It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money. If

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iamblessed
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It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money. If

Post by iamblessed »

you can stand the swings in income. When I say capital gains I am speaking of what the fund spins off not what you sell. With 1 million invested that income would swing from about 30k to 100k. I have back tested it. It seems to work because in a recession the Wellington drops the dividends and capital gains a lot. If you can live on 30k to 100k it should work fine. What do you think?
Last edited by iamblessed on Wed Oct 13, 2021 10:34 am, edited 2 times in total.
jebmke
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Re: It looks like a person could take the dividends and capital gains the Wellington spins off and not run out of money.

Post by jebmke »

I prefer not to have capital gains; I can't stop the dividends from coming but I don't try to change my allocation to reduce them.
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by FactualFran »

If the capital gain distributions had been reinvested, then the annual amount received in cash would have been much less volatile.

For the most recent 30-year period, ending at the end of 2020, an account for which the only transactions had been taking the income distributions in cash and reinvesting the capital gain distribution, the average annual income adjusted for inflation would have been 6.22% of the initial balance. The minimum would have been 5.06% and the maximum would have been 7.75%.
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by Sandtrap »

iamblessed wrote: Wed Oct 13, 2021 10:20 am you can stand the swings in income. When I say capital gains I am speaking of what the fund spins off not what you sell. With 1 million invested that income would swing from about 30k to 100k. I have back tested it. It seems to work because in a recession the Wellington drops the dividends and capital gains a lot. If you can live on 30k to 100k it should work fine. What do you think?
If that, then why not the Vanguard Balanced Index Fund at 60/40 as a total returns approach at lower cost?

j :D
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iamblessed
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by iamblessed »

Great responses keep them coming.
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by fposte »

Maybe you could, but it's worth asking yourself why you would choose to do so when there are other plans that would likely be financially superior, as Sandtrap notes. Are you concerned about your ability to stick to a plan for withdrawals and would prefer to have a portfolio where you ceded control over it? If so, that's a good thing to know about yourself but it's not clear why the dividend plan in general and Wellington in particular are the best ways to factor that in.
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Kenkat
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by Kenkat »

This strategy is just a form of variable portfolio withdrawal (VPW). You can never run out of money because you are always withdrawing some percentage of the existing value, not a pre-determined fixed amount.
Mike Scott
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by Mike Scott »

What is it you are looking for?
I own some Wellington and Wellesley but they are not magic money machines. There are many ways to turn a million dollars into an income stream.
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by sailaway »

This is true of anything that spins off dividends and capital gains distributions. That doesn't make it a better option. It tends to leave more behind for your heirs than other methods, since withdrawals are limited, so maybe you consider that a positive.

I would consider a $30k to $100k spread more contortionist than flexible.
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by Jerry55 »

iamblessed wrote: Wed Oct 13, 2021 10:20 am When I say capital gains I am speaking of what the fund spins off not what you sell.
.........What do you think?
I have a pension and TSP (no RMD's for another 4-5 yrs)

BUT, I DO have Wellesley Roth and Wellington Taxable. I invested these two in 2011, and in 2019, I just decided to take the Dividends and Capitol gains in Wellington because I pay tax on them anyway. Although I've seen the quarterly dividends go down over the last year, it's money to spend as I see fit...It only amounts to about $5K per year in total, but hey....

If you can swing it and don't need it for retirement issues, well....GO-4-IT. :sharebeer
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by phxjcc »

Sandtrap wrote: Wed Oct 13, 2021 11:51 am
iamblessed wrote: Wed Oct 13, 2021 10:20 am you can stand the swings in income. When I say capital gains I am speaking of what the fund spins off not what you sell. With 1 million invested that income would swing from about 30k to 100k. I have back tested it. It seems to work because in a recession the Wellington drops the dividends and capital gains a lot. If you can live on 30k to 100k it should work fine. What do you think?
If that, then why not the Vanguard Balanced Index Fund at 60/40 as a total returns approach at lower cost?

j :D
1. Thank you for this recommendation

2. Is there any where that you can point me to that has the actual historical yields added up on an annual basis by year (calendar, fiscal, lunar, solar....Julian, Aztec, Druid....I don't care which :beer )

It seems ridiculous that I have to add up all the distributions, then divide by the weighted average of the share price to get what the :confused yield is.

