Conservative 3 Fund vs. Wellesley in Retirement

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Kevin K
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Joined: Sun Aug 26, 2007 7:47 pm

Conservative 3 Fund vs. Wellesley in Retirement

Post by Kevin K » Mon Jul 11, 2016 4:00 pm

I've read all the earlier threads on Wellesley I could find, as well as the long and wonderful (and ongoing) one on the 3 Fund approach. I'm enough of a Boglehead by nature and training to have a prejudice in favor of the broadest possible index funds and a considerable resistance to active management no matter how excellent, but as an early retiree with a 40:60 stock:bond allocation I keep running up against the simple fact that Wellesley has outperformed any iteration of the 3 Fund portfolio I've tried with far less volatility.

Of course I'm well aware that the future isn't the past, but how many decades of outperformance does it take to merit at least including Wellesley in my portfolio, if not replacing the 3 Fund with it altogeher?

Here's the longest term backtest I was able to do. It's obviously not decades of market history, but includes the dot.com bust and the '08 crisis:

https://www.portfoliovisualizer.com/bac ... ion4_2=100
Last edited by Kevin K on Mon Jul 11, 2016 10:01 pm, edited 1 time in total.

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Artsdoctor
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Re: Conservative 3 Fund vs. Wellesley in Retirement

Post by Artsdoctor » Mon Jul 11, 2016 4:13 pm

Any portfolio containing a reasonable amount of international exposure has suffered over the past several years when compared to funds with little to no exposure. You have to realize that you're comparing two separate portfolios here.

With the three-fund portfolio, you might have an added tax benefit, depending on your rates and location of funds. And there's no way to predict returns going forward.

But no matter how you cut it, if you were to choose to simply stay with the Wellesley fund, and if its asset allocation is in keeping with what you like, you could do far, far worse than staying with the fund.

lack_ey
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Re: Conservative 3 Fund vs. Wellesley in Retirement

Post by lack_ey » Mon Jul 11, 2016 4:18 pm

Some (not all) of the difference is from tilting to value/dividend stocks and avoiding the dot-com part of the market during that bubble, having a lower international stock allocation, and taking a little more term and credit risk on the bond side.

For example this looks closer:
https://www.portfoliovisualizer.com/bac ... tion7_3=27

(just an illustration, not meant to perfectly match)

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