Retired person: VWIAX or VTINX

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Mark2614
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Retired person: VWIAX or VTINX

Post by Mark2614 »

My father in law is age 62+, retired, and does not know much about investing. He wants me to help him invest his money in the market. I convinced him not to touch the funds for at least 5+ years, but I'm having trouble choosing between one of these funds:

VWIAX - Vanguard Wellesley Income Fund Admiral Shares
VTINX - Vanguard Target Retirement Income Fund

Any suggestion on which one you would choose and why? He's retired and collects social security. He probably won't need the money soon.
dbr
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Re: Retired person: VWIAX or VTINX

Post by dbr »

If they have similar stock/bond allocations then it won't matter. Just because there are choices does not mean the choice means anything.

Personally I prefer total market indices and some international investing and don't see any magic in the W's. Others differ.

You are now down at a choice that can be debated endlessly without result.

You haven't said what he wants to accomplish with the investment and that might dictate some entirely different choice.
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Mark2614
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Re: Retired person: VWIAX or VTINX

Post by Mark2614 »

In short, he told me he just wants his money to make money for him. He currently has it sitting in savings in the bank. He doesn't have any idea as to what he will spend it on in the future. Most likely it will grow and eventually be passed onto his children.
mtmingus
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Re: Retired person: VWIAX or VTINX

Post by mtmingus »

Why not take both?
On the other hand, sounds like he doesn't need the money. In this case, he could invest it a little more aggressively.
dbr
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Re: Retired person: VWIAX or VTINX

Post by dbr »

Mark2614 wrote: Tue Jul 20, 2021 7:34 am In short, he told me he just wants his money to make money for him. He currently has it sitting in savings in the bank. He doesn't have any idea as to what he will spend it on in the future. Most likely it will grow and eventually be passed onto his children.
Then it should all be in total stock market. But he should first understand risk and realize this can mean large losses at any time.

I think you should spend a little time trying to discuss concepts of risk and return and what to expect from different allocations.
Dave55
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Re: Retired person: VWIAX or VTINX

Post by Dave55 »

Both are excellent funds. As stated above, you could put 1/2 in VWIAX and 1/2 in VTINX. I would not put it all in Total Stock market because of your father in law's lack of experience in investing.

Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
mkc
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Re: Retired person: VWIAX or VTINX

Post by mkc »

Dave55 wrote: Tue Jul 20, 2021 7:51 am Both are excellent funds. As stated above, you could put 1/2 in VWIAX and 1/2 in VTINX.
This is exactly what I did for my mother's funds. It worked out very well.
FactualFran
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Re: Retired person: VWIAX or VTINX

Post by FactualFran »

If it is a taxable account, the income tax owed each year will likely be less by using VTINX. The distributions from an account in VTINX have been lower than from an account in VWIAX. That difference will very likely continue. The distribution amounts made during the past few years by an account in VWIAX were about 50% higher.
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Mark2614
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Re: Retired person: VWIAX or VTINX

Post by Mark2614 »

FactualFran wrote: Tue Jul 20, 2021 11:59 am If it is a taxable account, the income tax owed each year will likely be less by using VTINX. The distributions from an account in VTINX have been lower than from an account in VWIAX. That difference will very likely continue. The distribution amounts made during the past few years by an account in VWIAX were about 50% higher.
It's a taxable account. Is this difference big enough to make VTINX the better choice?
backpacker61
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Re: Retired person: VWIAX or VTINX

Post by backpacker61 »

Mark2614 wrote: Tue Jul 20, 2021 7:09 am VWIAX - Vanguard Wellesley Income Fund Admiral Shares
VTINX - Vanguard Target Retirement Income Fund
These are both excellent funds.

One difference is that the Target Retirement fund has a 70% bond and 30% equity allocations. At current bond yields, I believe it will struggle to keep up with inflation with an allocation that large to bonds.

The Wellesley fund is roughly 60% bonds and 40% stocks.