...and telling me that that '30 day SEC yield" is 1.2% doesn't help...unless you expect me to believe that the annual yield is 14.4% ? :annoyed

Thanks!
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Sandtrap
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by Sandtrap »

phxjcc wrote: Wed Oct 13, 2021 1:29 pm
Sandtrap wrote: Wed Oct 13, 2021 11:51 am
iamblessed wrote: Wed Oct 13, 2021 10:20 am you can stand the swings in income. When I say capital gains I am speaking of what the fund spins off not what you sell. With 1 million invested that income would swing from about 30k to 100k. I have back tested it. It seems to work because in a recession the Wellington drops the dividends and capital gains a lot. If you can live on 30k to 100k it should work fine. What do you think?
If that, then why not the Vanguard Balanced Index Fund at 60/40 as a total returns approach at lower cost?

j :D
1. Thank you for this recommendation

2. Is there any where that you can point me to that has the actual historical yields added up on an annual basis by year (calendar, fiscal, lunar, solar....Julian, Aztec, Druid....I don't care which :beer )

It seems ridiculous that I have to add up all the distributions, then divide by the weighted average of the share price to get what the :confused yield is.

...and telling me that that '30 day SEC yield" is 1.2% doesn't help...unless you expect me to believe that the annual yield is 14.4% ? :annoyed

Thanks!
The venerable J. Bogle, Founder of Vanguard himself, has set aside for is heirs/beneficiaries, shares (lots) of Vanguard Balanced Index Fund.
That's a good enough for most folks to follow.

When it comes to a balanced index fund portfolio, exact and perfect is a moving target, good enough works great in the long run as well.
j :D
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Mike Scott
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by Mike Scott »

With a total return approach, you would take the distribution as is and then sell enough more to get to your "number".
dbr
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by dbr »

Yes, it looks like the proposition posted by the OP is true. I imagine there are a great many mutual funds for which this is true.

There are funds for which the proposition is not true. An example is a fixed maturity bond fund that distributes the assets on a fixed date and then shuts down. There are probably lots of funds that go bust meaning the investor runs out of money at the end.

I owned shares of beneficent interest in a gas trust that paid out about 10% of the NAV for some time and when the reserve was exhausted and stopped paying and the shares evaporated (well, it was a gas trust).

So what are we to conclude from this about Wellington?
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by placeholder »

If you don't care what the income is then it's true for any fund that's broad enough that it won't go under but I'm not sure I understand the point.
cbeck
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by cbeck »

phxjcc wrote: Wed Oct 13, 2021 1:29 pm
Sandtrap wrote: Wed Oct 13, 2021 11:51 am
iamblessed wrote: Wed Oct 13, 2021 10:20 am you can stand the swings in income. When I say capital gains I am speaking of what the fund spins off not what you sell. With 1 million invested that income would swing from about 30k to 100k. I have back tested it. It seems to work because in a recession the Wellington drops the dividends and capital gains a lot. If you can live on 30k to 100k it should work fine. What do you think?
If that, then why not the Vanguard Balanced Index Fund at 60/40 as a total returns approach at lower cost?

j :D
2. Is there any where that you can point me to that has the actual historical yields added up on an annual basis by year (calendar, fiscal, lunar, solar....Julian, Aztec, Druid....I don't care which :beer )

https://www.portfoliovisualizer.com
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by David Jay »

phxjcc wrote: Wed Oct 13, 2021 1:29 pm...and telling me that that '30 day SEC yield" is 1.2% doesn't help...unless you expect me to believe that the annual yield is 14.4% ? :annoyed
Instead of being annoyed, perhaps take advantage of the Bogleheads Wiki here: https://www.bogleheads.org/wiki/SEC_Yield

"A non-money market fund's SEC yield is based on a formula mandated by the Securities and Exchange Commission (SEC) that calculates a fund's hypothetical annualized income, as a percentage of its assets. A security's income, for the purposes of this calculation, is based on the current market yield to maturity (in the case of bonds) or projected dividend yield (for stocks) of the fund's holdings over a trailing 30 day period."
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by sandan »

It's not a good plan. A smooth or fixed consumption pattern is easier to manage. You will unnecessarily consume more when there is inflation and consume too little during deflation.
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by grabiner »

iamblessed wrote: Wed Oct 13, 2021 10:20 am you can stand the swings in income. When I say capital gains I am speaking of what the fund spins off not what you sell. With 1 million invested that income would swing from about 30k to 100k. I have back tested it. It seems to work because in a recession the Wellington drops the dividends and capital gains a lot. If you can live on 30k to 100k it should work fine. What do you think?
You can do this with any fund, although the income level will vary by fund, as will what happens to your principal. If you spend bond dividends, you will have the same dollar amount in bonds every year, so inflation will erode your real principal. If you spend stock dividends, your stock holdings will not grow as fast as the total return of the stock market, and the shortfall will be larger if you hold higher-dividend stocks.

