Wellington VS Balanced Index

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loghauler
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Wellington VS Balanced Index

Post by loghauler » Thu Aug 30, 2018 10:41 am

My son, knowing I am a fan of and investor in Vanguard Wellington Admiral has asked my opinion as to his investing in Wellington or Vanguard's Balanced Index. I am 76, retired and have enough regular income to not have to use RMD withdrawals to live on. He is 45, a full professor married to an attorney, his financial future should be very secure if he keeps using his head which I very much expect he will. I know why I invest in Wellington and what I expect I will advise him but before doing so I would like to tap the wisdom of the group and ask, "what do you believe the relative merits of the two funds are and what you would advise my son and why?"

Thanks, Loghauler

bloom2708
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Re: Wellington VS Balanced Index

Post by bloom2708 » Thu Aug 30, 2018 10:58 am

Much will depend on what type of account (Rollover IRA/Roth IRA/Taxable) the use is for.

Wellington has 102 stocks and 943 bonds. 65/35 stocks to bonds. That mix is appropriate (in the range) for a 45 year old. It is a narrow slice of the total market.

I would do Total US (3,600 stocks) + Total International (6,500 stocks) + account appropriate bond index (10,000 bonds) at a mix of 65 stocks (20-35% international) 35 bonds over either Wellington or Balanced Index.

Wellington and/or Balanced Index should not be in a taxable account for most due to taxable bond income.

If you have the space, a plan like this can be efficient with little overlap:

Taxable: Stocks (Total US and/or Total International)
401k/403b/Rollover IRA: Bonds (100% if they fit, Total US bond index)
Roth: Stocks (Total US and or Total International)

I use And/Or because depending on amounts/space in each, you may have to mix/match. Also 401k/403b funds are not always exactly in line with total market indexes. An S&P 500 index works. Bond funds will also depend on what is available.

Your son could put Wellington in Roth for example. Nobody knows if Wellington will do as well as a more diversified 3 fund/total market approach. Because we don't know/can't know some prefer the Total Market/Buy the haystack approach at the appropriate mix of stocks/bonds. Putting High Growth/tax efficient funds in Taxable and Roth.

Just some ideas. To get the best advice he (son) should post using the Asking Portfolio Questions format. That helps see where things are.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

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loghauler
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Re: Wellington VS Balanced Index

Post by loghauler » Thu Aug 30, 2018 11:08 am

Thanks Bloom. This would be in a Tax deferred IRA. He is currently in all stock funds in Vanguard but is beginning to think about adding some bond funds and a balanced fund may be the best for him as he is not an active investor.
Loghauler

Beehave
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Re: Wellington VS Balanced Index

Post by Beehave » Thu Aug 30, 2018 12:01 pm

Wellington has a higher and thus riskier percentage of stocks-to-bonds than the Balanced Fund. But Wellington's stocks are more value-oriented and probably less risky. This looks like a wash, and in fact past performance is very close to a wash.

Wellington also has higher fees, but includes some foreign stock. Overall, again a wash.

My suggestion, if anyone will be beating themselves or someone else up over making the "wrong choice" (whatever that means over whatever timeframe is chosen), I'd strongly suggest 50% Wellington and 50% Balanced for family peace and happiness.

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jainn
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Re: Wellington VS Balanced Index

Post by jainn » Thu Aug 30, 2018 1:14 pm

Lifestrategy Moderate Growth (60/40) for non taxable account.

Allocation to underlying funds as of 07/31/2018

Vanguard Total Stock Market Index Fund Investor Shares 36.10%
Vanguard Total Bond Market II Index Fund Investor Shares 27.90%
Vanguard Total International Stock Index Fund Investor Shares 24.10%
Vanguard Total International Bond Index Fund Investor Shares 11.90%

venkman
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Re: Wellington VS Balanced Index

Post by venkman » Thu Aug 30, 2018 10:20 pm

loghauler wrote:
Thu Aug 30, 2018 11:08 am
Thanks Bloom. This would be in a Tax deferred IRA. He is currently in all stock funds in Vanguard but is beginning to think about adding some bond funds and a balanced fund may be the best for him as he is not an active investor.
What about a Target Retirement Fund? He sounds like a good candidate. And if he ever decides to become more involved, he can easily change investments within the IRA.