Another option to consider, pretty similar to Wellesley, would be the Vanguard LifeStrategy Conservative Growth Fund. It will have a little larger allocation to International equities and bonds than Wellesley, and a little lower expense ratio. It should remain at roughly 60% bonds and 40% stocks like Wellesley, otherwise.

https://investor.vanguard.com/mutual-fu ... trategy/#/
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UpperNwGuy
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Re: Retired person: VWIAX or VTINX

Post by UpperNwGuy »

Mark2614 wrote: Tue Jul 20, 2021 12:04 pm
FactualFran wrote: Tue Jul 20, 2021 11:59 am If it is a taxable account, the income tax owed each year will likely be less by using VTINX. The distributions from an account in VTINX have been lower than from an account in VWIAX. That difference will very likely continue. The distribution amounts made during the past few years by an account in VWIAX were about 50% higher.
It's a taxable account. Is this difference big enough to make VTINX the better choice?
Yes.
ScooterBob
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Re: Retired person: VWIAX or VTINX

Post by ScooterBob »

backpacker61 wrote: Tue Jul 20, 2021 1:37 pm
Mark2614 wrote: Tue Jul 20, 2021 7:09 am VWIAX - Vanguard Wellesley Income Fund Admiral Shares
VTINX - Vanguard Target Retirement Income Fund
These are both excellent funds.

One difference is that the Target Retirement fund has a 70% bond and 30% equity allocations. At current bond yields, I believe it will struggle to keep up with inflation with an allocation that large to bonds.

The Wellesley fund is roughly 60% bonds and 40% stocks.

Another option to consider, pretty similar to Wellesley, would be the Vanguard LifeStrategy Conservative Growth Fund. It will have a little larger allocation to International equities and bonds than Wellesley, and a little lower expense ratio. It should remain at roughly 60% bonds and 40% stocks like Wellesley, otherwise.

https://investor.vanguard.com/mutual-fu ... trategy/#/
I don't think that vtinx will change as your f.i.l. ages. I think it's a static retirement fund. It's approximately 30/70. Both are great funds. No harm going 50/50.

Bob
FactualFran
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Re: Retired person: VWIAX or VTINX

Post by FactualFran »

Mark2614 wrote: Tue Jul 20, 2021 12:04 pm It's a taxable account. Is this difference big enough to make VTINX the better choice?
Whether the difference is big enough is a judgement to be made by the person. The income tax depends on how much is invested, the distributions per share during a year, and the marginal tax rates of the person, both the tax rates on long-term capital gain and on ordinary income,.

Doing a quick, and perhaps not reliable, calculation, for every $10,000 of balance at the end of 2019, someone with a long-term capital gain tax rate of 15% and an ordinary income tax rate of 22% would have owed about $81 in income tax due to the distributions of VWIAX during 2020 but about $63 due to the distributions of VTINX.
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grabiner
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Re: Retired person: VWIAX or VTINX

Post by grabiner »

FactualFran wrote: Tue Jul 20, 2021 6:56 pm
Mark2614 wrote: Tue Jul 20, 2021 12:04 pm It's a taxable account. Is this difference big enough to make VTINX the better choice?
Whether the difference is big enough is a judgement to be made by the person. The income tax depends on how much is invested, the distributions per share during a year, and the marginal tax rates of the person, both the tax rates on long-term capital gain and on ordinary income,.

Doing a quick, and perhaps not reliable, calculation, for every $10,000 of balance at the end of 2019, someone with a long-term capital gain tax rate of 15% and an ordinary income tax rate of 22% would have owed about $81 in income tax due to the distributions of VWIAX during 2020 but about $63 due to the distributions of VTINX.
And if the distributions are less than he needs to spend for living expenses, then the tax difference is even less, as he would have to sell some VTINX, likely for a capital gain, to get the same amount. VTINX still comes out ahead, because the sale for a capital gain is only partly taxable, while the entire VWIAX distribution is taxable.
Wiki David Grabiner
phxjcc
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Re: Retired person: VWIAX or VTINX

Post by phxjcc »

FactualFran wrote: Tue Jul 20, 2021 6:56 pm
Mark2614 wrote: Tue Jul 20, 2021 12:04 pm It's a taxable account. Is this difference big enough to make VTINX the better choice?
Whether the difference is big enough is a judgement to be made by the person. The income tax depends on how much is invested, the distributions per share during a year, and the marginal tax rates of the person, both the tax rates on long-term capital gain and on ordinary income,.

Doing a quick, and perhaps not reliable, calculation, for every $10,000 of balance at the end of 2019, someone with a long-term capital gain tax rate of 15% and an ordinary income tax rate of 22% would have owed about $81 in income tax due to the distributions of VWIAX during 2020 but about $63 due to the distributions of VTINX.
You are getting involved in rounding error 5th significant digit differences.

