Vanguard's Wellesley Income fund is incredible

willthrill81 · Post by **willthrill81** » Sun Jan 29, 2017 11:38 pm

I've recently become somewhat enamored with VWINX, Vanguard's Wellesley Income fund. It's a balanced fund that tries to maintain a 60% bond and 40% stock mix, but despite its decided bond tilt, it's historic and relatively recent returns have been, in my view, astounding.

From the fund's inception in 1970 to the end of 2016, it's total return is 9.85%. By comparison, the S&P 500's return over the same period was 10.28%, a difference of just .46% (and its' even lower than that when you account for the expense ratio of an S&P 500 fund). While it's just one period, I find it very interesting that from 1/29/2000 until today, $10,000 invested in VWINX would now be valued at $34,422, while VFIAX, Vanguard's S&P 500 500 index fund, would be valued at $23,375.

But if the returns are lower than those of the S&P 500 over the last nearly 50 years, what's the big deal? Wellesley's volatility over that same period was far lower than the S&P 500. The standard deviation for VWINX over the last 15 years is 5.89, whereas its 14.35 for VFIAX.

In its 47 year history (inception in 1970), VWINX has only had six years with losses, all under 10%, and only two were above 5%. The S&P 500 had 11 years with losses over the same period, the largest being 38.5% in 2008. In that same year, VWINX lost 9.84%; the following year was its record high gain of 16.02%.

On the bond side, it's average effective duration is 6.7 years, it only uses investment grade bonds. On the stock side, it leans toward value and 'giant' firms with a median market cap of $108 billion currently.

If the fund has weaknesses, one of them is its low international exposure. Only 6.73% of its current stock allocation is international. Another is likely its rather concentrated stock portfolio; it owns just 60. Further, one could easily argue that bonds are unlikely to perform as well going forward in a period of rising rates, but this fund has gone through many such periods in its 47 year history and has still delivered well.

The expenses of the fund are very low, just .15% for Admiral shares. It's current yield is 2.91%, which seems very solid to me for those looking for cash flow.

So it appears that for investors who have a weak stomach for volatility (which is probably the majority of 'investors' given that they tend to sell when stocks tank) but still want to capture 95+% (historically of course) of the S&P 500's returns, this may be a great fund for them. This seems like an ideal fund for many retirees as well. I definitely will be recommending this fund to my father who will be retiring at age 70 in just a few years. Like many, the market's gains allure him, but he gets very jittery with substantial losses. This fund looks like a great fit for him. It's unlikely to have 'home run' years, but it seems unlikely to tank either.

What are you thoughts about this fund?

DSInvestor · Post by **DSInvestor** » Mon Jan 30, 2017 12:22 am

My mom (age 79) has most of her retirement assets in this fund and she is very comfortable with it.

Wellesley Income is not tax efficient so it is best held in tax advantaged accounts for those who are in higher tax brackets.

sport · Post by **sport** » Mon Jan 30, 2017 12:24 am

Yes, it is a good fund. However...
You have been looking at historic performance. The problem with this is that it includes a very long bull market in bonds. However, interest rates are now low, and while they may or may not go up from here, they certainly cannot repeat the results from 1980 to 2016. Rates cannot drop another 18% from here.

Accordingly, if the S&P 500 provides typical or average performance going forward, Wellesley will not be able to keep up; not even close.

Nate79 · Post by **Nate79** » Mon Jan 30, 2017 12:40 am

Have you considered an apples to apples comparison? The S&P500 is in no way it's benchmark.

Dottie57 · Post by **Dottie57** » Mon Jan 30, 2017 1:05 am

Is OP taling about Wellesley or Wllington? Wellesley is not 60/40 stocks to bonds but. About 33/66 according to Vanguard site. Wellinton is the on which is 60/40.

naha66 · Post by **naha66** » Mon Jan 30, 2017 1:11 am

Dottie57 wrote:Is OP taling about Wellesley or Wllington? Wellesley is not 60/40 stocks to bonds but. About 33/66 according to Vanguard site. Wellinton is the on which is 60/40.

Read the OP again.

Levett · Post by **Levett** » Mon Jan 30, 2017 6:53 am

Since you asked for "thoughts" (not recommendations or advice), here are three observations:

1. Wellesley is one of the few active funds that continues to remain on Vanguard's "select" list--https://investor.vanguard.com/mutual-fu ... nd-returns

2. While there has been much publicity given to investors "fleeing" actively managed funds,Wellesley's AUM continues to remain around $50 billion (with the ER recently lowered).

3. If you use it you will not be alone.

Lev

Van · Post by **Van** » Mon Jan 30, 2017 7:36 am

I own only index funds, except for Wellesley. I just can't bring myself to sell it.

dwickenh · Post by **dwickenh** » Mon Jan 30, 2017 8:22 am

Van wrote:I own only index funds, except for Wellesley. I just can't bring myself to sell it.