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loghauler
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Re: Wellington VS Balanced Index

Post by loghauler » Fri Aug 31, 2018 9:59 am

Good thought. I'll ask him to look at that. Currently he has a mix of funds including S&P 500, a small cap, a mid cap and a reit. He could consolidate some or all of his current funds into one going with either Vanguard Balanced or this LifeStrategy fund and get some bonds also.

Loghauler

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Re: Wellington VS Balanced Index

Post by watchman1675 » Thu Jun 13, 2019 3:31 pm

I'm retiring soon at 53 1/2 and I am rolling my 401k to a Vanguard Index fund and then initiating a SEPP 72t on $600k. I'm trying to decide if the Total stock market index would be appropriate since I have another $600k in fixed of if I should go with the Vanguard Balanced Index Admiral or even the Wellington. Any thoughts?
Last edited by watchman1675 on Wed Jun 19, 2019 3:16 pm, edited 1 time in total.

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fortyofforty
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Re: Wellington VS Balanced Index

Post by fortyofforty » Fri Jun 14, 2019 8:33 am

Part of the calculation should be what your daughter in law would do should your son pass away first. There is a certain simplicity to the "one fund" solution. In that regard, and given that they are in no danger of withdrawing the money early, either one will be fine. The Balanced Index Fund does not force you to live with the possibility of the fund underperforming the indexes, as any active fund does (even the venerable Wellington). I have often recommended LifeStrategy funds as a one fund solution.
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longinvest
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Re: Wellington VS Balanced Index

Post by longinvest » Fri Jun 14, 2019 9:05 am

jainn wrote:
Thu Aug 30, 2018 1:14 pm
Lifestrategy Moderate Growth (60/40) for non taxable account.
There was a discussion, yesterday, about also using Lifestrategy Moderate Growth for a taxable account.
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dbr
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Re: Wellington VS Balanced Index

Post by dbr » Fri Jun 14, 2019 10:07 am

I don't think picking and choosing between those two funds and others of generally the same type rises to the level of an important investment decision.

That said I would take the view that a default position in investing would be the famous (or infamous) three fund portfolio and that one might depart from that plan when one has good reasons to do so. I can't supply such reasons, but maybe someone else has some. Note decisions abut stock/bond allocation and international allocation can be chosen at any level in the three fund approach. I don't think choosing Wellington on the advice that their choice of allocation is a good idea for anyone in particular would make any sense though that allocation could be fine for a lot of people if arrived at for a good reason of one's own. Also, relating to the three fund portfolio, the Balanced Index, or to Wellington, I don't think most debates about what bonds to hold rise to the level of important investing decisions.

I would add that I would not put the entirety of my wealth in one single fund from one single fund company, so there is that to think about. Probably almost no one has or would go that far.

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Re: Wellington VS Balanced Index

Post by Dandy » Fri Jun 14, 2019 11:31 am

Can't argue with Wellington's performance and relatively low cost and turnover. It is hard to classify it as an "active" fund. I have a modest allocation to its sister fund Wellesley Income Fund.

But, I have a large allocation to Balanced Index in my TIRA. Lower (slightly) cost index/passive.

I'd err on the side of Balanced Index over the long term but can't make much of a case vs Wellington. Kind of a toss up.

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Re: Wellington VS Balanced Index

Post by willthrill81 » Fri Jun 14, 2019 11:41 am

Beehave wrote:
Thu Aug 30, 2018 12:01 pm
Wellington has a higher and thus riskier percentage of stocks-to-bonds than the Balanced Fund. But Wellington's stocks are more value-oriented and probably less risky. This looks like a wash, and in fact past performance is very close to a wash.
No, it isn't. Since 1993, Wellington has had 1.33% higher annualized returns and with very similar volatility to VBINX. Whether this will continue going forward is obviously unknowable, but Wellington certainly outperformed in the past.
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Re: Wellington VS Balanced Index

Post by InvMoney » Fri Jun 14, 2019 2:27 pm

Following is data that indicates the May 2019 value of $100,000 invested on January 1, 2001 in Wellington and comparable indexes, along with average annual returns. (Note: I selected January 2001 for the starting point of this analysis, because the Vanguard Balanced Index Fund's inception date was in the 4th quarter of 2000. Data source: Portfolio Visualizer.)

