Wellington and Wellesley Income

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HotRod140
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Wellington and Wellesley Income

Post by HotRod140 » Thu Jan 08, 2009 8:09 pm

I'm sure this topic probably has been covered, but what the heck. With respect to an IRA, has anyone just held these two funds in a 50/50 split , with no other holdings? Is it a good idea? Thanks

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DA
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Re: Wellington and Wellesley Income

Post by DA » Thu Jan 08, 2009 8:19 pm

HotRod140 wrote:I'm sure this topic probably has been covered, but what the heck. With respect to an IRA, has anyone just held these two funds in a 50/50 split , with no other holdings? Is it a good idea? Thanks
Hot Rod,

It's not a good idea, IMHO. It would leave you ...

1. Overweight in large value stocks,
2. Overweight in corporate bonds, and
3. Underweight in foreign stocks

Dan

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HotRod140
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Wellington and Wellesley Income

Post by HotRod140 » Thu Jan 08, 2009 8:24 pm

would you keep one and pair it with another fund or two. or just go all in one one. p.s I see your a saints fan, I am a Jets fan. I feel your pain

williamg
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Post by williamg » Thu Jan 08, 2009 8:31 pm

How about using the pairing for half the portfolio?

10% Total International
15% Total Stock Market
25% Wellington
25% Wellesley
25% Bonds of choice

Gregory
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Post by Gregory » Thu Jan 08, 2009 8:35 pm

Wellington was designed as an all-weather single portfolio, stand-alone investment. I see nothing wrong with holding Wellington alone, and as retirement approaches, adding Wellesley. Not everyone wants to take the small/value risk.

I can think of a lot worse things than living off the W:W 50:50 income stream in retirement.
Pecuniae imperare oportet, non servire. | Fortuna vitrea est; tum cum splendit frangitur. -Syrus

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Speedy
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Re: Wellington and Wellesley Income

Post by Speedy » Thu Jan 08, 2009 8:40 pm

HotRod140 wrote:I'm sure this topic probably has been covered, but what the heck. With respect to an IRA, has anyone just held these two funds in a 50/50 split , with no other holdings? Is it a good idea? Thanks
An investor could do a lot worse than 50/50 Wellesley/Wellington, and for some it is a lot easier to hold balanced funds than stock funds and bond funds.

For what it's worth, annualized returns (percent) thru dec 31, 2008 from Vang website (no rebalancing):

Fund...........10 yr.......5yr.......2008

Wellesley....4.95.......3.36.......-9.84
Wellington...4.49.......2.82.......-22.3
50/50..........4.72......3.09.......-16.07

TSM..........-0.66......-1.76........-37.04
TBM..........5.37........4.56..........5.05
50/50........2.36.......1.40.........-16.0

Were it not for the tax advantage of holding stock funds in a taxable account, I think I would prefer holding balanced funds as it would save me some money on antacids.

Caveat - going forward is likely to be different.

Regards,
Bill

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DA
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Re: Wellington and Wellesley Income

Post by DA » Thu Jan 08, 2009 8:43 pm

HotRod140 wrote:would you keep one and pair it with another fund or two. or just go all in one one. p.s I see your a saints fan, I am a Jets fan. I feel your pain
Hot Rod, I don't know your age or your goals, but here's what I'd do:

I'd own all the stocks (growth and value) through one domestic and one foreign total market index fund.

Then I'd own all the bonds (except high yield and TIPS) through a total bond market index fund.

Add some TIPS (either through a TIPS fund or purchased individually through Uncle Sam) in case inflation comes in higher than what is expected and priced into nominal bonds.

That's really all you need to be well diversified.

Wellesley and Wellington are fine funds. Just remember that they are tilted to dividend paying value stocks and corporate bonds.

As for the Saints ... well ... there's always next season. :)

Good luck!