+1

Dan

rkhusky · Post by **rkhusky** » Mon Jan 30, 2017 9:02 am

A closer benchmark would be Vanguard LifeStrategy Conservative Growth Fund (VSCGX), which is also 40/60 stocks/bonds, but has more int'l stock then Wellesley, which has cause some of the under-performance compared to Wellesley in recent years.

dbr · Post by **dbr** » Mon Jan 30, 2017 9:31 am

Wellesley is a not bad fund that may suit many investors very well.

None of this can be established by past performance or faulty comparison's to the S&P 500 index.

The fund is not very diversified and is at manager risk compared to an index fund. That risk has materialized in the past.

I do not think it can be established that this fund offers a magic bullet for the investor nor is there any compelling reason it should be avoided either.

I do not agree that the fund is "incredible." I wonder what specifically is "not believable" once one gets past the misleading comparisons to irrelevant benchmarks.

Taylor Larimore · Post by **Taylor Larimore** » Mon Jan 30, 2017 9:41 am

willthrill81:

There is a strong temptation to invest in a fund that has done well in the past. However, times change and managers change. Almost without exception, top-performing funds eventually revert to the mean or below.

This is what the experts say about using past performance to select mutual funds:

American Association of Individual Investors: "Top Performance lists are dangerous."

Frank Armstrong, financial author: "Rating services such as Morningstar's 'Star Awards' or the 'Forbes Honor Roll' attest to the futility of applying past performance to tomorrow."

Arnott and Bernstein (2002, p. 64): “The investment management industry thrives on the expedient of forecasting the future by extrapolating the past."

Barra Research: "There is no persistence of equity fund performance."

Christine Benz, Morningstars Director of Personal Finance: "When we look at our data, at the factors that are most predictive of good performance going forward, low costs are a much better predictor than is great past performance."

Bruce Berkewitz, manager of the Fairholme Fund (FAIRX), was Morningstar's Manager of the Decade in 2009. In March, 2016 the Fairholme Fund was in the bottom 1% of all funds in its category for 1-year; 3-years; and 5-years.

Wm. Bernstein, author of The Four Pillars of Investing: "For the 20 years from 1970 to 1989, the best performing stock assets were Japanese stocks, U.S. small stocks, and gold stocks. These turned out to be the worst performing assets over the next decade."

Jack Bogle: "The biggest mistake investors make is looking backward at performance and thinking it’ll recur in the future."

Bogleheads' Guide to Investing: "Using past performance to pick tomorrow's winning mutual funds is such a bad idea that the government requires a statement similar to this: "Past performance is no guarantee of future performance." Believe it!"

Jack Brennan, former Vanguard CEO: "Fund ranking is meaningless when based primarily on past performance, as most are."

Burns Advisory tracked the performance of Morningstar's five-star rated stock funds beginning January 1, 1999. Of the 248 stock funds, just four still kept that rank after ten years.

Ben Carlson, author of A Wealth of Common Sense : "Dow Jones looked at nearly 2,900 active mutual funds. Only 2 funds in the top quartile stayed in the top quartile of performance over the next four 1-year periods."

Andrew Clarke, author: "By the time an investment reaches the top of the performance tables, there's a good chance that its run is over. The past is not prologue."

Jonathan Clements, author & former Wall Street Journal columnist: "Suppose you picked stock funds that ranked in their category's top 25% over the past five years. A regular updated study suggests that less than a quarter of these funds will remain in the top 25% over the next five years--even worse than the result you would expect based purely on chance."

Prof. John Cochrane, author: "Past performance has almost no information about future performance."

S.T.Coleridge: "History is a lantern over the stern. It shows where you've been but not where you're going"

Dow Jones Indices Report, June 2015: "The data shows a stronger likelihood for the best-performing funds to become the worst performing funds than vice versa." -- June 2016: "Only 3.7% of large-cap funds maintained top-half performance over five-consecutive 12-month periods. For midcap funds, the comparable figure was 5.79%, and for small-cap funds, it was 7.82%."

Eugene Fama, Nobel Laureate: "Our research on individual mutual funds says that it's impossible to identify true winners on a reliable basis, even if one ignores the costs that active funds impose on investors."

Forbes (2/2/04 issue): "Over the past decade, Morningstar's five-star equity funds have earned an average 5.7% against a 10.3% return for the Wilshire 5000 (Total Stock Market)."

Gensler & Bear, co-authors of The Great Mutual Fund Trap: "Of the fifty top-performing funds in 2000, not a single one appeared on the list in either 1999 or 1998."

Ken Hebner's CGM Focus Fund was the top U.S. equity fund in 2007. In November 2009, it ranked in the bottom 1% of its category.