For $10,000,000, it is $18,000 difference.
0.18%

Pick one—and GET ON WITH IT.
Fclevz
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Re: Retired person: VWIAX or VTINX

Post by Fclevz »

Target Retirement 2025 Fund (VTTVX) is more age appropriate. Target Retirement Income (VTINX) is intended for age 72+.
babystep
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Re: Retired person: VWIAX or VTINX

Post by babystep »

Mark2614 wrote: Tue Jul 20, 2021 7:09 am My father in law is age 62+, retired,

VWIAX - Vanguard Wellesley Income Fund Admiral Shares
VTINX - Vanguard Target Retirement Income Fund

Any suggestion on which one you would choose and why? He's retired and collects social security. He probably won't need the money soon.
VTINX. Lower expense ratio than VWIAX, 0.12 vs 0.16. Better diversification than VWIAX. It includes international stocks, bonds and TIPS.

https://investor.vanguard.com/mutual-fu ... file/VTINX
The Target Retirement Income Fund is designed for investors already in retirement.
babystep
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Re: Retired person: VWIAX or VTINX

Post by babystep »

Fclevz wrote: Tue Jul 20, 2021 11:53 pm Target Retirement 2025 Fund (VTTVX) is more age appropriate. Target Retirement Income (VTINX) is intended for age 72+.
Where does it say that it is intended for 72+?

https://investor.vanguard.com/mutual-fu ... file/VTTVX
You may wish to consider this fund if you’re planning to retire between 2023 and 2027.
OP is already retired. VTINX is more appropriate since it says:
The Target Retirement Income Fund is designed for investors already in retirement.
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galawdawg
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Re: Retired person: VWIAX or VTINX

Post by galawdawg »

babystep wrote: Wed Jul 21, 2021 12:57 am
Mark2614 wrote: Tue Jul 20, 2021 7:09 am My father in law is age 62+, retired,

VWIAX - Vanguard Wellesley Income Fund Admiral Shares
VTINX - Vanguard Target Retirement Income Fund

Any suggestion on which one you would choose and why? He's retired and collects social security. He probably won't need the money soon.
VTINX. Lower expense ratio than VWIAX, 0.12 vs 0.16. Better diversification than VWIAX. It includes international stocks, bonds and TIPS.

https://investor.vanguard.com/mutual-fu ... file/VTINX
The Target Retirement Income Fund is designed for investors already in retirement.
+1. If you are going to choose an "all-in-one" fund, this is the fund I would recommend. If your father prefers a higher stock allocation then, as backpacker61 also suggested, I would recommend VSCGX (Vanguard LifeStrategy Conservative Growth Fund) as a second choice which is 40/60.

Absent more information about your father's income, spending, portfolio size, other assets and investing goals, I would not recommend going any higher than 40/60 since he is current holding cash, doesn't know much about investing and therefore may be more inclined to panic sell in a declining market with a more equity-heavy portfolio.
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markjk
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Re: Retired person: VWIAX or VTINX

Post by markjk »

Wellesley is an actively managed fund. Target retirement is a fund of indexed funds. Keep that in mind. You will (in most times) have more taxable income due to cap gains on Wellesley from trades throughout the year within the fund. With that said, these are both income funds so you should expect taxable returns regardless. The relatively small difference between the two is probably not significant enough to sway your opinion from my perspective. Pick the best fund for your situation.

Historically speaking, you are looking at better performance with Wellesley over time but you are also looking at a bit more volatility/risk. As income funds go, I've gone down this same comparison path myself. If this money isn't needed for a few years and you want maximum upside, historically speaking Wellesley is the way to go. Full transparency, I hold some Wellesley.

There is a lot of talk here (appropriate by the way) of going with all stock funds or a combination of funds, etc. I think it can all work. The challenge with an all stock fund is you could see a significant (30 - 40%) drop in value at any point. Think about last March .... that might be a bit tough for someone in retirement. Conversely around the same time, I remember calculating my Wellesley drop and it was more in the 15% range (check my math) if I remember correctly. So, it did it's job from my perspective. If you decide to split money amongst funds, I'd just say make sure you have a reason. Why would you split amongst funds? What are you trying to achieve by doing so? If you are going to add the complexity of splitting things up, just make sure it's worth it to you and your father-in law.

There are really no bad options here. You just need to determine your criteria and go with the approach that best fits your criteria. That is a personal choice.
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