady Wellington.

Depending on the tax consequences of selling Wellington you could just direct dividends and new money to the Total Stock Market Index if you can accept a more gradual transition over time without the tax hit (which depends on your income and bracket). But the "do it all now" crowd sometimes just loves to pay taxes.

[Mr. Potter]

A 10 year return of 8.38%, er.18 admiral shares, 65/35 stocks to bonds. There’s a whole lot of people who really like this fund myself included. Switching to 100% stocks is not even a close comparison, do whatever you want, there’s no rule you need bonds if you don’t want them.

[Grt2bOutdoors]

If you want to go the index route and maintain the Wellington allocation to save a few bucks on expenses - use VTV - 65% and VCIT at 35%, that approximates the asset allocation mix but then you’ll be tasked with rebalancing from time to time.

On the question of switching to VTSAX, are you performance chasing or willing to accept greater risk in the pursuit of higher returns? Comparing apples to oranges, each has its own flavor profile and confer certain benefits that the other does not.

[Hacksawdave]

VWENX: Turnover rate 39%. Expense: 0.18. Ten year return: 8.38%. Estimated cap. gains 2024: 8.29%.

VTSAX: Turnover: Index fund, so hopefully low. Expense: 0.04. Ten year return: 12.38.

My share value of VTSAX: $310.6 K, taxable account. Marginal tax rate: 22%.
Please consider the subject question in isolation of all other financial aspects. As always, your input
is greatly appreciated.

Do what you wish. The only question I would consider is why did you buy Wellington in the first place?

I am adding to my Wellington position as it has a specific purpose in my Roth IRA to diversify holding the index funds and provides an increasing income distribution with new shares via reinvestment. The capital gains turnover is expected and that is why it resides in my Roth.

During the ‘lost decade’ Wellington beat Total Stock easily finishing with almost twice the ending market value of an initial investment of $10K placed in January of 2000. That is why one has diversification.

[rkhusky]

Wellington is best used in a tax-advantaged account, while VTSAX is great for a taxable account.

If you are spending the distributions, Wellington is reasonable in a taxable account.

I would not incur large capital gains by switching Wellington to VTSAX in a taxable account.

[nisiprius]

I would not make an abrupt, large change in my asset allocation by switching from a balanced fund (Wellington, 65/35) to an all-stocks fund (VTSAX, 100/0). And you haven't given any reason at all for doing this.

If your intention is to go all-indexed, one of many reasonable things you could do would be to switch from Wellington to the Vanguard Balanced Index Fund.

If your intention is to go to a higher-risk portfolio with a higher stock allocation, I would suggest doing so gradually.

Always consider risk and return together. Consider the behavior of VWENX and VTSAX in 2008-2009. If a pair of investors both invested $10,000 at the start of 2008, one in VWENX and the other in VTSAX, the VTSAX investor would have fallen so far behind that they would not have caught up until 2014.

Source



It's fairly reasonable to expect an all-stocks holding like VTSAX to outperform a balanced fund like VWENX in "the long run," but Stuff Happens along the way, and during the Great Recession you would have been happy you were holding VWENX instead of VTSAX.

[cosmos]

I would not make an abrupt, large change in my asset allocation by switching from a balanced fund (Wellington, 65/35) to an all-stocks fund (VTSAX, 100/0). And you haven't given any reason at all for doing this.

If your intention is to go all-indexed, one of many reasonable things you could do would be to switch from Wellington to the Vanguard Balanced Index Fund.

If your intention is to go to a higher-risk portfolio with a higher stock allocation, I would suggest doing so gradually.

That would be a good switch if the goal was to move from active to index without huge changes to risk/aa. I am not sure why the OP is suddenly jumping to 100% US stock.

Alot of these all-in recency switch posts may be revisited in whatever coming 75%+ market crash hits. Aka, a real bear not the whimpers of late.

[KEotSK66]

Since you didn't provide a rationale for the switch (except for some fund statistics?) selling your position in Wellington is a bad idea.

[bendix]

OP,

/Sarcasm on

In order to make money, you should "Buy Low and Sell High". Given the historical result, it would seem like you should put even more money into the Wellington Fund!

/Sarcasm off.

30% of my portfolio is in the Wellington Fund. I am not selling.

KlangFool

I have a similar sentiment. Recent money I put into Wellington instead of stock market funds.

[almostretired1965]

My own view is that Wellington is an excellent alternative to index based alternatives if you want a 65/35 portfolio and don't want any hassles managing it. Just keep in mind that it throws off quite a bit of cap gains and as a consequence is best kept in a tax advantaged account. I had a substantial position in it for a couple of years from the proceeds of the sale of my house. A mistake in hindsight since I was not paying attention to the tax consequences exacerbated by a substantial increase in income a few years. First world problems.
Disposed of it for tax loss harvesting in 2000.

[tibbitts]

VWENX: Turnover rate 39%. Expense: 0.18. Ten year return: 8.38%. Estimated cap. gains 2024: 8.29%.

VTSAX: Turnover: Index fund, so hopefully low. Expense: 0.04. Ten year return: 12.38.

My share value of VTSAX: $310.6 K, taxable account. Marginal tax rate: 22%.
Please consider the subject question in isolation of all other financial aspects. As always, your input
is greatly appreciated.

So you have $310.6k in VTSAX in taxable, and ... do we have any idea of how much Wellington? If you have $3.85 in Wellington in taxable, definitely your plan is a go.

[KEotSK66]

If you have $3.85 in Wellington in taxable, definitely your plan is a go.

