Help deciding between Wellesley and 4 Corporate Bond Index Funds

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dc1830
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Help deciding between Wellesley and 4 Corporate Bond Index Funds

Post by dc1830 » Mon Nov 13, 2017 11:18 am

I'm looking for some advice

Have 300k to invest, primary goal is preservation - income.

Trying to decide between going with
50K Prime Money Mkt

And 25% each to:
VSCSX Short Corp Bond
VICSX Int. Corp Bond
VFIIX GNMA
VWEHX High Yield

OR:

Perhaps adding the Wellesley Income Fund also?

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Tyler Aspect
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Re: Help deciding between Wellesley and 4 Corporate Bond Index Funds

Post by Tyler Aspect » Mon Nov 13, 2017 11:54 am

Welcome to Bogleheads.

If you ask your question using the format suggested by the pinned message "Asking Portfolio Questions", then we can help you better.

We generally would like to know your age, and your investment fund names broken down by account types, with investment amount written as a percentage of your total investment asset.

Our answers would be different if your 300k is your only investment, versus if that is only a fraction of total investment.
Last edited by Tyler Aspect on Mon Nov 13, 2017 11:59 am, edited 1 time in total.
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mhalley
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Re: Help deciding between Wellesley and 4 Corporate Bond Index Funds

Post by mhalley » Mon Nov 13, 2017 11:56 am

Bogleheads in general prefer to take risk on the equity side, not the bond side so that rules out the high income fund. Wellesley is a blended fund that contains a significant portion of stocks, so it is not a substitute for a bond fund unless you take the stock percentage into account in calculating your aa.
You don’t mention the rest of your asset allocation. Having only bonds will not keep up with inflation.

dc1830
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Re: Help deciding between Wellesley and 4 Corporate Bond Index Funds

Post by dc1830 » Mon Nov 13, 2017 9:25 pm

Thank you. I'll move this to portfolio questions also.

I'm 44. Married with 2 kids. Wife has a $250K 401K.

Have $300K sitting in cash in a taxable account. We own a rental property that is $300 a month cash positive.

I'd like to invest the $300K very conservatively - primary goal is to preserve the $300K and earn some monthly interest income.

We will add $1000 month to the 300K account going forward.

I used the corporate bond funds that Paul Merriman refers to for monthly income.

I'm wondering if I should invest in both the bond funds and Wellesley or, since Wellesley is skewed more towards bonds already, just invest completely in that fund?

Example:

1.

250K in the bond funds at 25% allocation to each 4.
50K in emergency cash (Prime Money Mkt)

2.

150K in the bond funds (allocated at 25% each)
100K in Wellesley
50K in emergency cash fund (Prime Money Mkt)

3.

250K in Wellesley
50K in emergency cash (Prime Money Mkt)

venkman
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Re: Help deciding between Wellesley and 4 Corporate Bond Index Funds

Post by venkman » Tue Nov 14, 2017 12:05 am

If your primary concern is capital preservation, I wouldn't go for anything more than CD's or short-term bonds--with at least half in Treasuries. You might almost keep up with inflation.

It sounds like what you're really looking for is an investment that offers capital preservation, but with a decent return. That doesn't exist right now. You need to decide how much risk you're willing to take on in exchange for a decent EXPECTED return.

I suggest taking a look at VBTLX (Vanguard Total Bond Market). It currently yields 2.4%, and has a history of relatively low volatility. (It had a drawdown of 4% during the 2008 crisis, but recovered quickly and finished the year up 5%.)

livesoft
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Re: Help deciding between Wellesley and 4 Corporate Bond Index Funds

Post by livesoft » Tue Nov 14, 2017 12:40 am

I own the Vanguard short-term corporate bond index fund. While there are many threads about not jumping into short-term bond funds because intermediate-term funds will get you where you want to go over time, here is a screen capture from morningstar.com of the performance comparison between VBTLX (total bond), VBIIX (intermediate-term bond index), and VSCSX (short-term corporate):
Image

It looks like at least for some time periods, the short-term corporate bond fund was a decent investment compared to the others.

I usually move between the ETFs of these funds depending on whether the intermediate-term ones go up or down by at least 0.5% in one day. And given the 2% to 3% annual returns, 0.5% in one day is a huge movement.
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dc1830
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Re: Help deciding between Wellesley and 4 Corporate Bond Index Funds

Post by dc1830 » Tue Nov 14, 2017 8:45 pm

I'm OK with a conservative level of risk.

For the taxable account, I'd like to be conservative, for wife's 401k, we could be more aggressive on equity. I've read the ideal conservative allocation is 60% short-term / 40% intermediate bonds.

I'm inclined to go more 80% bonds 20% equity, which lead me to think of adding Wellesley somehow but maybe it's not doable.