However, a capital gain distribution exists only for tax purposes, not economic purposes, so it makes no sense to treat it as spending money. If you don't reinvest a capital gain distribution, you are effectively selling stock.

Suppose that you bought $1M worth of stock, and you decide to sell $100K of stock for which you paid $50K. You will owe tax on the $50K capital gain. If you use the whole $100K to buy other stock, you still have $1M worth of stock. If you reinvest $50K and spend $50K, you have only $950K worth of stock.

Now suppose that a fund in which you hold $1M of stock sells $100K of stock for which it paid $50K. The IRS requires the fund to distribute a $50K capital gain so that you will owe tax on it. If you don't reinvest the distribution, you hold only $950K worth of stock. Nothing happened to the stock market, so there is no reason for you to hold less stock and spend more money.
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by mikeyzito22 »

Sandtrap wrote: Wed Oct 13, 2021 11:51 am
iamblessed wrote: Wed Oct 13, 2021 10:20 am you can stand the swings in income. When I say capital gains I am speaking of what the fund spins off not what you sell. With 1 million invested that income would swing from about 30k to 100k. I have back tested it. It seems to work because in a recession the Wellington drops the dividends and capital gains a lot. If you can live on 30k to 100k it should work fine. What do you think?
If that, then why not the Vanguard Balanced Index Fund at 60/40 as a total returns approach at lower cost?

j :D
One of my friends has a larger taxable in equities and maintains the Vanguard Balanced Index Fund at 60/40 in an IRA and loves its steady balance against a more aggressive taxable account. I agree with this.
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by dbr »

grabiner wrote: Wed Oct 13, 2021 9:19 pm
However, a capital gain distribution exists only for tax purposes, not economic purposes, so it makes no sense to treat it as spending money. If you don't reinvest a capital gain distribution, you are effectively selling stock.
True enough. But I think the OP somehow envisions that one buys a fund and spends whatever is handed back and wonders if that is helpful.

While it is true one would not run out of money, it is hard to see what is helpful about it. But the reason it is not helpful is that there is no relationship to what purpose one would have in taking withdrawals that way. It is true that in a taxable account if you are going to pay tax on dividends and distributions one could imagine it would be a compensation to at least keep the money. Other people would make a point of using funds that minimize distributions. Some people might have the intent of spending money from the fund willy-nilly regarding both the spending and the future value of the fund. For them lots of dividends and lots of distributions might feel good -- or not -- the OP gives us no criteria to say.
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by iamblessed »

dbr wrote: Thu Oct 14, 2021 8:22 am
grabiner wrote: Wed Oct 13, 2021 9:19 pm
However, a capital gain distribution exists only for tax purposes, not economic purposes, so it makes no sense to treat it as spending money. If you don't reinvest a capital gain distribution, you are effectively selling stock.
True enough. But I think the OP somehow envisions that one buys a fund and spends whatever is handed back and wonders if that is helpful.

While it is true one would not run out of money, it is hard to see what is helpful about it. But the reason it is not helpful is that there is no relationship to what purpose one would have in taking withdrawals that way. It is true that in a taxable account if you are going to pay tax on dividends and distributions one could imagine it would be a compensation to at least keep the money. Other people would make a point of using funds that minimize distributions. Some people might have the intent of spending money from the fund willy-nilly regarding both the spending and the future value of the fund. For them lots of dividends and lots of distributions might feel good -- or not -- the OP gives us no criteria to say.
Well I was looking for something easy. Something like have the fund would do all the work. I just sit back and enjoy. I am not a spendthrift so I would save more on the big years. I like the idea but it might work better in the Vanguard Balanced Index Fund. Take the dividend and capital gains it kicks off. The swing would not be near as big.
Last edited by iamblessed on Thu Oct 14, 2021 8:35 am, edited 1 time in total.
dbr
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by dbr »

iamblessed wrote: Thu Oct 14, 2021 8:29 am
dbr wrote: Thu Oct 14, 2021 8:22 am
grabiner wrote: Wed Oct 13, 2021 9:19 pm
However, a capital gain distribution exists only for tax purposes, not economic purposes, so it makes no sense to treat it as spending money. If you don't reinvest a capital gain distribution, you are effectively selling stock.
True enough. But I think the OP somehow envisions that one buys a fund and spends whatever is handed back and wonders if that is helpful.