$373,078 (7.41%) - (VWELX) Wellington (65% stocks / 35% bonds - US and International)
$299,892 (6.14%) - (VBIAX) Vanguard Balanced Index (60% stocks / 40% bonds - US)
$258,374 (5.29%) - (VSMGX) Vanguard LS Moderate Growth Index (60% stocks / 40% bonds - US and International)

With regard to the negative impact of two stock bear markets during this period, Wellington, with a 5% higher allocation to stocks, still outperformed the Balanced Index and LS Moderate Growth Index. And during the 4th Quarter 2018 market correction, Wellington (-6.78%) had a lower loss than the Balanced Index (-8.09%) and the LS Moderate Growth Index (-7.42%).

The following data, which indicates the May 2019 value of $100,000 invested on January 1, 2014, demonstrates that Wellington has continued to maintain a performance advantage over comparable indexes.

$146,143 (7.26%) - (VWELX) Wellington
$144,463 (7.03%) - (VBIAX) Vanguard Balanced Index
$134,181 (5.58%) - (VSMGX) Vanguard LS Moderate Growth Index

columbia
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Re: Wellington VS Balanced Index

Post by columbia » Fri Jun 14, 2019 3:08 pm

Wellington has formed like an 80/20 mix of S&P 500 and total bond (since that index had existed).

longinvest
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Re: Wellington VS Balanced Index

Post by longinvest » Fri Jun 14, 2019 3:24 pm

When I invest into a globally-diversified balanced index fund, like Vanguard's LifeStrategy Moderate Growth Fund, I seek to minimize the risk of having my money concentrated into an asset that will underperform in the future.

I know that I'll get average returns, year after year after year. Yet, my portfolio will have avoided catastrophe and I'll have reached my financial objectives.
Last edited by longinvest on Fri Jun 14, 2019 3:57 pm, edited 5 times in total.
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KlangFool
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Re: Wellington VS Balanced Index

Post by KlangFool » Fri Jun 14, 2019 3:30 pm

OP,

Essentially, I do both. Why choose?

A) 40% into the Wellington fund.

B) 40% into the 3-funds portfolio.

C) 20% into the Larry portfolio.

KlangFool

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nisiprius
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Re: Wellington VS Balanced Index

Post by nisiprius » Fri Jun 14, 2019 4:18 pm

I would say to your son:

Decide how you feel about passive investing (indexing) versus active management. Decide what convictions you have about the approach.
If you like indexing, use Balanced Index. If you like active management and trust Wellington's current management, use Wellington. It really boils down to that. But I feel that if you can't articulate any strong personal basis for preferring Wellington, then go with Balanced Index, because it is the closest thing to "choosing not to choose."

John C. Bogle has a long and richly detailed chapter about Wellington in Clash of the Cultures: Investment versus Speculation. It's entitled The Rise, the Fall, and the Renaissance of Wellington Fund. "The rise" was 1928-1966, the "fall" was 1967-1978, and the "renaissance" was 1978-2012.

During 1967-1978, according to Bogle,
the once-conservative balanced fund was taking on greater risk than the stock market itself!
And
By the time that 1978 mercifully ended, the shortfall had reached boxcar proportions: cumulative valye of that initial $1.00 in 1929, Wellington $17.78; average balanced fund, $25.20. For a time I entertained the idea that we should simply merge Wellington Fund... until another one of our funds, and get on with our business.
For 1967-1978 comparison of Wellington (blue), with Morningstar's benchmark for "50%-70% equity" (orange), and a competitor's balanced fund (Fidelity Puritan). The Vanguard Balanced Index Fund (VBINX) did not exist then, so we can't include it in the comparison.

