I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellington?

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iamblessed
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I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellington?

Post by iamblessed » Sun Nov 17, 2019 2:18 pm

I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellington every year? How many years could you stay afloat doing something like that in retire in a taxable account? The amount it would pay would swing a lot some years.
Last edited by iamblessed on Sun Nov 17, 2019 2:35 pm, edited 1 time in total.

delamer
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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by delamer » Sun Nov 17, 2019 2:31 pm

The answer is much more dependent on your level of assets in the fund and your personal expenses than it is on the return of Wellington.

If I have $5 million in Wellington and expenses of $50,000, I could last a very long time.

If I have $500,000 in Wellington and expenses of $50,000, I’m in trouble.

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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by retiredjg » Sun Nov 17, 2019 2:37 pm

iamblessed wrote:
Sun Nov 17, 2019 2:18 pm
I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellington every year? How many years could you stay afloat doing something like that in retire in a taxable account?
Do you mean to sell enough to capture the entire year's capital gain? Or do you mean just using the capital gains distribution that comes each year even if you don't sell anything?


If all you take are the dividends and the capital gains distribution, without selling any shares, I would think it would last a good long while. Of course this assumes that that amount covers your expenses including taxes. Dividends might decrease during bad market times. That could be a problem.

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iamblessed
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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by iamblessed » Sun Nov 17, 2019 2:37 pm

I guess as long as you did not break the 4% rule for your spending you would be ok.

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iamblessed
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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by iamblessed » Sun Nov 17, 2019 2:38 pm

retiredjg wrote:
Sun Nov 17, 2019 2:37 pm
iamblessed wrote:
Sun Nov 17, 2019 2:18 pm
I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellington every year? How many years could you stay afloat doing something like that in retire in a taxable account?
Do you mean to sell enough to capture the entire year's capital gain? Or do you mean just using the capital gains distribution that comes each year even if you don't sell anything?


If all you take are the dividends and the capital gains distribution, without selling any shares, I would think it would last a good long while. Of course this assumes that that amount covers your expenses including taxes. Dividends might decrease during bad market times. That could be a problem.
I mean taking the capital gain distribution and dividends every year. Selling nothing.
Last edited by iamblessed on Sun Nov 17, 2019 3:06 pm, edited 1 time in total.

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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by MathIsMyWayr » Sun Nov 17, 2019 2:59 pm

iamblessed wrote:
Sun Nov 17, 2019 2:37 pm
I guess as long as you did not break the 4% rule for your spending you would be ok.
Should be close to a 60:40 combination of S&P 500 and total bond fund, but with a somewhat higher risk.

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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by mjb » Sun Nov 17, 2019 2:59 pm

So, if you only took dividends and reinvented the capital gains and budgeted to live on only about 60% of the dividends in the event of a crash, theoretically forever. With capital gains reinvested, the fund should meet or beat inflation.

Using dristributed capital gains is basically the same as draining principal. In years with minimally changing or rising bond yields and stable stock allocations, you could probably go a long time as those years would have few capital gains anyway. In a falling rate environment, you are eating principal that would need to be reinvested to attain the desired income.

FWIW, I have split my retirement into two buckets, your standard index portfolio and a separate Wellington portfolio to diversify investment style/ active-passive risk. When I ultimately need to draw on funds, the plan on the Wellington side is to turn off dividend reinvestment and leave capital gains reinvestment on.

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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by iamblessed » Sun Nov 17, 2019 3:12 pm

Here is a guy that took Vanguard Wellington 5% Withdrawals 2001-2017. He did well for a 16 year period with two bears. https://www.youtube.com/watch?v=m3UuOLT1YZs&t=344s

With my idea it would be more than 5% some years and way less other years.

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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by Socrates » Sun Nov 17, 2019 3:55 pm

Here is a guy that took Vanguard Wellington 5% Withdrawals 2001-2017. He did well for a 16 year period with two bears. https://www.youtube.com/watch?v=m3UuOLT1YZs&t=344s

With my idea it would be more than 5% some years and way less other years.

Was there a follow up to this video as he mentions?
“Don't waste your time looking back. You're not going that way.” ― Ragnar Lothbrok.