That was a good one

[flee]

Agree with the consensus that Wellington doesn't belong in taxable given your tax rate. Convert that fund to Total Stock Market Index per your post a good idea upon a trajectory to minimize tax impact, of course. May I suggest a move that wouldn't alter (as much) your stock to bond ratio. Convert 60% of Wellington and if possible convert more stock funds in nontaxable for the bond side. This move should improve your ROI given moving from a balanced fund usually is more return all else being equal. I remember Taylor L, mentioning this. Also, the tax savings.

[mymoneyresearch]

VWENX: Turnover rate 39%. Expense: 0.18. Ten year return: 8.38%. Estimated cap. gains 2024: 8.29%.

VTSAX: Turnover: Index fund, so hopefully low. Expense: 0.04. Ten year return: 12.38.

My share value of VTSAX: $310.6 K, taxable account. Marginal tax rate: 22%.
Please consider the subject question in isolation of all other financial aspects. As always, your input
is greatly appreciated.

Thanks everyone for the replies. Let me clarify. I am not a new investor. I have over $310 thousand in VTSAX. Over two-thirds of that is investment gains. A tax advantaged account is not an option. There is a penalty for actively managed funds called turnover which equals more tax. Also expenses are about $1800.00 more per year vs VWENX. The only advantage of VTSAX to me is that it didn't go down as much in the fairly recent stock and bond crash as an approximately equal mix if stock/bond index funds.
All I want to know is should I close VTSAX , take the tax hit, and move the assets into index funds keeping about a 65/35 mix?

[Grt2bOutdoors]

VWENX: Turnover rate 39%. Expense: 0.18. Ten year return: 8.38%. Estimated cap. gains 2024: 8.29%.

VTSAX: Turnover: Index fund, so hopefully low. Expense: 0.04. Ten year return: 12.38.

My share value of VTSAX: $310.6 K, taxable account. Marginal tax rate: 22%.
Please consider the subject question in isolation of all other financial aspects. As always, your input
is greatly appreciated.

Thanks everyone for the replies. Let me clarify. I am not a new investor. I have over $310 thousand in VTSAX. Over two-thirds of that is investment gains. A tax advantaged account is not an option. There is a penalty for actively managed funds called turnover which equals more tax. Also expenses are about $1800.00 more per year vs VWENX. The only advantage of VTSAX to me is that it didn't go down as much in the fairly recent stock and bond crash as an approximately equal mix if stock/bond index funds.
All I want to know is should I close VTSAX , take the tax hit, and move the assets into index funds keeping about a 65/35 mix?

Why would you want to close VTSAX when your thread question asks if you should move Wellington to VTSAX?

[mhadden1]

All I want to know is should I close VTSAX , take the tax hit, and move the assets into index funds keeping about a 65/35 mix?

Ok then - no.

Edit to point out - I think you meant to use the ticker for Wellington instead of TSM.

[mymoneyresearch]

Edit to point out - I think you meant to use the ticker for Wellington instead of TSM.

True. My mistake. Sorry, and thanks for pointing it out.

[JustGotScammed]

The total stock market has outperformed, and is built to outperform, Wellington. Seems like a smart move if your goal is to end up with more money. Just don't switch back from total stock market to wellington during a 40% down year!

[Beensabu]

All I want to know is should I close VTSAX VWENX, take the tax hit, and move the assets into index funds keeping about a 65/35 mix?

You do realize that VWENX vs a 65/35 mix of VTI/BND have had nearly identical 10-year returns, right?

That makes the only real issues (1) the higher expense ratio and (2) taxes on realized capital gains.

Can't you just take your dividends and capital gains distributions for VWENX as cash and direct that money from your settlement fund to VTSAX? And wait until a year when you can tax loss harvest some lots to actually sell shares and buy a 65/35 index fund mix?

[solarcub]

If you have about $200,000 in gains in Wellington, you have to decide if you want to take that tax hit all in one year or spread it out. I had a similar problem with a significantly smaller amount of gains in Wellington, and I still spread it out over several years. At the very least, makes sure the dividends and cap gains are re-invested in something else, not in more Wellington.

[Baylor Boy]

All I want to know is should I close VTSAX VWENX, take the tax hit, and move the assets into index funds keeping about a 65/35 mix?

You do realize that VWENX vs a 65/35 mix of VTI/BND have had nearly identical 10-year returns, right?

Interestingly, for the lost decade period of 2000-2010, VWENX had an annualized return of 6.7% and the 65/35 was 3.5%.

[samulta52]

Just keep in mind that it throws off quite a bit of cap gains and as a consequence is best kept in a tax advantaged account.

I don't understand, aren't cap gains taxed lower than income.

[Beensabu]

You do realize that VWENX vs a 65/35 mix of VTI/BND have had nearly identical 10-year returns, right?

Interestingly, for the lost decade period of 2000-2010, VWENX had an annualized return of 6.7% and the 65/35 was 3.5%.

That's because value did better than growth or blend during that period, and VWENX used to be large value on the stock side.

[sycamore]

Just keep in mind that it throws off quite a bit of cap gains and as a consequence is best kept in a tax advantaged account.

I don't understand, aren't cap gains taxed lower than income.

Cap gains are indeed taxed lower than income. And distributions from a tax advantaged account are taxed as income whether the "source" of the distribution was capital gain or dividends.

I think almostretired1965 was pointing out cap gain distributions do occur with Wellington, and they're not under your control.

Whether it's disadvantageous to hold Wellington in taxable depends on your tax situation and whether you prefer to control when cap gains are distributed. I didn't check to see how this applies to the OP's situation.