Wellesley Gives TSM/TBM a Smackdown

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dual
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by dual »

I took to you to be instead discussing performance (% return, or CAGR).
I should have used a more precise word. My point is that because the index is market capitalization weighted, the index value is almost completely determined by the price of a relatively small number of stocks.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by burritoLover »

willthrill81 wrote: Wed Jul 06, 2022 9:32 pm
burritoLover wrote: Wed Jul 06, 2022 8:37 pm
willthrill81 wrote: Wed Jul 06, 2022 8:25 pm
burritoLover wrote: Wed Jul 06, 2022 8:15 pm
Charles Joseph wrote: Wed Jul 06, 2022 7:50 pm

I see no mythical attributes applied to Wellesley on that thread. Please support your claim about "mythical qualities that are spouted by many about Wellesley."

Please share the comments you are referencing.

Thanks.
In the current thread, I’d say calling a fund of 60-ish value stocks and a bond allocation with a boatload of corporates as less risky than total stock/bond is pretty mythical as far as funds go. Or maybe that’s just “incredible”.
It's certainly seems to have been no more risky as a strategy over the last 50+ years.

Contrary to what many believe (not necessarily saying you), it's not necessary to own TSM in order to largely remove idiosyncratic risk.
Generally the consensus is about 100 stocks covering the broad market to mitigate idiosyncratic risk. But we have 60-ish stocks concentrated in dividend payers. It isn’t ARKK but I think we can say the equity side it is riskier than TSM and 60% or whatever corporates on bond side is riskier than roughly the same
% in treasuries in BND.
Then why hasn't that risk manifested itself in 50+ years?
It has - deeper drawdowns in 2018 and 2020 than the broad market.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by burritoLover »

dual wrote: Wed Jul 06, 2022 10:57 pm Burrito:
Generally the consensus is about 100 stocks covering the broad market to mitigate idiosyncratic risk. But we have 60-ish stocks concentrated in dividend payers.
Because broad market Indexes are capitalization weighted, their performance is determined by far fewer than 100 stocks. For example, in 2021, the 5 faang stocks represented 23% of the Standard & Poor’s 500 capitalization.
Yeah, the rub is that you can pick those ahead of time. Only 4% of stocks generate long-term returns above t-bills. The fewer stocks you have in a portfolio, the more likely you are to miss more of this 4%. You do want a concentrated portfolio if you are trying to hit the stock lottery but not in retirement. A dividend growth strategy (which is what Wellesley employs) has worked exceptionally well over a long period of time - beating the market - there's no guarantee this strategy will continue working in the future.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by JSPECO9 »

Isn't is a large value fund? So isn't it more appropriate to compare it to VTV/BND?
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by burritoLover »

Da5id wrote: Wed Jul 06, 2022 9:53 pm
burritoLover wrote: Wed Jul 06, 2022 8:37 pm
willthrill81 wrote: Wed Jul 06, 2022 8:25 pm
burritoLover wrote: Wed Jul 06, 2022 8:15 pm
Charles Joseph wrote: Wed Jul 06, 2022 7:50 pm

I see no mythical attributes applied to Wellesley on that thread. Please support your claim about "mythical qualities that are spouted by many about Wellesley."

Please share the comments you are referencing.

Thanks.
In the current thread, I’d say calling a fund of 60-ish value stocks and a bond allocation with a boatload of corporates as less risky than total stock/bond is pretty mythical as far as funds go. Or maybe that’s just “incredible”.
It's certainly seems to have been no more risky as a strategy over the last 50+ years.

Contrary to what many believe (not necessarily saying you), it's not necessary to own TSM in order to largely remove idiosyncratic risk.
Generally the consensus is about 100 stocks covering the broad market to mitigate idiosyncratic risk. But we have 60-ish stocks concentrated in dividend payers. It isn’t ARKK but I think we can say the equity side it is riskier than TSM and 60% or whatever corporates on bond side is riskier than roughly the same
% in treasuries in BND.
In its long history (which includes many difficult times) Wellesley hasn't been particularly risky in terms of standard deviation and max drawdown compared to a comparable TSM+BND holding (I posted a link above). Your definition of risk seems rather ad hoc and based on your opinion. Maybe you are right about its future risk, but I don't think you can say it with such confidence.
Credit and duration risk for bonds and value loading for stocks is an ad hoc method of determining the risk of a given portfolio? As far as the diversification angle - this has been studied countless times. I did not pull this out of thin air - it isn't my opinion. Even some disagree on 100 stocks being enough:
A 2007 study, “Diversification in Portfolios of Individual Stocks: 100 Stocks Are Not Enough”:
Fifteen to 30 stocks are woefully inadequate for long-term investors who wish to outperform riskless Treasury bonds. Based on the sample period, investors need at least 164 stocks to have at most a 1 percent chance of underperforming Treasury bonds.