Dan

fundtalk
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Post by fundtalk » Fri Jan 09, 2009 12:45 pm

The problem with this is that well respected, well run, active funds can still blow up. The best recent example of this for balanced funds is Dodge and Cox Balanced. It is a low turnover, low expense ratio, value tilted fund run by an experienced committee. It returned -34% in 2008 compared to a 22% loss for its benchmark 60% s&p 500/40% lehman Agg.

It is poorly diversified (80 stocks), takes on a lot of risk in its fixed income portfolio (1/2 in mortgage related, 1/2 in corporates) and market times (not well by the way, having increased equity to 70% BEFORE October).

Now, I don't expect an unfortunate fall from grace for Wellington or Wellsley. But, who's to say it couldn't happen? Wellington has 109 stocks, Wellsley has 54. They are concentrated in domestic large value stocks. They both hold primarily corporate bonds. I wouldn't let the staid reputation fool you, there is some significant risk here.

I hope these two funds continue their long run of success. For me personally, I prefer to build my own low cost equity portfolio which will be diversified by region, size and valuation with 1000's of stocks. And, I support it with the safest fixed income investments.

But, I'll be the first to admit, I've been tempted to simply put it all in Wellington and call it a day.

tibbitts
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agree

Post by tibbitts » Fri Jan 09, 2009 1:02 pm

fundtalk wrote:The problem with this is that well respected, well run, active funds can still blow up. The best recent example of this for balanced funds is Dodge and Cox Balanced. It is a low turnover, low expense ratio, value tilted fund run by an experienced committee. It returned -34% in 2008 compared to a 22% loss for its benchmark 60% s&p 500/40% lehman Agg.

It is poorly diversified (80 stocks), takes on a lot of risk in its fixed income portfolio (1/2 in mortgage related, 1/2 in corporates) and market times (not well by the way, having increased equity to 70% BEFORE October).

Now, I don't expect an unfortunate fall from grace for Wellington or Wellsley. But, who's to say it couldn't happen? Wellington has 109 stocks, Wellsley has 54. They are concentrated in domestic large value stocks. They both hold primarily corporate bonds. I wouldn't let the staid reputation fool you, there is some significant risk here.

I hope these two funds continue their long run of success. For me personally, I prefer to build my own low cost equity portfolio which will be diversified by region, size and valuation with 1000's of stocks. And, I support it with the safest fixed income investments.
I agree with this. I think it's easy to be influenced by past successes and assume that these funds, which are relatively high-risk (Wellesley particularly), will continue to outperform. Funds with solid management and a proven track record tend to continue to perform well... until they don't. Nobody sends up a red flag to announce pending underperformance - possibly dramatic underperformance. Since I own a small amount of both funds, I'm hoping (possibly irrationally) that they will at least match their benchmarks going forward, but you can't count on it.

Paul

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Speedy
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Post by Speedy » Fri Jan 09, 2009 1:22 pm

The point made about diversification is certainly valid. There is no guarantee of continued outperformance of the index funds by Wellesley and Wellington, and of course, it could become underperformance at some point in the future. You could consider the Vanguard Balanced Index fund VBINX, which is 60% stock and combine it with a conservative bond index fund to bring the stock/bond split to 50%.

Before becoming a Boglehead (and going into index funds) a few years ago, I used a combination of several active balanced funds (OAKBX, VWELX, FPURX, DODBX, LCORX). I must say that I was sleeping better in those days. Not logical, but just the way it is.

Since I went to index funds, some of those balanced funds have done better and some worse than my index fund portfolio. The DODBX (Dodge & Cox Balanced) fiasco is a good example of what can happen to an active fund when things get messy, like in 2008.

Regards,
Bill

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Post by buzz123 » Fri Jan 09, 2009 1:59 pm

Of course, if you're like myself with a wife and kid and you don't have much time for portfolio tweaking, you can go with one of the Life Strategy or Target Retirement funds. Both of these use index funds so you don't have to worry about any of the problems associated with active management. They also give you great diversification with exposure to pretty much everything using the Total Stock Market, Total Bond Market and Total International Stock funds. Just pick the single Life Strategy or Target Retirement fund that is appropriate for you and sit back, relax and enjoy the flight.