Source
Image

The stock/bond ratio of Wellington has varied during its life, from as low as 40% to as high as 80%.

Image

So, there you have it. 1967-1978 was a long time ago. Active management. Same-old, same-old. Do you trust the current Wellington management? How sure are you that they learned their lesson and a 1967-1978 "fall" can't happen again? How sure are you that you can detect changes in management strategy, like "the once-conservative balanced fund was taking on greater risk than the stock market itself?"

On the other hand, although Bogle uses the word "fall," let's be clear--it was only a competitive failure. It did not really fall. It did not lose money during 1967-1978. It grew $10,000 into $15,600 over about twelve years, or over 3.7% per year, even though it dropped below $10,000 twice. That was a competitive failure, and bad underperformance compared to what it should have been, but not necessarily a disaster in anybody's long-term investing plan.
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Re: Wellington VS Balanced Index

Post by FactualFran » Fri Jun 14, 2019 5:11 pm

nisiprius wrote:
Fri Jun 14, 2019 4:18 pm
So, there you have it. 1967-1978 was a long time ago. Active management. Same-old, same-old. Do you trust the current Wellington management? How sure are you that they learned their lesson and a 1967-1978 "fall" can't happen again? How sure are you that you can detect changes in management strategy, like "the once-conservative balanced fund was taking on greater risk than the stock market itself?"
The basic reason for the poor performance of the Wellington Fund between 1966 and 1978 is well known: John Bolge, as head of Wellington Managment, decided to merge Wellington Management with a much more aggressive investment management firm.

The Wellington Fund was managed more aggressively than it had been. After a few years, John Bogle as the head of the Wellington Fund got the fund back to its traditional approach. According to the Reflections on Wellington Fund’s 75th Birthday comments by John Bogle.
With my approval, our bullish and innovative new managers set out to “modernize” Wellington Fund. The equity ratio was raised from 62 percent in 1966 to 74 percent in 1967, and, in 1971, shortly before the bull market crested, to an all-time high of 77 percent. Holding more and more equities as the stock market became increasingly speculative was not the only problem. The equity position was also moved away from its traditional base of large blue-chip stocks to smaller stocks believed to have greater growth potential. In the Fund’s 1967 Annual Report we proudly announced these changes to our shareholders.
Here is an excerpt from the 1967 Annual Report:
Change is a starting point for progress, and 1967 was a year of change for Wellington Fund. Obviously, times change. We decided we too should change to bring the portfolio more into line with modern concepts and opportunities. We have chosen “dynamic conservatism” as our philosophy, with emphasis on companies that demonstrate the ability to meet, shape and profit from change. (We have) increased our common stock position from 64 percent of resources to 72 percent, with a definite emphasis on growth stocks and a reduction in traditional basic industries.
The annual report clearly announced that it was not "Same-old, same-old".

What happened is very unlikely to happen again unless the Wellington Fund allows the investment managers to stray significantly from the traditional approach.

The changes to the investment approach would have been dectected by reading the Annual Report.

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fortyofforty
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Re: Wellington VS Balanced Index

Post by fortyofforty » Fri Jun 14, 2019 5:40 pm

When it comes to comparative performance, we are left with several issues. Balanced Index matches a 60/40 split, while Wellington is on a loose float, generally around 65/35, giving Wellington an advantage over any time period in which equities outperform, all else being equal. Another issue is the cyclical nature of performance differences between growth and value, with Wellington holding what is generally considered to be a value-oriented portfolio. Up to 25% of Wellington's assets may be invested in international securities, which also makes a direct one-to-one comparison less than perfect. Finally, Wellington does not seek to match any particular bond index and is free to follow whatever the managers believe is the best risk/reward profile. As I wrote above, since you don't know whether the fund will perform better or worse than an index, you will always live with "rejoice or regret" outcomes.
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columbia
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Re: Wellington VS Balanced Index

Post by columbia » Fri Jun 14, 2019 5:40 pm

Owning Wellington or Balanced Index or the VG 60/40 life strategy fund are on my list, should any nieces or nephews ever ask for a recommendation.