Mark Hulbert (12-31-2014): "Consider a hypothetical portfolio that each year followed the investment newsletter portfolio that, among the more than 500 tracked by The Hulbert Financial Digest, had the best record during the previous calendar year. Over the past 20 years, that portfolio would have been a disaster, producing an annualized loss of more than -17%."

JPMorgan Chase claimed that 97% of their alternate-asset mutual funds beat their benchmark during the 10-year period ending December, 2013. Morningstar reported that only 33% beat their benchmark during the same period (past-performance calculations differ).

Arthur Levitt, SEC Commissioner: "A mutual fund's past performance, which is the first feature that investors consider when choosing a fund, doesn't predict future performance."

Peter Lynch's Fidelity Magellan Fund (FMAGX), once the worlds largest and most successful mutual fund, is now in the bottom 10% of its category (Sept 7-2016) for 10-year return

Burton Malkiel, author of the classic Random Walk Down Wall Street: "I have examined the lack of persistency in fund returns over periods from the 1960s through the early 2000s.--There is no persistency to good performance. It is as random as the market."

Mercer Investment Consulting from a study of over 12,000 institutional managers: "Excellent recent performance not only doesn't guarantee future results but generally leads to under-performance in the subsequent period."

Bill Miller, former manager of Legg Mason Value Trust (LMVTX), was the only manager to outperform The S&P 500 Index for 15 consecutive years. On 9/7/2016 Miller’s fund is in the bottom 1% for 15 year returns.

Mark Miller, financial author and journalist: "Only 7.33% of domestic equity funds that were in the top quartile of performance in March 2014 were still there two years later."

Morningstar: "The star rating was not designed to have predictive ability about future performance."

Ron Ross, author of The Unbeatable Market: "Extensive studies by Davis, Brown & Groetzman, Ibbotson, Elton et al, all confirmed there is no significant persistance in mutual fund performance."

Bill Schultheis, adviser and author of The Coffeehouse Investor: "Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is a lousy idea."

Standard & Poor's Persistence Scorecard (Dec-2014): "The data show a stronger likelihood for the best-performing funds to become the worst-performing funds than vice versa. Of 421 funds that were in the bottom quartile, 14.45% moved to the top quartile over the five year horizon, while 27.08% of the 421 funds that were in the top quartile moved into the bottom quartile during the same period."

Larry Swedroe, author of many finance books: "The 44 Wall Street Fund was the top performing fund over the decade of the 1970s. It ranked as the single worst performing fund of the 1980's losing 73%. -- If you are going to use past performance to predict the future winners, the evidence is strong that your approach is highly likely to fail."

David Swensen, Yale's Chief Investment Officer: "Chasing performance is the biggest mistake investors make. If anything, it is a perverse indicator."

Tweddell & Pierce, co-authors of Winning With Mutual Funds: "Numerous studies have shown that using superior past performance is no better than random selection."

Eric Tyson, author of Mutual Funds for Dummies (2010 edition): "Of the number one top-performing stock and bond funds in each of the last 20 years, a whopping 80% of them subsequently performed worse than the average fund in their peer group over the next 5 to 10 years! Some of these former #1 funds actually went on to become the worst-performing funds in their particular category."

Value Line selected Garret Van Wagoner "Mutual fund Manager of the Year" in 1999. In August 2009, Van Wagoner's Emerging Growth Fund was the worst performing U.S. stock fund over the past 10 years.

Vanguard Study: "Persistence of performance among past winners is no more predictable than a flip of a coin."

Jason Zweig, author and Wall Street Journal columnist: "Buying funds based purely on their past performance is one of the stupidest things an investor can do."

Best wishes.
Taylor

Toons · Post by **Toons** » Mon Jan 30, 2017 9:57 am

willthrill81 wrote:I've recently become somewhat enamored with VWINX, Vanguard's Wellesley Income fund. It's a balanced fund that tries to maintain a 60% bond and 40% stock mix, but despite its decided bond tilt, it's historic and relatively recent returns have been, in my view, astounding.

From the fund's inception in 1970 to the end of 2016, it's total return is 9.85%. By comparison, the S&P 500's return over the same period was 10.28%, a difference of just .46% (and its' even lower than that when you account for the expense ratio of an S&P 500 fund). While it's just one period, I find it very interesting that from 1/29/2000 until today, $10,000 invested in VWINX would now be valued at $34,422, while VFIAX, Vanguard's S&P 500 500 index fund, would be valued at $23,375.

But if the returns are lower than those of the S&P 500 over the last nearly 50 years, what's the big deal? Wellesley's volatility over that same period was far lower than the S&P 500. The standard deviation for VWINX over the last 15 years is 5.89, whereas its 14.35 for VFIAX.