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Re: Wellington and Wellesley Income

Post by YDNAL » Fri Jan 09, 2009 2:24 pm

HotRod140 wrote:I'm sure this topic probably has been covered, but what the heck. With respect to an IRA, has anyone just held these two funds in a 50/50 split , with no other holdings? Is it a good idea? Thanks
HotRod,

Take a look at Target Income. Coupled with 25% in the LCV fund (VIVAX)* and you have a 50/50 Portfolio with added diversification (lacking international for my taste) and large value tilt.

* could also use High Dividend Yield (VHDYX), Dividend Appreciation (VDAIX) or Dividend Growth (VDIGX).
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Re: Wellington and Wellesley Income

Post by YDNAL » Fri Jan 09, 2009 2:36 pm

Edit: Duplicate Post - see above.
Last edited by YDNAL on Fri Jan 09, 2009 2:40 pm, edited 1 time in total.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

JOJO123
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Post by JOJO123 » Fri Jan 09, 2009 2:37 pm

*****
Last edited by JOJO123 on Wed Dec 18, 2019 11:20 pm, edited 1 time in total.

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jh
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...

Post by jh » Fri Jan 09, 2009 2:48 pm

...
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Post by jh » Fri Jan 09, 2009 3:00 pm

...
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bilperk
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Post by bilperk » Fri Jan 09, 2009 5:45 pm

fundtalk wrote:The problem with this is that well respected, well run, active funds can still blow up. The best recent example of this for balanced funds is Dodge and Cox Balanced. It is a low turnover, low expense ratio, value tilted fund run by an experienced committee. It returned -34% in 2008 compared to a 22% loss for its benchmark 60% s&p 500/40% lehman Agg.

It is poorly diversified (80 stocks), takes on a lot of risk in its fixed income portfolio (1/2 in mortgage related, 1/2 in corporates) and market times (not well by the way, having increased equity to 70% BEFORE October).

Now, I don't expect an unfortunate fall from grace for Wellington or Wellsley. But, who's to say it couldn't happen? Wellington has 109 stocks, Wellsley has 54. They are concentrated in domestic large value stocks. They both hold primarily corporate bonds. I wouldn't let the staid reputation fool you, there is some significant risk here.

I hope these two funds continue their long run of success. For me personally, I prefer to build my own low cost equity portfolio which will be diversified by region, size and valuation with 1000's of stocks. And, I support it with the safest fixed income investments.

But, I'll be the first to admit, I've been tempted to simply put it all in Wellington and call it a day.
Anyone who owns an active fund and expects it to outperform its benchmark every year should stick to index funds. It is not unusual or even unacceptable that an active fund underperform in some years, even by a wide margin.

When you look at D&C Balanced's 10 year record against its benchmark, it is +4.77% to +1.27%, which is significant outperformance.

I have no reason to believe they won't outperform by as much in the next 10 years. D&C doesn't buy assets for a 1 year return. They look at more like 3-5 years. Increasing equity to 70% in pre-october was a good value play. They may decide to increase even more now.

Let's revisit this conversation in 3-5 years and see if the fund really "blew up" or just did what value funds do.

best,
Bill

Topic Author
HotRod140
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Wellington and Wellesley Income

Post by HotRod140 » Fri Jan 09, 2009 8:31 pm

YDNAL I kinda like your idea. I'm gonna research it. Everyone thanks for all the great advice. I look forward to more answers to this question

Roy
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Post by Roy » Sat Jan 17, 2009 8:58 am

fundtalk wrote:The problem with this is that well respected, well run, active funds can still blow up. The best recent example of this for balanced funds is Dodge and Cox Balanced. It is a low turnover, low expense ratio, value tilted fund run by an experienced committee. It returned -34% in 2008 compared to a 22% loss for its benchmark 60% s&p 500/40% lehman Agg.

It is poorly diversified (80 stocks), takes on a lot of risk in its fixed income portfolio (1/2 in mortgage related, 1/2 in corporates) and market times (not well by the way, having increased equity to 70% BEFORE October).