The shortfall probability for a 10-stock portfolio was 40 percent. The shortfall probability drops to 29 percent for 20 stocks, 22 percent for 30 stocks and 13 percent for 50 stocks. It was still 4 percent for 100 stocks. For a 200-stock portfolio, the figure dropped to 0.4 percent.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by Da5id »

burritoLover wrote: Thu Jul 07, 2022 6:08 am Credit and duration risk for bonds and value loading for stocks is an ad hoc method of determining the risk of a given portfolio? As far as the diversification angle - this has been studied countless times. I did not pull this out of thin air - it isn't my opinion. Even some disagree on 100 stocks being enough:
OK. There are numeric measures of how risky Wellesley has been since inception in terms of standard deviation and max drawdown. It has had the same management team and practices for a long time. Do you consider those values meaningless? Do you have a different quantifiable measure of risk?

Look, I don't buy active funds, including Wellesley. But I don't think it is impossible that the management team there knows things and is doing something useful. Their expense ratio of 0.16% for the Admiral fund is quite reasonable for an active fund. They have done well for people in the past, and for all I know will continue doing so in the future.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by burritoLover »

Da5id wrote: Thu Jul 07, 2022 6:36 am
burritoLover wrote: Thu Jul 07, 2022 6:08 am Credit and duration risk for bonds and value loading for stocks is an ad hoc method of determining the risk of a given portfolio? As far as the diversification angle - this has been studied countless times. I did not pull this out of thin air - it isn't my opinion. Even some disagree on 100 stocks being enough:
OK. There are numeric measures of how risky Wellesley has been since inception in terms of standard deviation and max drawdown. It has had the same management team and practices for a long time. Do you consider those values meaningless? Do you have a different quantifiable measure of risk?

Look, I don't buy active funds, including Wellesley. But I don't think it is impossible that the management team there knows things and is doing something useful. Their expense ratio of 0.16% for the Admiral fund is quite reasonable for an active fund. They have done well for people in the past, and for all I know will continue doing so in the future.
I think it is too concentrated of a position to put all your retirement money in - which is what many are doing. It is only about 65 stocks or so and concentrated in dividend payers. And it is also concentrated in a high percentage of corporates on the bond side with an average duration of over 10 years. It has a great 50 year track record - even if we assume that is due to Wellington's management and not a strategy that has happened to work well over that period of time, you can't extrapolate that into the future. Manager risk for active funds is a real phenomenon. The two portfolio managers that advise the fund have been doing so since 2017 and 2021. I think previously they had some fund managers that were there for decades.

What does the future hold for Wellesley? I don't know - but I would advise investors to be careful about attributing any magical permanent qualities to this fund going forward. Among active funds, it definitely a low-cost alternative but we also know the downsides to active funds well here. I wouldn't give this active fund a pass just because of its long track record. There's really no reason to invest in active funds.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by willthrill81 »

burritoLover wrote: Thu Jul 07, 2022 5:40 am
willthrill81 wrote: Wed Jul 06, 2022 9:32 pm
burritoLover wrote: Wed Jul 06, 2022 8:37 pm
willthrill81 wrote: Wed Jul 06, 2022 8:25 pm
burritoLover wrote: Wed Jul 06, 2022 8:15 pm
In the current thread, I’d say calling a fund of 60-ish value stocks and a bond allocation with a boatload of corporates as less risky than total stock/bond is pretty mythical as far as funds go. Or maybe that’s just “incredible”.
It's certainly seems to have been no more risky as a strategy over the last 50+ years.

Contrary to what many believe (not necessarily saying you), it's not necessary to own TSM in order to largely remove idiosyncratic risk.
Generally the consensus is about 100 stocks covering the broad market to mitigate idiosyncratic risk. But we have 60-ish stocks concentrated in dividend payers. It isn’t ARKK but I think we can say the equity side it is riskier than TSM and 60% or whatever corporates on bond side is riskier than roughly the same
% in treasuries in BND.
Then why hasn't that risk manifested itself in 50+ years?
It has - deeper drawdowns in 2018 and 2020 than the broad market.
I don't think that many here are too concerned about an -18.8% drawdown vs. -16.4%, which is what the difference in monthly maximum drawdowns of Wellesley vs. TSM/TBM were in the GFC. Similarly, the difference in drawdowns in 2020 was only 2%. And Portfolio Visualizer indicates that TSM/TBM has had a deeper drawdown in 2022 than Wellesley, -14.3% vs. -10%.