In its 47 year history (inception in 1970), VWINX has only had six years with losses, all under 10%, and only two were above 5%. The S&P 500 had 11 years with losses over the same period, the largest being 38.5% in 2008. In that same year, VWINX lost 9.84%; the following year was its record high gain of 16.02%.

On the bond side, it's average effective duration is 6.7 years, it only uses investment grade bonds. On the stock side, it leans toward value and 'giant' firms with a median market cap of $108 billion currently.

If the fund has weaknesses, one of them is its low international exposure. Only 6.73% of its current stock allocation is international. Another is likely its rather concentrated stock portfolio; it owns just 60. Further, one could easily argue that bonds are unlikely to perform as well going forward in a period of rising rates, but this fund has gone through many such periods in its 47 year history and has still delivered well.

The expenses of the fund are very low, just .15% for Admiral shares. It's current yield is 2.91%, which seems very solid to me for those looking for cash flow.

So it appears that for investors who have a weak stomach for volatility (which is probably the majority of 'investors' given that they tend to sell when stocks tank) but still want to capture 95+% (historically of course) of the S&P 500's returns, this may be a great fund for them. This seems like an ideal fund for many retirees as well. I definitely will be recommending this fund to my father who will be retiring at age 70 in just a few years. Like many, the market's gains allure him, but he gets very jittery with substantial losses. This fund looks like a great fit for him. It's unlikely to have 'home run' years, but it seems unlikely to tank either.

What are you thoughts about this fund?

+1

Sandtrap · Post by **Sandtrap** » Mon Jan 30, 2017 10:15 am

Taylor Larimore wrote:willthrill81:

There is a strong temptation to invest in a fund that has done well in the past. However, times change and managers change. Almost without exception, top-performing funds eventually revert to the mean or below.

This is what the experts say about using past performance to select mutual funds:
American Association of Individual Investors: "Top Performance lists are dangerous."
. . . . . . .<snip>. . . . . . .
Vanguard Study: "Persistence of performance among past winners is no more predictable than a flip of a coin."

Jason Zweig, author and Wall Street Journal columnist: "Buying funds based purely on their past performance is one of the stupidest things an investor can do."
Best wishes.
Taylor

Absolutely agree. +++1
Question:
Aren't active balanced funds such as "Wellesley, Wellington, Vanguard Balanced Index (VBIAX) aligned with the "stay the course" paradigm/theory of these quoted experts?

Wakefield1 · Post by **Wakefield1** » Mon Jan 30, 2017 10:24 am

Is Active Management of Bond Funds and bond holdings inside of Balanced funds a different animal than active management of Stock Funds?

Clive · Post by **Clive** » Mon Jan 30, 2017 10:48 am

According to portfoliovisualizer, very similar since 2007 to 40/60 Small Cap Value/Bonds (click image)

Also, compare to this 8/92 XIV/Bond (XIV (short volatility) is like a 5x long stock holding) - note that uses quarterly rebalancing to reduce "tracking error"

Levett · Post by **Levett** » Mon Jan 30, 2017 10:50 am

What is there to like about balanced funds? Plenty.

http://www.obliviousinvestor.com/in-pra ... ced-funds/

From the article cited above (which exactly fits my long-term experience):

"In 2011 Morningstar completed a study on the gap in investor returns — how individual investors do compared to their funds’ overall returns. Here’s a snapshot of what they found: In 2010, the average domestic stock fund earned a return of 18.7% compared with only 16.7% for the average fund investor — a 2% difference. For the trailing three years, that gap was 1.28%.

However it was a different story for balanced funds: The gap between investor and fund performance in 2010 was only 0.14%, and just 0.08% for the trailing three years. Results were even better for the trailing 10 years. And results were similar for target-date funds and moderate- and conservative-allocation funds — close kin to balanced funds. As anybody who has crunched retirement numbers knows, a 1-2% difference in annual return over long periods can easily add up to tens of thousands of dollars!

Why do individual investors do better when they are buying and holding balanced funds? It’s probably because balanced funds don’t tend to incite fear or greed — two emotions that can be lethal to investment performance. Balanced funds are easier to live with."

I've never seen evidence that Wellesley, for example, is traded much, but I always welcome compelling evidence.

Lev

willthrill81 · Post by **willthrill81** » Mon Jan 30, 2017 11:08 am

Taylor Larimore wrote:willthrill81:

There is a strong temptation to invest in a fund that has done well in the past. However, times change and managers change. Almost without exception, top-performing funds eventually revert to the mean or below.

Believe me, I totally get that argument.

However, we're not talking about an actively managed fund that's managed to beat the S&P 500 for five years or even a decade. VWINX has barely trailed the S&P 500 for nearly 50 years. The statistical likelihood of that happening due to luck is extraordinarily low. Based on a recent study, fewer than 18% of active funds beat the S&P 500 for the last decade. So if we use that probability over 50 years, the likelihood of a given fund beating the S&P 500 would be approximately 2 in 10,000. VWINX certainly didn't beat the S&P 500, but it hasn't trailed it by much, far less than most actively managed funds.