Now, I don't expect an unfortunate fall from grace for Wellington or Wellsley. But, who's to say it couldn't happen? Wellington has 109 stocks, Wellsley has 54. They are concentrated in domestic large value stocks. They both hold primarily corporate bonds. I wouldn't let the staid reputation fool you, there is some significant risk here.

I hope these two funds continue their long run of success. For me personally, I prefer to build my own low cost equity portfolio which will be diversified by region, size and valuation with 1000's of stocks. And, I support it with the safest fixed income investments.

But, I'll be the first to admit, I've been tempted to simply put it all in Wellington and call it a day.

Excellent post, fundtalk, and right on the mark. And yes, it can be tempting to go Wellington, or Wellesley, or OAKBX or whatever, until you realize why you don't, and how academic evidence informs your decision not to.

Roy

Trev H
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You could always use... W & W as part

Post by Trev H » Sat Jan 17, 2009 9:35 am

.
You could always use W & W as part of a S&D portfilio mixing in other funds that complement the LV/Bonds included in W/W.

10% Wellington (US LV and Bonds)
10% Wellesley (US LV and Bonds)
10% Primecap Core (Large/Mid Growth ARP)
10% REIT (REIT)
10% Small Value Index (Small Value)
10% Small Index (Small)
10% International Value (International LV Developed & EM)
10% FTSE X-US Small Cap (Intl Small Caps - Developed & EM)
10% InterTerm Treasury Bonds (Treasury bonds)
10% TIPS (Inflation Protected securities).

You would have a total exposure to US LV of around 10% and around 10% in Bonds (including corp) with that weighting to W/W.
You would get Treasuries and Tips and several other equity asset classes via other funds.

Sure - there are lots of ways you could tweak that to make it more or less conservative.

Above would give you around 70% Equity, 30% Bonds.

Trev H

Roy
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Re: You could always use... W & W as part

Post by Roy » Sat Jan 17, 2009 12:24 pm

Trev H wrote:.
You could always use W & W as part of a S&D portfilio mixing in other funds that complement the LV/Bonds included in W/W.

10% Wellington (US LV and Bonds)
10% Wellesley (US LV and Bonds)
10% Primecap Core (Large/Mid Growth ARP)
10% REIT (REIT)
10% Small Value Index (Small Value)
10% Small Index (Small)
10% International Value (International LV Developed & EM)
10% FTSE X-US Small Cap (Intl Small Caps - Developed & EM)
10% InterTerm Treasury Bonds (Treasury bonds)
10% TIPS (Inflation Protected securities).

You would have a total exposure to US LV of around 10% and around 10% in Bonds (including corp) with that weighting to W/W.
You would get Treasuries and Tips and several other equity asset classes via other funds.

Sure - there are lots of ways you could tweak that to make it more or less conservative.

Above would give you around 70% Equity, 30% Bonds.

Trev H
Trev,

Since you are nicely controlling the risks with the great bulk of your portfolio, why introduce the risks of active management at all in those 3 top funds? Why not go index with the large caps and bonds that are otherwise included in the balanced funds, and fully control the risks?

Roy

Gregory
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Re: You could always use... W & W as part

Post by Gregory » Sat Jan 17, 2009 4:48 pm

Roy wrote:
...why introduce the risks of active management at all in those 3 top funds?
With the risks have come rewards as well.

Were there no market demand for Wellington and Wellesley, there would be no shareholders.

As an aside, please note the investment choices in the Vanguard Variable Annuity -- most aren't indexed. http://tinyurl.com/5mkalo
Pecuniae imperare oportet, non servire. | Fortuna vitrea est; tum cum splendit frangitur. -Syrus

and3togo4
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Post by and3togo4 » Sat Jan 17, 2009 9:57 pm

Per vanguad site:

vwelx 10 yr return on $10000 is $15517
vwinx 10 yr return on $10000 is $16185
vtsmx 10 yr return on $10000 is $ 9912

Bonds by far outperformed stocks for last 10 years. Consumers are broke, which is 70% of economy. incomes have not kept pace with inflation. Most of growth for last 15 years has been built on deficit spending.