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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by dbr » Sun Nov 17, 2019 4:27 pm

It would last forever, of course. But I have no idea how much you would be spending relative to what you originally invested. Especially one would have to account for inflation. The problem is to work through the data for a whole set of time periods and draw out the actual dividends and distributions and how much of the investment would be left. It is easier if you don't cash the distributions because those are highly irregular and one might get a smoother curve for the dividend payouts.

Note that the withdrawal rate that portfolios have been observed to sustain over the years varies hugely with the starting year, the range being probably somewhere around 3.8% of original portfolio increased annually by inflation up to 10% or more of the original portfolio. In FireCalc retirements started in the following years would have survived inflation increased 9% withdrawal rate for 30 years for a 75/25 portfolio:
1874 1878 1922 1948 1949 1877 1982 1921 Of these 1982, 1949, 1948, and maybe 1921-1922 are certainly relevant. The success rate of 119 retirement years at 9% withdrawal has been 6.7%

The years that would not have survived even a 4% withdrawal rate were: 1969 1966 1968 1965 1967 & 1973 The success rate at 4% withdrawal has been 95%

I should have run the model for the same asset allocation of 60/40 rather than 75/25. It wouldn't change a lot. I don't think there would be any difference worth thinking about between Wellington and total market portfolios of similar allocation so far as constant withdrawal rate results are concerned, but your question does involve variable withdrawals.

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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by Trader Joe » Sun Nov 17, 2019 6:00 pm

iamblessed wrote:
Sun Nov 17, 2019 2:18 pm
I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellington every year? How many years could you stay afloat doing something like that in retire in a taxable account? The amount it would pay would swing a lot some years.
Of course, it depend upon your starting investment.

Personally, I would never recommend this retirement strategy.

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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by Jerry55 » Sun Nov 17, 2019 6:04 pm

iamblessed wrote:
Sun Nov 17, 2019 2:18 pm
I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellington every year? How many years could you stay afloat doing something like that in retire in a taxable account? The amount it would pay would swing a lot some years.

First and foremost, it depends on your living expenses. Then, on what you have invested in Wellington.
I believe they're paying about 2.5% dividends, and Wellesley is around 3% (the last time I looked in Sept, coz I own both)

If their dividends are paying you 10K quarterly, with Dec. ST/LT CG totaling 20K, AFTER Taxes, then if $60,000 / year works for you ....

Then the answer is yes. There are too many variables there. If it were me, I could last forever, because I don't need the $$$, and yes, I do take the distributions every year, including Capitol Gains, for not only fun, but to reinvest in other ventures. :sharebeer
Retired CSRS on 12/19/2012 @ age 57 w/39 years | Good Bye Tension, Hello Pension !!!

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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by iamblessed » Sun Nov 17, 2019 7:25 pm

Socrates wrote:
Sun Nov 17, 2019 3:55 pm
Here is a guy that took Vanguard Wellington 5% Withdrawals 2001-2017. He did well for a 16 year period with two bears. https://www.youtube.com/watch?v=m3UuOLT1YZs&t=344s

With my idea it would be more than 5% some years and way less other years.

Was there a follow up to this video as he mentions?
I have not found it. I thought this video was impressive since he included two bears. He didn't just pick good years.

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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by rj49 » Sun Nov 17, 2019 10:11 pm

Picking Wellington or Wellesley is a good choice in hindsight, since they didn't have tech stocks in 2001 and benefited from a long-term fall in interest rates. The problem is going forward, where low bond yields with little room to fall to create capital gains creates a potential drag, which is linked to stock performance. So if bonds do badly, you're stuck withdrawing them with the stock portion, and if stocks crash, you have to withdraw them during a bear market, instead of just bonds, if you had two separate funds, particularly a shorter-duration bond fund with less interest rate exposure.

The other argument against Wellington is that it's lagged a composite index for the past 10 years, if you look at its fund page on VG. So you'd be paying more for underperformance, even worse when you take into account the big tax hits in a taxable account with its buying and selling and dividends.