I also understand the argument that VWINX has been the recipient of a long bull run in the bond market. That makes some sense, but it doesn't hold up when you compare VWINX's performance against the S&P 500 during periods of rising rates. For instance, between 10/1/1986-2/28/1989, the Fed funds rate increased from just under 6.0 to just over 10.0. A $10k investment in both would have been valued at $11,982 for VWINX at the end of that period and $12,475 for VFIAX. Trailing performance, yes, but not by much.

Between 1/1/1994-4/1/1995, the Fed funds rate increased from 3.0 to just over 6.0. A $10k investment in both would have been valued at $10,241 for VWINX at the end of that period and $11,100 for VFIAX. That's significant difference, but that was also the beginning of one of the biggest bull runs in stock market history. Had you held both until 2002, their values would have been the same.

Between 1/1/1994-4/1/1995, the Fed funds rate increased from 1.0 to just over 5.0. A $10k investment in both would have been valued at $11,637 for VWINX at the end of that period and $11,784 for VFIAX, nearly equivalent.

So even during most periods of rising interest rates, VWINX still experienced consistent performance.

It's certainly not a panacea, one-size-fits-all fund. But I firmly believe that, based on decades of performance, it's a great fund for many investors.

willthrill81 · Post by **willthrill81** » Mon Jan 30, 2017 11:10 am

dbr wrote:I do not agree that the fund is "incredible." I wonder what specifically is "not believable" once one gets past the misleading comparisons to irrelevant benchmarks.

We could ponder about what adjectives to use, but I'm not aware of another fund of any sort that has trailed the S&P 500 by less .5% annually for nearly 50 years while experiencing a fraction of its volatility during that same time frame. If you are, I would love to see it.

willthrill81 · Post by **willthrill81** » Mon Jan 30, 2017 11:15 am

Nate79 wrote:Have you considered an apples to apples comparison? The S&P500 is in no way it's benchmark.

I merely used the S&P 500 as a widely used metric in order to show how solid VWINX's performance has been. It's far outperformed every other similarly-balanced fund I've seen.

Christine_NM · Post by **Christine_NM** » Mon Jan 30, 2017 11:30 am

Will -

Your returns history is impressive. The tough part was hanging on through 1999 when it was all growth all the time.

Possibly Wellesley's success with low volatility is due in part to its investors who do not push a lot of speculative money into it and then yank it out the next day or year. Its design appeals to the hands-off, get-rich-slowly crowd.

My traditional IRA is 90% Wellesley and 10% 500 Index. I take my RMD once a year and so far within a year the account has replenished itself to the pre-RMD balance. That will not always happen, but it is good if it happens only 2 out of 3 years or so.

I worry a little about the few stocks, but it seems never to have been a problem. Plus I have 2 commas in Balanced Index (taxable) so what can possibly go wrong...

Nowizard · Post by **Nowizard** » Mon Jan 30, 2017 11:37 am

Wellesley is our largest holding. Low volatility and excellent returns over a long period of time are sufficient for us to invest heavily in this fund. We are experienced investors in terms of being long term with very acceptable results, though not as analytical or detailed in terms of analysis of various parameters as many who post regularly on this wonderful site. Certainly, there are many reasons to follow the recommendations of the wise people here, but there are many roads to Dublin as one of the wisest often states.

Tim

willthrill81 · Post by **willthrill81** » Mon Jan 30, 2017 11:50 am

Christine_NM wrote:Will -

Your returns history is impressive. The tough part was hanging on through 1999 when it was all growth all the time.

Possibly Wellesley's success with low volatility is due in part to its investors who do not push a lot of speculative money into it and then yank it out the next day or year. Its design appeals to the hands-off, get-rich-slowly crowd.

My traditional IRA is 90% Wellesley and 10% 500 Index. I take my RMD once a year and so far within a year the account has replenished itself to the pre-RMD balance. That will not always happen, but it is good if it happens only 2 out of 3 years or so.

I worry a little about the few stocks, but it seems never to have been a problem. Plus I have 2 commas in Balanced Index (taxable) so what can possibly go wrong...

With a 1.5% withdrawal rate, you must be really trying to build your portfolio. Heirs or charity?

Christine_NM · Post by **Christine_NM** » Mon Jan 30, 2017 12:00 pm

^^ Not really trying to build further. I'm treading water for charity or a nice spot in a nursing home (yuck). Income is enough for spending. The 1.5% is mostly withholding tax from the RMD.

rkhusky · Post by **rkhusky** » Mon Jan 30, 2017 12:13 pm

Clive wrote:According to portfoliovisualizer, very similar since 2007 to 40/60 Small Cap Value/Bonds

Wellesley stocks are Large-Value.

hoops777 · Post by **hoops777** » Mon Jan 30, 2017 12:19 pm

Willthrill.....just out of curiosity and since you are very good with numbers,have you compared a 2 fund portfolio consisting of 60 pct VBILX and 40 pct Sp500 to Wellesley?