While it is true one would not run out of money, it is hard to see what is helpful about it. But the reason it is not helpful is that there is no relationship to what purpose one would have in taking withdrawals that way. It is true that in a taxable account if you are going to pay tax on dividends and distributions one could imagine it would be a compensation to at least keep the money. Other people would make a point of using funds that minimize distributions. Some people might have the intent of spending money from the fund willy-nilly regarding both the spending and the future value of the fund. For them lots of dividends and lots of distributions might feel good -- or not -- the OP gives us no criteria to say.
Well I was looking for something easy. Something that the fund would do all the work. I just sit back and enjoy. I am not a spendthrift so I would save more on the big years.
Easy it is. It is probably true that sitting down and figuring out how much to withdraw, which also involves effort to decide what you are trying to do, really is some work. But the fund is not doing any work, just giving you withdrawals that have no relationship to anything of thoughtful importance to you, other than that the investment would indeed not run out of money.

If by save, you mean that you don't spend all that is distributed, then presumably the thing to do would be to reinvest the money, but then you aren't following your own premise.

It might be helpful if you could be more specific regarding what you are trying to do.
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by iamblessed »

I update my response above.
dbr
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by dbr »

iamblessed wrote: Thu Oct 14, 2021 8:36 am I update my response above.
Yes, if you don't want those big capital gains distributions then Wellington is not a very good choice. You will spend less and have more left over at any point in time. But it did seem that how much you get and how much is left over is of no concern to you. If it is a concern then you have to start doing some work.
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iamblessed
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by iamblessed »

dbr wrote: Thu Oct 14, 2021 8:40 am
iamblessed wrote: Thu Oct 14, 2021 8:36 am I update my response above.
Yes, if you don't want those big capital gains distributions then Wellington is not a very good choice.
The swing in the Vanguard Balanced Index Fund is about 23k to 53k. Much tamer.
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iamblessed
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by iamblessed »

dbr wrote: Thu Oct 14, 2021 8:40 am
iamblessed wrote: Thu Oct 14, 2021 8:36 am I update my response above.
Yes, if you don't want those big capital gains distributions then Wellington is not a very good choice. You will spend less and have more left over at any point in time. But it did seem that how much you get and how much is left over is of no concern to you. If it is a concern then you have to start doing some work.
I see what you mean. If I want to work the money down something like a 5% withdrawal on the balanced fund might be what I need. I have no heirs. Looks like that would work for about 25 years.
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by dbr »

iamblessed wrote: Thu Oct 14, 2021 8:45 am
dbr wrote: Thu Oct 14, 2021 8:40 am
iamblessed wrote: Thu Oct 14, 2021 8:36 am I update my response above.
Yes, if you don't want those big capital gains distributions then Wellington is not a very good choice. You will spend less and have more left over at any point in time. But it did seem that how much you get and how much is left over is of no concern to you. If it is a concern then you have to start doing some work.
I see what you mean. If I want to work the money down something like a 5% withdrawal on the balanced fund might be what I need. I have no heirs. Looks like that would work for about 25 years.
Yes, the work is that you have to run a model of the withdrawals for that asset allocation and observe the results. That is what FireCalc and all those calculators are for.
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by fposte »

iamblessed wrote: Thu Oct 14, 2021 8:29 am
Well I was looking for something easy. Something like have the fund would do all the work. I just sit back and enjoy. I am not a spendthrift so I would save more on the big years. I like the idea but it might work better in the Vanguard Balanced Index Fund. Take the dividend and capital gains it kicks off. The swing would not be near as big.
You can also set automatic withdrawals and get money from a fund deposited in your bank account every month, quarter, or year. That seems pretty easy as well and wouldn't tie you to any particular fund.
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Re: It looks like a person could spend the dividend and capital gains the Wellington spins off and not run out of money.

Post by FactualFran »

iamblessed wrote: Thu Oct 14, 2021 8:42 am The swing in the Vanguard Balanced Index Fund is about 23k to 53k. Much tamer.
It is even tamer by using the option to reinvest capital gain distributions and take income distributions in cash.

From 1993 through 2020, the full calendar of the Vanguard Balanced Index fund, by taking only the income distributions in cash the average annual income adjusted for inflation would have been 4.05% of the initial balance, the minimum 2.94%, and the maximum 5.49%. The corresponding values for the Vanguard Wellington fund would have been 5.51% average, 4.46% minimum, and 6.82% average.
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