In this case simplicity is not a virtue, because you lose the flexibility to withdraw from various asset classes. It would make a lot more sense to have withdrawn bonds or cash in 2001 or 2007, instead of stocks--Wellington's stock pickers (since retired, I believe) didn't magically save it from losses similar to other large-value stocks, and since Wellington became bloated with all its fame, it changed its investing to include a lot of growth, tech, and other stocks that it didn't have in 2001. Everyone chased its performance, the fund had billions it had to invest, so it invested in what was going up and turned into a closet index fund. Bogle, Bernstein, Swedroe, Elllis, Malkiel, Sharpe, and other very smart people describe the problems with investing in actively-managed funds, and just having the halo of Vanguard doesn't eliminate all those risks and disadvantages. I'd spend my time reading the aforementioned authors and academics instead of youtube or message boards, especially with a bull market over a decade long and a 40-year bond bull market making lots of people feel smart and confident of retiring early and securely, all based on past results.

If you believe Wellington Management has some special genius inherent in it company that will be magically transmitted down to subsequent managers for the rest of your life and that all the other millions of active managers and stock traders are incapable of copying or beating, and that the next 40 years of investing will be the same as the last, and you feel confident putting all your eggs in one basket, then go ahead.

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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by FactualFran » Mon Nov 18, 2019 4:08 pm

iamblessed wrote:
Sun Nov 17, 2019 2:18 pm
I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellington every year? How many years could you stay afloat doing something like that in retire in a taxable account? The amount it would pay would swing a lot some years.
Figure 4a on page 7 of the Vanguard Report Income in retirement: Common investment strategies shows that the inflation-adjusted annual income from the Wellington fund has not fluctuated widely over many years, by taking only the income distributions in cash. The approach of taking only the income distributions in cash would have lasted for an indefinite number of years, as long as income needs for later years were not greater than the income for the first year, adjusted for inflation.

Taking the income and capital gain distributions in cash would have resulted in the cash taken for a year varying much more widely each year than taking only the income distributions.

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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by columbia » Mon Nov 18, 2019 9:47 pm

rj49 wrote:
Sun Nov 17, 2019 10:11 pm
Picking Wellington or Wellesley is a good choice in hindsight, since they didn't have tech stocks in 2001 and benefited from a long-term fall in interest rates. The problem is going forward, where low bond yields with little room to fall to create capital gains creates a potential drag, which is linked to stock performance. So if bonds do badly, you're stuck withdrawing them with the stock portion, and if stocks crash, you have to withdraw them during a bear market, instead of just bonds, if you had two separate funds, particularly a shorter-duration bond fund with less interest rate exposure.

The other argument against Wellington is that it's lagged a composite index for the past 10 years, if you look at its fund page on VG. So you'd be paying more for underperformance, even worse when you take into account the big tax hits in a taxable account with its buying and selling and dividends.

In this case simplicity is not a virtue, because you lose the flexibility to withdraw from various asset classes. It would make a lot more sense to have withdrawn bonds or cash in 2001 or 2007, instead of stocks--Wellington's stock pickers (since retired, I believe) didn't magically save it from losses similar to other large-value stocks, and since Wellington became bloated with all its fame, it changed its investing to include a lot of growth, tech, and other stocks that it didn't have in 2001. Everyone chased its performance, the fund had billions it had to invest, so it invested in what was going up and turned into a closet index fund. Bogle, Bernstein, Swedroe, Elllis, Malkiel, Sharpe, and other very smart people describe the problems with investing in actively-managed funds, and just having the halo of Vanguard doesn't eliminate all those risks and disadvantages. I'd spend my time reading the aforementioned authors and academics instead of youtube or message boards, especially with a bull market over a decade long and a 40-year bond bull market making lots of people feel smart and confident of retiring early and securely, all based on past results.

If you believe Wellington Management has some special genius inherent in it company that will be magically transmitted down to subsequent managers for the rest of your life and that all the other millions of active managers and stock traders are incapable of copying or beating, and that the next 40 years of investing will be the same as the last, and you feel confident putting all your eggs in one basket, then go ahead.
Since you mentioned 10 years, here’s a comparison with 65% VOO and 35% BND:
https://www.portfoliovisualizer.com/bac ... tion3_2=35

Pretty dead even.

If they are “lagging” whatever index, it’s not by much (and that’s with lacking all of those growth stocks in the last 10 years).