Independent George · Post by **Independent George** » Mon Jan 30, 2017 12:41 pm

I don't know about 'incredible', but I hold Wellesley as my 'intermediate' tier of savings.

My 1% savings account is the first tier (minimal risk, minimal returns) and kept as an emergency fund. My retirement accounts are the last tier, and invested 100% in index funds. It has the longest time horizon, and is currently stock heavy. Since I don't expect to touch it for almost another 30 years, volatility doesn't bother me; I'm trading higher risk & volatility for (hopefully) higher returns in the long run.

As the name implies, my intermediate tier fits somewhere between the two. While I don't plan on spending anything from this account, it's there if I need it. The idea is to trade more risk for higher returns than a savings account, but lower volatility (and lower returns) compared to a stock fund. Yes, I could do 40/60 Total Bond/Total Stock, but this is far easier to manage on my part. And while the expense ratio is high for a Vanguard fund, it's still low enough to be worth it for me.

Yes, we've had some crazy returns recently, but I just think of it as a bonus. For the tradeoffs it presents in the current environment, I would be perfectly happy with 6.0%. However, should savings accounts go back to 5.25% APY as they were just 10 years ago, I'd move all of my Wellesley balances over in a heartbeat.

columbia · Post by **columbia** » Mon Jan 30, 2017 12:44 pm

Comparison with a 33/67 portfolio of 500/TBM:

https://www.portfoliovisualizer.com/bac ... tion3_2=67

Wellesley has faired quite well.

sschullo · Post by **sschullo** » Mon Jan 30, 2017 12:56 pm

dwickenh wrote:
Van wrote:I own only index funds, except for Wellesley. I just can't bring myself to sell it.

+1

Dan

+2 I have my Roth IRA in Wellesley.

Grt2bOutdoors · Post by **Grt2bOutdoors** » Mon Jan 30, 2017 1:03 pm

Wellesley is essentially the inverse of the Wellington fund. Most of the equities held in Wellesley are in the Wellington fund, albeit the percentages are lower. Most of the corporate bonds held in Wellington are held in Wellesley, again, the percentage concentration of each fixed income holding is less. One fund is designed for income, one is designed for capital growth and income. They are fine funds, but even the finest of funds can experience rough headwinds from time to time, lest you forget. There is no one asset allocation that will protect you at all times.

willthrill81 · Post by **willthrill81** » Mon Jan 30, 2017 1:06 pm

hoops777 wrote:Willthrill.....just out of curiosity and since you are very good with numbers,have you compared a 2 fund portfolio consisting of 60 pct VBILX and 40 pct Sp500 to Wellesley?

You can only go back to Jan. 2002 since VBILX didn't exist prior to then. So this is for 2002-2016 with annual rebalancing.

Your 60/40 portfolio of VBILX and VFIAX (S&P 500) had a compound annual growth rate of 6.08%. A $10,000 investment would now be worth $24,251. VWINX had a compound annual growth rate of 6.87%, and a $10k investment would now be worth $27,074.

If we use VFICX, Vanguard's intermediate-term investment grade bond fund, and SPY (S&P 500), we can go back to Jan. 1994. Over that period, this portfolio had a CAGR of 7.47%, while VWINX was 8.00%.

From Jan. 2000 until now, the S&P 500 had a CAGR of 5.40%, while VWINX had 6.90%. The S&P 500 lost money three of those years, while VWINX lost in just one.

It's truly an impressive fund, especially when you take into account the very low volatility. It reminds me of the tortoise and the hare.

willthrill81 · Post by **willthrill81** » Mon Jan 30, 2017 1:24 pm

Christine_NM wrote:^^ Not really trying to build further. I'm treading water for charity or a nice spot in a nursing home (yuck). Income is enough for spending. The 1.5% is mostly withholding tax from the RMD.

So you've got long-term care insurance I hope? Or are you self-insuring?

Christine_NM · Post by **Christine_NM** » Mon Jan 30, 2017 1:39 pm

willthrill81 wrote:
Christine_NM wrote:^^ Not really trying to build further. I'm treading water for charity or a nice spot in a nursing home (yuck). Income is enough for spending. The 1.5% is mostly withholding tax from the RMD.
So you've got long-term care insurance I hope? Or are you self-insuring?

I have LCI that would cover about half the cost. So if expenses rise due to nursing home costs, my income rises too. About half the cost would have to come from I bonds and good ol' Balanced Index. My hope is that I die peacefully at home in my sleep with no care at all. But we must prepare for alternative outcomes.