Ken Reckers
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Post by Ken Reckers » Sun Jan 18, 2009 12:46 am

I have long thought that 50/50 Wellington/Wellesley would be my model allocation for the early retirement years, until around age 75. I have felt this way since around 1994 when I read a book by a "financial guru" who proposed an allocation for that stage of life, at 25/25/20/20/10 with value stocks, equity income stocks, long term bonds, intermediate term bonds, and short term bonds, respectively. It has seemed to me that the 50/50 Well/Well portfolio would approximate this allocation with two funds instead of five, although more so with the stocks than with the duration of the bonds. I sometimes wonder if anyone proposing such an allocation now on this board would be ridiculed.

This "guru" gave a speech in 2001 in which he admitted that although he did not follow that strategy himself, it did perform admirably in 2000.

http://www.vanguard.com/bogle_site/april272001.html

TallyMan
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JACK BOGLE Re: Wellington and Wellesley Income

Post by TallyMan » Sun Jan 18, 2009 9:16 am

HotRod140 wrote:I'm sure this topic probably has been covered, but what the heck. With respect to an IRA, has anyone just held these two funds in a 50/50 split , with no other holdings? Is it a good idea? Thanks
I am always curious what experts and others actually do with their own money, such as here:
http://www.bogleheads.org/forum/viewtop ... highlight=
IMO, actual decisions to place and/or leave money at-risk relative to estimated reward, given one's situation and orientation, is "where the rubber meets the road." Some years ago, I found an interview with Jack Bogle, excerpted below re Vanguard Wellington (VWENX) and Vanguard Wellesley Income (VWIAX) and re his general life-stage situation and conservative orientation. Altho it is off-topic, I found it also particularly noteworthy that he also shifted some money to the VG TIPs fund, and his "portfolio is roughly half in short- and half in intermediate-term bonds overall." He continued: "My largest investment remains Vanguard Limited-Term Tax-Exempt (VMLUX), as it has been for some years," says Jack. Of course, his taxable income was probably higher than most of ours! Steve

SOURCE: http://news.morningstar.com/articlenet/ ... ?id=160557

---
An Inside Look at Jack Bogle's Portfolio
By Sue Stevens, CFA, CFP, CPA | 04-06-06 | 06:00 AM
Jack is a conservative investor, is still working, and doesn't need income from his portfolio at this time.
***
"My current asset allocation overall is about 60% bonds and 40% stocks. There's a fair amount of money involved here, and I feel no need whatsoever to overdo equities. After all, if stocks (surprisingly) soar--I'll do just fine, not in percentage terms but in dollar terms."
***
What may surprise some of you is that not all of Jack’s portfolio is indexed. About 24% is invested in actively managed funds. "I own roughly 6% in Vanguard Explorer (VEXRX) (with its low costs and multiple managers, sort of an index fund cousin) and the equity portions of three 'legacy' funds that I just can't bear to sell (Vanguard Wellington (VWENX), Vanguard Wellesley Income (VWIAX), and Vanguard Windsor (VWNEX)). More importantly, these funds are broadly diversified largely with a value orientation, which is deliberate on my part."
***
"I should note that I'm not required to take distributions from my Vanguard retirement plan since, while over age 70 H, I remain full-time (and more!) working for Vanguard and our shareholders. But my bond-oriented portfolio is well-positioned to provide me with a nice payment stream when I retire. Which I'm going to do. I just have absolutely no idea when.
***
"In all, my portfolio could have well been designed by any serious Boglehead. Sure, I may be too conservative, but that's who I am and always have been. But I know--I know!--that whatever returns the stock and bond markets are kind enough to deliver in the uncertain, risk-laden era ahead, I'll earn my fair share. That's good enough for me. So I shall 'press on, regardless,' and "stay the course!'. No surprises there."
(bold emphasis supplied)

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