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changingtimes
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Re: Wellington VS Balanced Index

Post by changingtimes » Fri Jun 14, 2019 7:28 pm

columbia wrote:
Fri Jun 14, 2019 5:40 pm
Owning Wellington or Balanced Index or the VG 60/40 life strategy fund are on my list, should any nieces or nephews ever ask for a recommendation.
I struggled with this decision in an inherited IRA, and ended up splitting between all three. :twisted:

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Re: Wellington VS Balanced Index

Post by KlangFool » Fri Jun 14, 2019 7:48 pm

OP,

A person should pick the Wellington fund if he believes that actively managed large value fund has a place in his portfolio. I am not willing to place all my bets in a passive index fund. So, 40% of my portfolio is in the Wellington fund.

KlangFool

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Re: Wellington VS Balanced Index

Post by m@ver1ck » Fri Jun 14, 2019 8:46 pm

I have put about 8% of my funds in Vanguard Wellington. Reason - VTSAX has too much exposure to the likes of FB and AAPL - I don't like those stocks much.

I have put about 8% of my funds into Vanguard Wellington Global. Reason: As above + Not sure international is lends itself to indexing as well - not sure how many books are cooked in the international space, specially BRICs.

5% is in MSFT.

All the other funds are pretty much lined up with the 3 fund approach.

Summary - Using Wellington to value tilt as a counterweight to all the growth in Growth funds.

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Re: Wellington VS Balanced Index

Post by NYCwriter » Fri Jun 14, 2019 9:18 pm

I used Wellington as a single fund in my 457b for a long time. Then switched to Vanguard Primecap + bond since I waned to fill up the bond space. At the time, these were the cheapest funds (cheaper than the passive funds available) in the plan, until CIT equity/bond funds became available.

What's the appeal of Wellington versus a balanced index? It's the faith in active management and/or a skew to value. Since management teams change, there's likely a set of principles VG adheres to in mgmt. The other appeal is concern about market-cap passive funds that tend to be tech-heavy.

One last issue is cost. In some plans where Wellington is available, it's often the least expensive all-in-one fund.

One q I've always had is whether "branding" trumps reality, given that two VG flavors may end up being very similar.

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Re: Wellington VS Balanced Index

Post by rkhusky » Fri Jun 14, 2019 9:39 pm

Along with large value stocks, Wellington’s bonds are mainly corporate, which are more risky, but have higher expected return, than the Treasuries that dominate Total Bond.

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Re: Wellington VS Balanced Index

Post by Sandtrap » Fri Jun 14, 2019 9:41 pm

KlangFool wrote:
Fri Jun 14, 2019 7:48 pm
OP,

A person should pick the Wellington fund if he believes that actively managed large value fund has a place in his portfolio. I am not willing to place all my bets in a passive index fund. So, 40% of my portfolio is in the Wellington fund.

KlangFool
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Re: Wellington VS Balanced Index

Post by FireHorse » Sat Jun 15, 2019 7:21 am

KlangFool wrote:
Fri Jun 14, 2019 7:48 pm
OP,

A person should pick the Wellington fund if he believes that actively managed large value fund has a place in his portfolio. I am not willing to place all my bets in a passive index fund. So, 40% of my portfolio is in the Wellington fund.

KlangFool
KlangFool

Does your 40% Wellington fund in taxable account or tax advantage account?

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Re: Wellington VS Balanced Index

Post by KlangFool » Sat Jun 15, 2019 8:27 am

FireHorse wrote:
Sat Jun 15, 2019 7:21 am
KlangFool wrote:
Fri Jun 14, 2019 7:48 pm
OP,

A person should pick the Wellington fund if he believes that actively managed large value fund has a place in his portfolio. I am not willing to place all my bets in a passive index fund. So, 40% of my portfolio is in the Wellington fund.

KlangFool
KlangFool

Does your 40% Wellington fund in taxable account or tax advantage account?
FireHorse,

It was in the taxable account about 10+ years ago. Since then, I had moved all of them into the tax-advantaged account.