Casper · Post by **Casper** » Mon Jan 30, 2017 1:54 pm

Independent George wrote:I don't know about 'incredible', but I hold Wellesley as my 'intermediate' tier of savings.

Are you holding it in taxable?

JPH · Post by **JPH** » Mon Jan 30, 2017 2:19 pm

Wellesley was the first fund I ever bought, more than 30 years ago. I have always held it in taxable, and I have done well with it. However, I'm planning to dump it this year because of its tax inefficiency.

BW1985 · Post by **BW1985** » Mon Jan 30, 2017 2:52 pm

The expense ratio for admiral is 15bp for Wellesley and 18bp for Wellington.

Are these two the lowest cost active funds available?

Taylor Larimore · Post by **Taylor Larimore** » Mon Jan 30, 2017 3:11 pm

JPH wrote:Wellesley was the first fund I ever bought, more than 30 years ago. I have always held it in taxable, and I have done well with it. However, I'm planning to dump it this year because of its tax inefficiency.

JPH:

I assume your Wellesley fund has large capital gains. If so, you should consider the tax cost before "dumping" it. Usually, when you want to "dump" a fund containing large taxable gains, it is often better to:

* Stop further investments
* Stop reinvesting dividends
* Offset gains by selling losing funds (and taking a tax-loss)
* Sell during years of low-income (after retirement and before taking SS and RMDs)
* Donate to charity
* Leave to heirs which eliminates capital-gain taxes

Your post is a good example of why it is very important to use only tax-efficient funds that can be held 'forever' in taxable accounts.

Thank you and best wishes.
Taylor

lack_ey · Post by **lack_ey** » Mon Jan 30, 2017 3:14 pm

BW1985 wrote:The expense ratio for admiral is 15bp for Wellesley and 18bp for Wellington.

Are these two the lowest cost active funds available?

Vanguard has a range of cheaper nominally-active-but-not-really-all-that-active bond funds that are cheaper. Some of the money market funds, which are honestly more active, are cheaper than that. They also have an externally managed GNMA fund and also notably a high yield bond fund that's cheaper, and the slightly-more-ranging-at-least-in-theory-I-guess core bond fund is 0.15% on admiral shares.

In fixed income, Baird Ultra Short Bond Fund Institutional Class (BUBIX, available widely with $25k minimum so don't get too caught up in the institutional wording) has an ER of 0.15%, while DFA One-Year Fixed-Income (DFIHX) and DFA Two-Year Global Fixed-Income (DFGFX) carry ERs of 0.17%. They have some TIPS and government bond funds that are cheaper than 0.15%. RiverFront Strategic Income Fund (RIGS) and iShares Ultra Short-Term Bond ETF (ICSH) are active ETFs with ERs of 0.16% and 0.18%.

Vanguard Equity Income Fund (VEIRX) and Vanguard Strategic Equity Fund (VSEQX) carry ERs of 0.17% and 0.18%. Seeing as these are pure stock funds, it's more notable for these to have lower ERs. Even more so for Strategic Equity, which is a mid/small blend fund. DFA has a kind-of-index like REIT fund and an enhanced S&P 500 fund that are at 0.17% and 0.08% respectively.

Most of Vanguard's cheapest active funds are run by Wellington and/or internal staff. Equity Income is actually by both, Strategic Equity internally, Global Minimum Volatility (0.21% on a global stock fund) internally, GNMA and High Yield by Wellington, etc.

Sandtrap · Post by **Sandtrap** » Mon Jan 30, 2017 3:44 pm

Clive wrote:According to portfoliovisualizer, very similar since 2007 to 40/60 Small Cap Value/Bonds (click image) . . . . . . .

Thank you "Clive". Good point.
Is there a "balanced actively managed fund" that would have handled 2008 to 2010 differently?

Phineas J. Whoopee · Post by **Phineas J. Whoopee** » Mon Jan 30, 2017 9:23 pm

sport wrote:Yes, it is a good fund. However...
You have been looking at historic performance. The problem with this is that it includes a very long bull market in bonds. However, interest rates are now low, and while they may or may not go up from here, they certainly cannot repeat the results from 1980 to 2016. Rates cannot drop another 18% from here.
...

The proverbial 30-year "bull" market in bonds cost bond investors a lot of money, compared to what they would have ended up with had yields not fallen.

PJW

peppers · Post by **peppers** » Mon Jan 30, 2017 10:00 pm

Phineas J. Whoopee wrote:
sport wrote:Yes, it is a good fund. However...
You have been looking at historic performance. The problem with this is that it includes a very long bull market in bonds. However, interest rates are now low, and while they may or may not go up from here, they certainly cannot repeat the results from 1980 to 2016. Rates cannot drop another 18% from here.
...
The proverbial 30-year "bull" market in bonds cost bond investors a lot of money, compared to what they would have ended up with had yields not fallen.

