Wellesley, LifeStrategy Conservative Growth and/or Target Retirement Income Funds for Risk-averse retiree

[Kevin K]

While I've done reasonably well managing my own investments for 18 years It's long been a goal to simplify and put things on auto-pilot - and all the more so since my wife doesn't want to manage investments if I go first, which is (statistically) probable.

I'm quite familiar with Vanguard's fund lineup as well as my own quite low risk tolerance (having lived through the dot.com and 08 crises as an early retiree with no prospects of employment). I must admit I'd also feel more confident in my choices if it weren't for the enormous uncertainties about the economy and markets due to this pandemic, which has certainly caused many people with far higher risk tolerance levels than mine to go to all cash or at least radically reduce their risky assets.

I'm thinking that a 50:50 mix of Wellesley and LifeStrategy Conservative Growth or Target Retirement Income might be a decent approach. Like many others here I'm an indexer at heart but I find Wellesley's decades of out-performance hard to argue with and do tend to believe that if there's alpha to be had it's more likely to be found in corporate bonds and dividend stocks than in complicated value/small/int'l tilts.

My thought is that combining Wellesley with one of the other two passive Index funds (neither of which come remotely close to matching W's performance) would give me a pretty broad conservative allocation, admittedly a bit U.S.-centric, that would stand a decent chance of supporting 2-4% (net - not inflation-indexed) annual withdrawals for ~30 years with relatively few years of negative total portfolio returns.

As we are prematurely retired (57 & 63 respectively), living primarily on my early Social Security plus about 16K a year in portfolio withdrawals with a high six figure nest egg and only a paid-for mobile home (but no debt) we don't have much wiggle room or margin for error.

And thoughts, especially from those who've owned any of the above funds, would be appreciated.

[livesoft]

Your thread title lists 3 funds that are all pretty similar. I can only tell you that whichever one you decide to purchase will do worse than the other two, so don't buy that one.

[Sandtrap]

You can do just fine with any of the 3 funds you mention.
Some of the differences are:
Percentage of International.
Expense ratios (fund of funds tend to be higher than if one just had the underlying funds).
The percentage mix is altered by Vanguard over time for the 2 funds other than Wellesley or Wellington.

Choose your allocation/risk tolerance, then choose the fund that fits that.

j

[willthrill81]

I'm partial to Wellesley, but I think that any of those funds are fine for a retiree with a fairly low risk tolerance.

[Lou354]

Wellesley combined with one of the index-based all-in-one funds Is a fine choice. You like Wellesley because of its excellent long-term track record, and you also get the greater diversification from the other fund so all your eggs aren’t in one basket. I say go for it.

[David Jay]

I would not mix those 3 funds. Each one is intended to be a single, self-maintaining fund. Pick one (I picked the LS funds for the extra diversification of international).

[Kevin K]

Thanks everyone for your helpful comments.

[Toons]

I have owned Lifestrategy Conservative Growth for 10years and steadily purchased shares.
We have owned Wellesley Income in our Roth Iras for a number of years.
I was planning for the future,,,Retirement
I like the "Income feature " of both Funds along with the lack of "volatility".
As I have other investment vehicles that are more "growth" oriented ,
In hindsight ,both funds have met my expectations in performance and stability.
Wouldn't change a thing

,

[Sandtrap]

You can also combine Wellesley and the Vanguard Balanced Index Fund in equal parts for a 50/50 allocation.
j

[Olemiss540]

$16k withdrawals from a high 6 figure portfolio sounds like you need to worry none. Pick one and think about more important things in your life such as enjoying your retirement!

[catdoctor]

Your thread title lists 3 funds that are all pretty similar. I can only tell you that whichever one you decide to purchase will do worse than the other two, so don't buy that one.

[dziuniek]

My only worry would be a somewhat high exposure to corporate bonds and a small exposure to treasurys.
That's fine as long as you understand the risk, but if you want to be conservative, I would rather have treasurys rather than corporate bonds.

[AerialWombat]

I’m a couple decades behind you, but chose a 30/70 AA given other risky assets I have. As such, my decision for a core holding came down to these exact same three funds.