So far, the risks involved appear to have been largely theoretical, not meaningfully realized in 50+ years.
burritoLover wrote: Thu Jul 07, 2022 6:58 am What does the future hold for Wellesley? I don't know - but I would advise investors to be careful about attributing any magical permanent qualities to this fund going forward.
So now you're switching from 'mythical' to 'magical'? Who has attributed 'magical permanent qualities' to Wellesley?
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by ApeAttack »

If you take 100 actively managed funds at random today, follow them over the next 30 years, and compare their performance (minus fees) to some relevant index, a handful of funds will beat their index. There could be various reasons why such as taking on more risk (however one defines it), great management, dumb luck on a small number of stocks, etc.

The trick is knowing ahead of time which funds will be the winners. Will Wellesley beat TSM+TBM over the next 30 years? I dunno, so I'll just stick with the index funds since historically they beat the majority of actively managed funds. I wish you luck if you pick Wellesley instead.
May all your index funds gain +0.5% today.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by burritoLover »

willthrill81 wrote: Thu Jul 07, 2022 9:37 am
burritoLover wrote: Thu Jul 07, 2022 5:40 am
willthrill81 wrote: Wed Jul 06, 2022 9:32 pm
burritoLover wrote: Wed Jul 06, 2022 8:37 pm
willthrill81 wrote: Wed Jul 06, 2022 8:25 pm

It's certainly seems to have been no more risky as a strategy over the last 50+ years.

Contrary to what many believe (not necessarily saying you), it's not necessary to own TSM in order to largely remove idiosyncratic risk.
Generally the consensus is about 100 stocks covering the broad market to mitigate idiosyncratic risk. But we have 60-ish stocks concentrated in dividend payers. It isn’t ARKK but I think we can say the equity side it is riskier than TSM and 60% or whatever corporates on bond side is riskier than roughly the same
% in treasuries in BND.
Then why hasn't that risk manifested itself in 50+ years?
It has - deeper drawdowns in 2018 and 2020 than the broad market.
I don't think that many here are too concerned about an -18.8% drawdown vs. -16.4%, which is what the difference in monthly maximum drawdowns of Wellesley vs. TSM/TBM were in the GFC. Similarly, the difference in drawdowns in 2020 was only 2%. And Portfolio Visualizer indicates that TSM/TBM has had a deeper drawdown in 2022 than Wellesley, -14.3% vs. -10%.

So far, the risks involved appear to have been largely theoretical, not meaningfully realized in 50+ years.
burritoLover wrote: Thu Jul 07, 2022 6:58 am What does the future hold for Wellesley? I don't know - but I would advise investors to be careful about attributing any magical permanent qualities to this fund going forward.
So now you're switching from 'mythical' to 'magical'? Who has attributed 'magical permanent qualities' to Wellesley?
I call them magical because they are implied permanent outperformance cause Wellington knows something we don't know apparently. Permanent outperformance of an active fund is pretty magical, no?
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by willthrill81 »

burritoLover wrote: Thu Jul 07, 2022 10:26 am
willthrill81 wrote: Thu Jul 07, 2022 9:37 am
burritoLover wrote: Thu Jul 07, 2022 5:40 am
willthrill81 wrote: Wed Jul 06, 2022 9:32 pm
burritoLover wrote: Wed Jul 06, 2022 8:37 pm
Generally the consensus is about 100 stocks covering the broad market to mitigate idiosyncratic risk. But we have 60-ish stocks concentrated in dividend payers. It isn’t ARKK but I think we can say the equity side it is riskier than TSM and 60% or whatever corporates on bond side is riskier than roughly the same
% in treasuries in BND.
Then why hasn't that risk manifested itself in 50+ years?
It has - deeper drawdowns in 2018 and 2020 than the broad market.
I don't think that many here are too concerned about an -18.8% drawdown vs. -16.4%, which is what the difference in monthly maximum drawdowns of Wellesley vs. TSM/TBM were in the GFC. Similarly, the difference in drawdowns in 2020 was only 2%. And Portfolio Visualizer indicates that TSM/TBM has had a deeper drawdown in 2022 than Wellesley, -14.3% vs. -10%.