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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by dru808 » Mon Nov 18, 2019 10:11 pm

iamblessed wrote:
Sun Nov 17, 2019 3:12 pm
Here is a guy that took Vanguard Wellington 5% Withdrawals 2001-2017. He did well for a 16 year period with two bears. https://www.youtube.com/watch?v=m3UuOLT1YZs&t=344s

With my idea it would be more than 5% some years and way less other years.
My man josh. Great tips on retirement and social security.

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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by Grt2bOutdoors » Mon Nov 18, 2019 10:20 pm

columbia wrote:
Mon Nov 18, 2019 9:47 pm
rj49 wrote:
Sun Nov 17, 2019 10:11 pm
Picking Wellington or Wellesley is a good choice in hindsight, since they didn't have tech stocks in 2001 and benefited from a long-term fall in interest rates. The problem is going forward, where low bond yields with little room to fall to create capital gains creates a potential drag, which is linked to stock performance. So if bonds do badly, you're stuck withdrawing them with the stock portion, and if stocks crash, you have to withdraw them during a bear market, instead of just bonds, if you had two separate funds, particularly a shorter-duration bond fund with less interest rate exposure.

The other argument against Wellington is that it's lagged a composite index for the past 10 years, if you look at its fund page on VG. So you'd be paying more for underperformance, even worse when you take into account the big tax hits in a taxable account with its buying and selling and dividends.

In this case simplicity is not a virtue, because you lose the flexibility to withdraw from various asset classes. It would make a lot more sense to have withdrawn bonds or cash in 2001 or 2007, instead of stocks--Wellington's stock pickers (since retired, I believe) didn't magically save it from losses similar to other large-value stocks, and since Wellington became bloated with all its fame, it changed its investing to include a lot of growth, tech, and other stocks that it didn't have in 2001. Everyone chased its performance, the fund had billions it had to invest, so it invested in what was going up and turned into a closet index fund. Bogle, Bernstein, Swedroe, Elllis, Malkiel, Sharpe, and other very smart people describe the problems with investing in actively-managed funds, and just having the halo of Vanguard doesn't eliminate all those risks and disadvantages. I'd spend my time reading the aforementioned authors and academics instead of youtube or message boards, especially with a bull market over a decade long and a 40-year bond bull market making lots of people feel smart and confident of retiring early and securely, all based on past results.

If you believe Wellington Management has some special genius inherent in it company that will be magically transmitted down to subsequent managers for the rest of your life and that all the other millions of active managers and stock traders are incapable of copying or beating, and that the next 40 years of investing will be the same as the last, and you feel confident putting all your eggs in one basket, then go ahead.
Since you mentioned 10 years, here’s a comparison with 65% VOO and 35% BND:
https://www.portfoliovisualizer.com/bac ... tion3_2=35

Pretty dead even.

If they are “lagging” whatever index, it’s not by much (and that’s with lacking all of those growth stocks in the last 10 years).
The correct composite index would be a value index and an intermediate corporate bond index.
S&P 500 is primarily a blend/growth fund of large cap companies. Wellington may own some of those types, but the vast majority are considered to be Large Value. Total Bond Market would not be a comparable fixed income class because the majority of the bonds in that fund are government/government backed mortgage securities. Wellington is using Intermediate Term Corporates.
I hold Wellington in my Roth.
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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by AlohaJoe » Thu Nov 21, 2019 2:31 am

iamblessed wrote:
Sun Nov 17, 2019 2:18 pm
I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellington every year? How many years could you stay afloat doing something like that in retire in a taxable account? The amount it would pay would swing a lot some years.
As others have pointed out, the question as framed doesn't make a lot of sense -- obviously you would last forever if you only spent dividends. But that alone doesn't tell us very much. Instead let me answer a slightly different but related question. Let's imagine that the dividends from Wellington currently cover your expenses. How safe is it to retire and assume that dividends will only ever stay flat or increase?

The reality is that...it would have been pretty risky historically.

In 1930 (the first dividend), Wellington was paying $0.50 a share. By 1929 it had dropped to $0.20 a share. That's a tremendous, massive decline, even when you factor in the deflation of the period. A 60% cut to dividends!