KlangFool

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Re: Wellington VS Balanced Index

Post by FireHorse » Sat Jun 15, 2019 10:17 am

KlangFool wrote:
Sat Jun 15, 2019 8:27 am
FireHorse wrote:
Sat Jun 15, 2019 7:21 am
KlangFool wrote:
Fri Jun 14, 2019 7:48 pm
OP,

A person should pick the Wellington fund if he believes that actively managed large value fund has a place in his portfolio. I am not willing to place all my bets in a passive index fund. So, 40% of my portfolio is in the Wellington fund.

KlangFool
KlangFool

Does your 40% Wellington fund in taxable account or tax advantage account?
FireHorse,

It was in the taxable account about 10+ years ago. Since then, I had moved all of them into the tax-advantaged account.

KlangFool
Thanks KlangFool.

I have 5% Wellington fund in taxable which is tax inefficient per BH rule, but all my tax advantage account is with Fidelity due to prior employers and I am sincerely happy with Fidelity service and the funds selections.

I personally like Wellington fund a lot and thinking to increase the % but the question of tax inefficiencies have been holding me back

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Re: Wellington VS Balanced Index

Post by KlangFool » Sat Jun 15, 2019 10:26 am

FireHorse wrote:
Sat Jun 15, 2019 10:17 am
KlangFool wrote:
Sat Jun 15, 2019 8:27 am
FireHorse wrote:
Sat Jun 15, 2019 7:21 am
KlangFool wrote:
Fri Jun 14, 2019 7:48 pm
OP,

A person should pick the Wellington fund if he believes that actively managed large value fund has a place in his portfolio. I am not willing to place all my bets in a passive index fund. So, 40% of my portfolio is in the Wellington fund.

KlangFool
KlangFool

Does your 40% Wellington fund in taxable account or tax advantage account?
FireHorse,

It was in the taxable account about 10+ years ago. Since then, I had moved all of them into the tax-advantaged account.

KlangFool
Thanks KlangFool.

I have 5% Wellington fund in taxable which is tax inefficient per BH rule, but all my tax advantage account is with Fidelity due to prior employers and I am sincerely happy with Fidelity service and the funds selections.

I personally like Wellington fund a lot and thinking to increase the % but the question of tax inefficiencies have been holding me back
FireHorse,

<<I am sincerely happy with Fidelity service and the funds selections.>>

1) No, you are not. You could not invest in the Wellington Fund.

2) It makes a lot more sense for you to roll over some amount of money from Fidelity to Vanguard IRA and invest in the Wellington Fund.

3) I have accounts in both Fidelity and Vanguard.

KlangFool

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Re: Wellington VS Balanced Index

Post by JBTX » Sat Jun 15, 2019 1:49 pm

Wellington has higher percentage of stocks - roughly 2/3 vs 60% for index.

Wellington seems to be a bit more interest rate / inflation sensitive.

Wellingtons debt is slightly lower on the quality scale than your typical index.

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Re: Wellington VS Balanced Index

Post by FireHorse » Sat Jun 15, 2019 7:54 pm

KlangFool wrote:
Sat Jun 15, 2019 10:26 am
FireHorse wrote:
Sat Jun 15, 2019 10:17 am
KlangFool wrote:
Sat Jun 15, 2019 8:27 am
FireHorse wrote:
Sat Jun 15, 2019 7:21 am
KlangFool wrote:
Fri Jun 14, 2019 7:48 pm
OP,

A person should pick the Wellington fund if he believes that actively managed large value fund has a place in his portfolio. I am not willing to place all my bets in a passive index fund. So, 40% of my portfolio is in the Wellington fund.

KlangFool
KlangFool

Does your 40% Wellington fund in taxable account or tax advantage account?
FireHorse,

It was in the taxable account about 10+ years ago. Since then, I had moved all of them into the tax-advantaged account.

KlangFool
Thanks KlangFool.