What's your opinion of the below allocation? Adding i-shares PFF fund (yielding 5%) in place of a high yield bond fund? I know it's not Vanguard fund.

VSCSX - 30%
VBIIX - 20%
GNMA - 20%
PFF - 20%

dbr
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Re: Help deciding between Wellesley and 4 Corporate Bond Index Funds

Post by dbr » Tue Nov 14, 2017 9:12 pm

venkman wrote:
Tue Nov 14, 2017 12:05 am
If your primary concern is capital preservation, I wouldn't go for anything more than CD's or short-term bonds--with at least half in Treasuries. You might almost keep up with inflation.

It sounds like what you're really looking for is an investment that offers capital preservation, but with a decent return. That doesn't exist right now. You need to decide how much risk you're willing to take on in exchange for a decent EXPECTED return.
"preservation - income" is one of those contradictory statements of objectives that have to be drilled into a little bit to see what is a realistic match to what the investor really wants. The dilemma becomes more severe if the investor is reminded that both of these need to be in real dollars after inflation has taken its bite. It is also a devil in the details thing so far as what constitutes meaningful income. Sometimes it helps to cite some examples to put bounds on things. A 30 year TIPS would preserve assets in real terms, at least if held for the maturity of the security. Today the real interest on 30 year TIPS is 0.91%, so that is the income available. At an opposite extreme an inflation indexed annuity might provide 4% payout and the principal would be conserved in the perverse sense of being exactly zero at every point. In the middle ground withdrawal models would probably show that one can safely withdraw 2% to 2.5% maybe from a portfolio and have little chance but not no chance of ending a 30 year period with less than the original portfolio value. That number rises to maybe 4% income if the portfolio is allowed to reach zero in the worst case.

dc1830
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Re: Help deciding between Wellesley and 4 Corporate Bond Index Funds

Post by dc1830 » Wed Nov 15, 2017 1:17 am

Thanks. I think what I'm looking for is conservative income asset allocation.

Grt2bOutdoors
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Re: Help deciding between Wellesley and 4 Corporate Bond Index Funds

Post by Grt2bOutdoors » Wed Nov 15, 2017 7:16 am

livesoft wrote:
Tue Nov 14, 2017 12:40 am
I own the Vanguard short-term corporate bond index fund. While there are many threads about not jumping into short-term bond funds because intermediate-term funds will get you where you want to go over time, here is a screen capture from morningstar.com of the performance comparison between VBTLX (total bond), VBIIX (intermediate-term bond index), and VSCSX (short-term corporate):
Image

It looks like at least for some time periods, the short-term corporate bond fund was a decent investment compared to the others.

I usually move between the ETFs of these funds depending on whether the intermediate-term ones go up or down by at least 0.5% in one day. And given the 2% to 3% annual returns, 0.5% in one day is a huge movement.
Where and when have you seen a 0.5% move in bonds this year in a single day?
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my name
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Re: Help deciding between Wellesley and 4 Corporate Bond Index Funds

Post by my name » Wed Nov 15, 2017 7:55 am

Some thoughts.

I have the intermediate term bond index. This might be a good "compromise" instead of the lower returns of the total bond index and perhaps higher risk of the high yield. Jack Bogel had a recent video interview saying it was a good choice with a bit better return - and does seem to do better than the total bond index consistently over time. No real difference in market risk.
VBILX - Morningstar 4-star, risk 5-star. Performance YTD 3.79, 3-yr 3.26, 5-yr 2.32, 10-yr 5.35. Last bull 4.08, Last bear 6.74
VBTLX - Morningstar 3-star, risk 4-star. Performance YTD 3.14, 3-yr 2.62, 5-yr 1.97, 10-yr 4.22, Last bull 2.40, Last bear 4.98

The corp bond funds you are looking at, these tend to follow the stock market, less a buffer against stock market downturns.

In taxable accounts, I have a tax free state muni fund that has done well, nice income too. I reinvest and when working added money each paycheck. It has grown reliably.

Right now as retiree age 70, my Roth is Wellelsley (non tax account as managed fund). Wellesley is a bit best of both worlds. Someone posted they have half Wellesley and half Wellington to get an AA of 50/50. If you like pictures (worth a thousand words?), look at a graph of each fund over a time span covering the 2000 and 2007 crashes. Wellesley seemed to fare better in 2000 than other funds I was comparing it to. May be a bit safer, a bit less returns.

Not sure why you are putting bonds into taxable account and aggressive stock into deferred account (401K). Usually the location is the other way around. That said, I did the same thing as my 401K was where I could save most of my working years. It was invested mostly in an institutional TSM that did really well over time. The concern is you might end up with a very large RMD in retirement that increases each year, with growth funds in deferred, giving a large tax hit, why growth might better be done in the taxable account. But then, you save where you can, saving is what is important, keeping to your AA.