It took until the 1960s for the dividend to recover. By 1966 it was back up to $0.83 a share. But remember, once you adjust for inflation you're still underwater. The dividend would need to have been $0.96 a share to have clawed back to where it started.

By 1977 it was only up to $0.97 a share. Given the inflation of the time, that represents a massive cut to the real dividend rate. (It would need to have been $1.80 to match the 1930 dividend.) So you can see that, even after 47 years the dividend had failed to reach its (inflation-adjusted) peak.

And people complain about a decade long drawdown in equity prices! Imagine spending 50 years living on a lower dividend than you had expected!

But there's another, hidden, factor in all of this. Wellington is an active mutual fund. That means it strategy changes (and you, the investor, have no say in that). The fund's strategy in 1930 was substantially different from the strategy in 1977. It is almost misleading to call it the same fund. In the 1960s & 1970s it was a badly managed growth fund that invested in unknown small-caps. (Remember Bogle got fired for this strategy.) It didn't become a value, income-oriented fund until 1977 when Burton Malkiel joined the board and the board of management overruled the portfolio manager and forced him to change the fund strategy to 1) focus on blue-chip value stocks, 2) to tightly control the equity ratio between 60-69% (it used to vary wildly from under 40% to over 80%), and 3) to focus on increasing dividends regularly.

When Bogleheads talk about "the Wellington fund" they really mean this post-1977 fund. But by that point....the market had turned. It has been almost non-stop good news for equity investing since then, so it is hard to know how Wellington would have actually done in 1929 or 1966.

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Re: I have often wondered how long a person would last in retirement taking dividends and capital gain from the Wellingt

Post by Mr.BB » Fri Nov 29, 2019 10:39 am

columbia wrote:
Mon Nov 18, 2019 9:47 pm
rj49 wrote:
Sun Nov 17, 2019 10:11 pm
Picking Wellington or Wellesley is a good choice in hindsight, since they didn't have tech stocks in 2001 and benefited from a long-term fall in interest rates. The problem is going forward, where low bond yields with little room to fall to create capital gains creates a potential drag, which is linked to stock performance. So if bonds do badly, you're stuck withdrawing them with the stock portion, and if stocks crash, you have to withdraw them during a bear market, instead of just bonds, if you had two separate funds, particularly a shorter-duration bond fund with less interest rate exposure.

The other argument against Wellington is that it's lagged a composite index for the past 10 years, if you look at its fund page on VG. So you'd be paying more for underperformance, even worse when you take into account the big tax hits in a taxable account with its buying and selling and dividends.

In this case simplicity is not a virtue, because you lose the flexibility to withdraw from various asset classes. It would make a lot more sense to have withdrawn bonds or cash in 2001 or 2007, instead of stocks--Wellington's stock pickers (since retired, I believe) didn't magically save it from losses similar to other large-value stocks, and since Wellington became bloated with all its fame, it changed its investing to include a lot of growth, tech, and other stocks that it didn't have in 2001. Everyone chased its performance, the fund had billions it had to invest, so it invested in what was going up and turned into a closet index fund. Bogle, Bernstein, Swedroe, Elllis, Malkiel, Sharpe, and other very smart people describe the problems with investing in actively-managed funds, and just having the halo of Vanguard doesn't eliminate all those risks and disadvantages. I'd spend my time reading the aforementioned authors and academics instead of youtube or message boards, especially with a bull market over a decade long and a 40-year bond bull market making lots of people feel smart and confident of retiring early and securely, all based on past results.

If you believe Wellington Management has some special genius inherent in it company that will be magically transmitted down to subsequent managers for the rest of your life and that all the other millions of active managers and stock traders are incapable of copying or beating, and that the next 40 years of investing will be the same as the last, and you feel confident putting all your eggs in one basket, then go ahead.
Since you mentioned 10 years, here’s a comparison with 65% VOO and 35% BND:
https://www.portfoliovisualizer.com/bac ... tion3_2=35

Pretty dead even.

If they are “lagging” whatever index, it’s not by much (and that’s with lacking all of those growth stocks in the last 10 years).
I switched the starting date to the year 2000. Over 19 years there is definitely a big difference with the Wellington fund beating the combination of funds.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

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