I ultimately decided that I didn’t like Vanguard’s history of fiddling with the makeup of their LS and Target Date funds, and didn’t want international. Combine that with the awe of Wellesley’s past performance (no guarantee of future results of course), and it was an easy choice. VWINX is the only holding in my 401k.

[KEotSK66]

when I retire all my at-risk money will be in wellesley

I would just go with a single fund, kiss for yourselves later on, especially your wife, what if she lives another 50 years. besides, i don't think there's much of a diversification benefit with 2 or 3 funds

LS-CG is just that, a conservative growth fund, the income is too low

TRI doesn't generate much income either, although it may be a good match for you being risk-averse

wellesley admiral shares won't be available to you for some time

you haven't mentioned anything about your portfolio's disposition, ie whether you can exhaust it or you want to leave something behind. you haven't mentioned account types either. you will have to account for inflation at some point in your planning

anyway...

even not being immediately eligible for admiral shares I think wellesley is the best choice, based on the substantially higher distributions. reinvesting a full year's capital and income distributions after drawing at the beginning of the year is an important consideration in retirement/drawing

good luck

[retiredjg]

The 3 funds you have listed are all intended to work alone, but that does not mean that a combination is a bad idea.

If you want a lower allocation to international stocks or to international bonds, the combination that achieves the overall stock to bond ratio you want should be near perfect.

[Kevin K]

Thanks for the wide range of insights and views.

I do understand that each of these three funds is intended to be a stand-alone option. As I've spent more time drilling into their construction and historical performance vs. other options I do tend to think Wellesley is the best overall choice for the majority of my investments.

Vanguard has indeed monkeyed with the allocations in its Target Date and LifeStrategy funds over the years and the big bets on international on the equity side have hurt their returns while the international bonds have added unnecessary complexity. A simple mixture of IT Treasuries beats TBM market under most circumstances anyway (and unlike TBM offers meaningful downside protection during market panics). Add 30 or 40% TSM (depending on which fund's stock:bond split you want to approximate) and you've got a simple 2 fund option with superior returns.

And yes I'm aware that Vanguard continues to say that international is due for a rally any day now but that's based on valuations not macroeconomic conditions. I think this recent article from the New York Times is well worth taking into account:

https://www.nytimes.com/2020/04/28/busi ... tocks.html

So at the end of the day I'm a believer in the "secret sauce" of active corporate bond and dividend stock picking in Wellesley, while I see no reason to pay an ER premium for poorly-constructed target retirement or LIfeStrategy funds.

[KEotSK66]

some info...

return needed to grow the portfolio with inflation after drawing for the year such that the next year's draw is inflation adjusted...

2% draw in 2, 3, 4% inflation......4.08%, 5.10%, 6.12%

3% draw in 2, 3, 4% inflation......5.15%, 6.19%, 7.22%

4% draw in 2, 3, 4% inflation......6.25%, 7.29%, 8.33%

because of volatility those returns will have to be realized in annualized form, highly preferable over short periods so damage to the portfolio is minimized...keep SD low/moderate and try to cover the draw with income (and capital, if any) distributions

2 benefits:

first, you have the possibility of leaving something behind, a portfolio which may have grown with inflation while simultaneously supporting your retirement

second, it prevents you from taking too little risk and possibly running out of money

iow, growing the portfolio with inflation after drawing is a logical objective for reasonable scenarios and of course for those interested in such things

[S_Track]

I'm thinking that a 50:50 mix of Wellesley and LifeStrategy Conservative Growth or Target Retirement Income might be a decent approach. Like many others here I'm an indexer at heart but I find Wellesley's decades of out-performance hard to argue with and do tend to believe that if there's alpha to be had it's more likely to be found in corporate bonds and dividend stocks than in complicated value/small/int'l tilts.

I start with 25% Wellesley as the base and mix in LS Conservative Growth and Total US Stock until I get to my desired AA. In the end I have small tilt to large cap value and maintain 75% passive low cost Index. I also get a smaller allocation to international than LS alone which I like.