I have 5% Wellington fund in taxable which is tax inefficient per BH rule, but all my tax advantage account is with Fidelity due to prior employers and I am sincerely happy with Fidelity service and the funds selections.

I personally like Wellington fund a lot and thinking to increase the % but the question of tax inefficiencies have been holding me back
FireHorse,

<<I am sincerely happy with Fidelity service and the funds selections.>>

1) No, you are not. You could not invest in the Wellington Fund.

2) It makes a lot more sense for you to roll over some amount of money from Fidelity to Vanguard IRA and invest in the Wellington Fund.

3) I have accounts in both Fidelity and Vanguard.

KlangFool
KlangFool - thank you for your advice!!!

FireHorse

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Re: Wellington VS Balanced Index

Post by Beehave » Sat Jun 15, 2019 10:35 pm

willthrill81 wrote:
Fri Jun 14, 2019 11:41 am
Beehave wrote:
Thu Aug 30, 2018 12:01 pm
Wellington has a higher and thus riskier percentage of stocks-to-bonds than the Balanced Fund. But Wellington's stocks are more value-oriented and probably less risky. This looks like a wash, and in fact past performance is very close to a wash.
No, it isn't. Since 1993, Wellington has had 1.33% higher annualized returns and with very similar volatility to VBINX. Whether this will continue going forward is obviously unknowable, but Wellington certainly outperformed in the past.
"Going forward" (and using the proposed 1993 timeframe as the starting benchmark for annual performance for going forward):
Since 1993 - Wellington outperformed by 1.33%
Since 2009 - Wellington outperformed by 0.53%
Since 2018 - Balanced outperformed by by 0.30%

On the one hand, the overall average delta in gains says Wellington is the outperformer. On the other hand, the trend delta says Balanced is the outperformer. In my opinion, whether this is a wash or not and whether it would be preferable to own just one or both is in the eyes and mind of the beholder. :sharebeer

In any case, rather than relying solely on these past-performance figures (which to me are very close), I'd suggest looking at the specific similarities and differences between the funds to determine whether and how much to invest in either because the two funds differ in risk characteristics in both their stock and bond holdings. Compared with the Balanced Index, Wellington holds slightly more in stocks (but of a slightly less-risky nature) and slightly less in bonds (but of a seemingly more risky nature). As I see it, they are similar in many respects and quite different in others in ways that seem to "cancel out" relative to overall risk. In the most fundamental ways, they are very similar:
1) Both are balanced funds with managed rebalancing that help you steer clear of greed and fear-based decision making
2) Both hold similar (though not identical) proportions of stocks to bonds.

Returning from portfolio-composition philosophy to past performance as a guide, to the extent (whether you consider it great or small) that Wellington has "outperformed" on-average since 1993, it is interesting to compare a 65% Total Stock Index / 35% Total Bond Index portfolio to Wellington's managed 65%-35% stock-to-bond portfolio. To make this resemble the Balanced Index versus Wellington Fund "dispute," I used a 12% Total US Stock Index plus 88% Balanced Index portfolio (which is approx at 65:35 ratio) compared to a Wellington holding. The 10 year performance? Balanced-88 plus Total Market-12 had 11.65% annual gain. Wellington had 11.60% gain. So Wellington appears to do have done essentially identically with what is often considered a less risky profile. Whether that profile is less risky today may be in question - - Wellington's go-to bond preference is bank instruments whereas the Balanced Index's bond holdng go-to preference is US Gov't-backed instruments. Buyer be aware.

Full disclosure - - I own some (but not large amounts) of Wellington and Balanced Index funds. I am concerned about trends of: shadow banks and their debt holdings, corporate debt and behavior in times of low interest loans, trade relationships, and government debt. In the past I had more faith that Wellington would behave better than indexes in weird times of trouble. I'm less sure of that in the current circumstances. In the event that circumstances of great credit risk arise that hit both stocks and bonds, the Balanced Index's relatively higher proportion of US Gov't-backed instruments may be the flotsam and jetsom in the wreck that keep you comparatively afloat and better positioned to thrive in the prosperity that will (hopefully) ensue because at the bottom you will have lost less in bonds and your automatic rebalancing will rebalance into relatively more stock at the bottom to grow as the economy heals.