PJW

.....ah yes...those days long past....

http://www.nytimes.com/1982/02/05/busin ... bonds.html

Phineas J. Whoopee · Post by **Phineas J. Whoopee** » Mon Jan 30, 2017 10:07 pm

peppers wrote:...
.....ah yes...those days long past....

http://www.nytimes.com/1982/02/05/busin ... bonds.html

I'm happy to read you agree with the essential point that over the long run bond returns come from their interest, not from price changes in instruments with maturities and whose market prices over time must of necessity approach their face values, because nobody would pay much more, or accept much less, than $1000 for a high-quality 30-year $1000 face-value bond which matures tomorrow.

2017 - 1982 = 35.

I suppose a person might have an understanding of the term bull market as being other than one in which security prices persistently rise. Matured securities are no longer part of the market, with the notable exception of defaulted sovereign debt, which can trade for centuries in a stable international financial order.

PJW

SeeMoe · Post by **SeeMoe** » Mon Jan 30, 2017 11:32 pm

The Vanguard Equity Income fund is another excellent income fund.

SeeMoe..

Independent George · Post by **Independent George** » Tue Jan 31, 2017 11:34 am

Casper wrote:
Independent George wrote:I don't know about 'incredible', but I hold Wellesley as my 'intermediate' tier of savings.
Are you holding it in taxable?

Yes, my Wellesley is in taxable.

I know it's not optimal to have an income fund in a taxable account, but (1) the idea is that I can sell it should I need a lot of non-emergency cash (like buying a car), and (2) the LT cap gains when I do sell are still better than straight interest income. It's part of the compromise in using it as an intermediate tier; a stock fund is more tax efficient, but I'm giving that up willingly for less volatility.

willthrill81 · Post by **willthrill81** » Tue Jan 31, 2017 12:27 pm

Phineas J. Whoopee wrote:
peppers wrote:...
.....ah yes...those days long past....

http://www.nytimes.com/1982/02/05/busin ... bonds.html
I'm happy to read you agree with the essential point that over the long run bond returns come from their interest, not from price changes in instruments with maturities and whose market prices over time must of necessity approach their face values, because nobody would pay much more, or accept much less, than $1000 for a high-quality 30-year $1000 face-value bond which matures tomorrow.

2017 - 1982 = 35.

I suppose a person might have an understanding of the term bull market as being other than one in which security prices persistently rise. Matured securities are no longer part of the market, with the notable exception of defaulted sovereign debt, which can trade for centuries in a stable international financial order.

PJW

+1

The idea that bond's returns are 100% linked to a falling Fed funds rate is just plain wrong. Historical evidence is very clear on that.

Sandtrap · Post by **Sandtrap** » Tue Jan 31, 2017 12:39 pm

Independent George wrote:
Casper wrote:
Independent George wrote:I don't know about 'incredible', but I hold Wellesley as my 'intermediate' tier of savings.
Are you holding it in taxable?
Yes, my Wellesley is in taxable.

I know it's not optimal to have an income fund in a taxable account, but (1) the idea is that I can sell it should I need a lot of non-emergency cash (like buying a car), and (2) the LT cap gains when I do sell are still better than straight interest income. It's part of the compromise in using it as an intermediate tier; a stock fund is more tax efficient, but I'm giving that up willingly for less volatility.

Interesting.
If Wellesley in "taxable" is "intermediate tier of savings, what might you use for "top tier" or long term?
thank you
j

hoops777 · Post by **hoops777** » Tue Jan 31, 2017 1:03 pm

Using the portfolio analyzer from 2002 to 2016 a combo of VBILX and SP500 65/35 beat Wellesley by a very small margin.Someone said VBILX did not exist until 2002 so I just went from there.

lack_ey · Post by **lack_ey** » Tue Jan 31, 2017 1:09 pm

hoops777 wrote:Using the portfolio analyzer from 2002 to 2016 a combo of VBILX and SP500 65/35 beat Wellesley by a very small margin.Someone said VBILX did not exist until 2002 so I just went from there.

That's not what I see.

https://www.portfoliovisualizer.com/bac ... ion3_2=100

What's up?

hoops777 · Post by **hoops777** » Tue Jan 31, 2017 1:19 pm

I reversed them somehow. :oops:It was a few days ago and now I am not sure what I did,but the margin is actually quite larger than I remember as well.Maybe I put in VCIT instead of VBILX....will check that one

hoops777 · Post by **hoops777** » Tue Jan 31, 2017 1:28 pm

Now I remember

It was VCIT and it was only from 2009.So pretty meaningless,but it did beat Wellesley by a small amount.