2pedals
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Re: Help deciding between Wellesley and 4 Corporate Bond Index Funds

Post by 2pedals » Wed Nov 15, 2017 8:37 am

dc1830 wrote:
Mon Nov 13, 2017 11:18 am
I'm looking for some advice

Have 300k to invest, primary goal is preservation - income.

Trying to decide between going with
50K Prime Money Mkt

And 25% each to:
VSCSX Short Corp Bond
VICSX Int. Corp Bond
VFIIX GNMA
VWEHX High Yield

OR:

Perhaps adding the Wellesley Income Fund also?
I think you set your asset allocation (AA) first and use the 3 fund portfolio https://www.bogleheads.org/wiki/Three-fund_portfolio and add an short term "preservation" fund and that should be kept separate from your long term goals. If you need some of this money in the next within the next 5 years consider adding CDs, MM or short term bonds (I am not a big fan of short term bonds but they do serve a purpose).

For example say you want an AA of 60% stocks and 40% bonds and you must "preserve" 50K.

Invest 250K or your 300K
40% Total US stock market index, VTSMX is a good pick for this
20% total international market index (ex-US), VGTSX is a good pick for this
40% US total Bond Index, VBMFX is a good pick for this (or intermediate bond index such as VBILX)

Preservation 50K
short term, VFSTX is a good pick for this, or CDs, or high yield money market

livesoft
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Re: Help deciding between Wellesley and 4 Corporate Bond Index Funds

Post by livesoft » Wed Nov 15, 2017 9:25 am

Grt2bOutdoors wrote:
Wed Nov 15, 2017 7:16 am
Where and when have you seen a 0.5% move in bonds this year in a single day?
For instance:
Intraday with BIV (Vanguard Intermediate-term bond fund) last week: 84.45 on Nov 9 to 84.00 on Nov 10.
Also January 18 and March 1. (Be sure to account for going ex-dividend on March 1.)

One simply has their broker send them an alert when something happens, so no need to monitor this at all.
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pkcrafter
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Re: Help deciding between Wellesley and 4 Corporate Bond Index Funds

Post by pkcrafter » Wed Nov 15, 2017 10:22 am

dc1830 wrote:
Mon Nov 13, 2017 9:25 pm
Thank you. I'll move this to portfolio questions also.

I'm 44. Married with 2 kids. Wife has a $250K 401K.

Have $300K sitting in cash in a taxable account. We own a rental property that is $300 a month cash positive.

I'd like to invest the $300K very conservatively - primary goal is to preserve the $300K and earn some monthly interest income.

We will add $1000 month to the 300K account going forward.

I used the corporate bond funds that Paul Merriman refers to for monthly income.

I'm wondering if I should invest in both the bond funds and Wellesley or, since Wellesley is skewed more towards bonds already, just invest completely in that fund?

Example:

1.

250K in the bond funds at 25% allocation to each 4.
50K in emergency cash (Prime Money Mkt)

2.

150K in the bond funds (allocated at 25% each)
100K in Wellesley
50K in emergency cash fund (Prime Money Mkt)

3.

250K in Wellesley
50K in emergency cash (Prime Money Mkt)
Still not enough information. You haven't listed any tax-advantaged accounts for yourself. Do you have a 401k? Do you and your wife have IRAs or Roths? I'm asking because your plan to put your chosen funds in a taxable account would be very tax inefficient.

https://www.bogleheads.org/wiki/Tax-eff ... _placement

What is your overall target asset allocations? Think of all accounts as parts of one single portfolio.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

dc1830
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Joined: Mon Nov 13, 2017 11:09 am

Re: Help deciding between Wellesley and 4 Corporate Bond Index Funds

Post by dc1830 » Thu Nov 16, 2017 8:42 pm

Hi All.

Merriman offered this advice on another board. I think this is very similar to what I was thinking combo of bond funds and Wellesley.

PaulMerriman - @NWRunner My wife and I use Vanguard's Short Term Investment Grade Bond Fund for our emergency money, as well as our source of monthly income that we set aside once a year. The 15 year compound rate of return was 3.6%. While it has had a very fine long term return, for a very low risk investment, it did lose 4.7% in 2008, but was up over 14% in 2009. When I was an advisor I often suggested, after careful analysis, a mix of the short term bond fund and Vanguard Wellesley $VWINX for clients who were unlikely to need the money but felt safe with the 6 month reserve.. VWINX has a 15 year return of 6.9% but lost less than 10% in 2008. VWINX is approximately 40% in equities and 60% in bonds. A 50/50 combination of the 2 funds meant a 20% position in stocks. Check out my Fine tuning table for the expected risk and return of 80% bonds and 20% stocks. http://paulmerriman.com/fine-t...

Read more: http://www.minyanville.com/business-new ... z4yeItNkR5

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