InvMoney
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Re: Wellington VS Balanced Index

Post by InvMoney » Sun Jun 16, 2019 8:53 am

The quality, dividends and price of a balanced fund's stock holdings is significant during a market correction or a bear market. While Wellington focuses on the quality, dividends and price of the stocks it selects for its portfolio, balanced index funds don't. Because of this, Wellington has a long-term history of outperforming balanced index funds or composites during market corrections and bear markets.

Wellington again demonstrated the wisdom of its strategy during the 4th Quarter 2018 market correction. Despite having 5% more of its portfolio allocated to stocks, Wellington was down only -6.78%, while the Balanced Index was down -8.09% and the LS Moderate Growth Index -7.42%.
Last edited by InvMoney on Sun Jun 16, 2019 1:21 pm, edited 7 times in total.

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willthrill81
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Location: USA

Re: Wellington VS Balanced Index

Post by willthrill81 » Sun Jun 16, 2019 9:02 am

Beehave wrote:
Sat Jun 15, 2019 10:35 pm
willthrill81 wrote:
Fri Jun 14, 2019 11:41 am
Beehave wrote:
Thu Aug 30, 2018 12:01 pm
Wellington has a higher and thus riskier percentage of stocks-to-bonds than the Balanced Fund. But Wellington's stocks are more value-oriented and probably less risky. This looks like a wash, and in fact past performance is very close to a wash.
No, it isn't. Since 1993, Wellington has had 1.33% higher annualized returns and with very similar volatility to VBINX. Whether this will continue going forward is obviously unknowable, but Wellington certainly outperformed in the past.
"Going forward" (and using the proposed 1993 timeframe as the starting benchmark for annual performance for going forward):
Since 1993 - Wellington outperformed by 1.33%
Since 2009 - Wellington outperformed by 0.53%
Since 2018 - Balanced outperformed by by 0.30%

On the one hand, the overall average delta in gains says Wellington is the outperformer. On the other hand, the trend delta says Balanced is the outperformer. In my opinion, whether this is a wash or not and whether it would be preferable to own just one or both is in the eyes and mind of the beholder.
If you put credence in trends, then you should probably become a trend follower like me. :wink:
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Beehave
Posts: 545
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Re: Wellington VS Balanced Index

Post by Beehave » Sun Jun 16, 2019 8:01 pm

willthrill81 wrote:
Sun Jun 16, 2019 9:02 am
Beehave wrote:
Sat Jun 15, 2019 10:35 pm
willthrill81 wrote:
Fri Jun 14, 2019 11:41 am
Beehave wrote:
Thu Aug 30, 2018 12:01 pm
Wellington has a higher and thus riskier percentage of stocks-to-bonds than the Balanced Fund. But Wellington's stocks are more value-oriented and probably less risky. This looks like a wash, and in fact past performance is very close to a wash.
No, it isn't. Since 1993, Wellington has had 1.33% higher annualized returns and with very similar volatility to VBINX. Whether this will continue going forward is obviously unknowable, but Wellington certainly outperformed in the past.
"Going forward" (and using the proposed 1993 timeframe as the starting benchmark for annual performance for going forward):
Since 1993 - Wellington outperformed by 1.33%
Since 2009 - Wellington outperformed by 0.53%
Since 2018 - Balanced outperformed by by 0.30%

On the one hand, the overall average delta in gains says Wellington is the outperformer. On the other hand, the trend delta says Balanced is the outperformer. In my opinion, whether this is a wash or not and whether it would be preferable to own just one or both is in the eyes and mind of the beholder.
If you put credence in trends, then you should probably become a trend follower like me. :wink:
I think I'm approaching the trend point where I think it really is different this time, shortly to be followed by the "oh no it isn't" moment of revelation. :oops:

In any case, your comment, because of the truth and insight it contains, made me think a lot about something which is much more subtly complex than I had initially thought and I appreciate it. :sharebeer Best wishes!!!

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