So far, the risks involved appear to have been largely theoretical, not meaningfully realized in 50+ years.
burritoLover wrote: Thu Jul 07, 2022 6:58 am What does the future hold for Wellesley? I don't know - but I would advise investors to be careful about attributing any magical permanent qualities to this fund going forward.
So now you're switching from 'mythical' to 'magical'? Who has attributed 'magical permanent qualities' to Wellesley?
I call them magical because they are implied permanent outperformance cause Wellington knows something we don't know apparently. Permanent outperformance of an active fund is pretty magical, no?
Who has said that Wellesley, the topic of the thread, would permanently outperform a 35/65?
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by burritoLover »

willthrill81 wrote: Thu Jul 07, 2022 10:28 am
burritoLover wrote: Thu Jul 07, 2022 10:26 am
willthrill81 wrote: Thu Jul 07, 2022 9:37 am
burritoLover wrote: Thu Jul 07, 2022 5:40 am
willthrill81 wrote: Wed Jul 06, 2022 9:32 pm

Then why hasn't that risk manifested itself in 50+ years?
It has - deeper drawdowns in 2018 and 2020 than the broad market.
I don't think that many here are too concerned about an -18.8% drawdown vs. -16.4%, which is what the difference in monthly maximum drawdowns of Wellesley vs. TSM/TBM were in the GFC. Similarly, the difference in drawdowns in 2020 was only 2%. And Portfolio Visualizer indicates that TSM/TBM has had a deeper drawdown in 2022 than Wellesley, -14.3% vs. -10%.

So far, the risks involved appear to have been largely theoretical, not meaningfully realized in 50+ years.
burritoLover wrote: Thu Jul 07, 2022 6:58 am What does the future hold for Wellesley? I don't know - but I would advise investors to be careful about attributing any magical permanent qualities to this fund going forward.
So now you're switching from 'mythical' to 'magical'? Who has attributed 'magical permanent qualities' to Wellesley?
I call them magical because they are implied permanent outperformance cause Wellington knows something we don't know apparently. Permanent outperformance of an active fund is pretty magical, no?
Who has said that Wellesley, the topic of the thread, would permanently outperform a 35/65?
Maybe the word "permanent" wasn't uttered as such but things like below are examples of the myth surrounding Wellington.
garlandwhizzer wrote: Wed Jul 06, 2022 3:06 pmIt is expected to weather equity bear markets better than TSM and perhaps better than TSM/TBM.
....
True investing skill is IMO very rare among individuals even more rare among financial firms, but Wellington Management has succeeded in outperforming in a risk adjusted manner comparable benchmarks for so long that it is unlikely to be just luck.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by willthrill81 »

burritoLover wrote: Thu Jul 07, 2022 10:32 am
willthrill81 wrote: Thu Jul 07, 2022 10:28 am
burritoLover wrote: Thu Jul 07, 2022 10:26 am
willthrill81 wrote: Thu Jul 07, 2022 9:37 am
burritoLover wrote: Thu Jul 07, 2022 5:40 am
It has - deeper drawdowns in 2018 and 2020 than the broad market.
I don't think that many here are too concerned about an -18.8% drawdown vs. -16.4%, which is what the difference in monthly maximum drawdowns of Wellesley vs. TSM/TBM were in the GFC. Similarly, the difference in drawdowns in 2020 was only 2%. And Portfolio Visualizer indicates that TSM/TBM has had a deeper drawdown in 2022 than Wellesley, -14.3% vs. -10%.

So far, the risks involved appear to have been largely theoretical, not meaningfully realized in 50+ years.
burritoLover wrote: Thu Jul 07, 2022 6:58 am What does the future hold for Wellesley? I don't know - but I would advise investors to be careful about attributing any magical permanent qualities to this fund going forward.
So now you're switching from 'mythical' to 'magical'? Who has attributed 'magical permanent qualities' to Wellesley?
I call them magical because they are implied permanent outperformance cause Wellington knows something we don't know apparently. Permanent outperformance of an active fund is pretty magical, no?
Who has said that Wellesley, the topic of the thread, would permanently outperform a 35/65?
Maybe the word "permanent" wasn't uttered as such but things like below are examples of the myth surrounding Wellington.
garlandwhizzer wrote: Wed Jul 06, 2022 3:06 pmIt is expected to weather equity bear markets better than TSM and perhaps better than TSM/TBM.
....
True investing skill is IMO very rare among individuals even more rare among financial firms, but Wellington Management has succeeded in outperforming in a risk adjusted manner comparable benchmarks for so long that it is unlikely to be just luck.
I still don't anything mythical or magical about what was said. Expecting a fund to perform similar to the way it has for the last 50+ years is neither, nor is a statement about the past (i.e., 'has succeeded').
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by burritoLover »

willthrill81 wrote: Thu Jul 07, 2022 10:35 am
burritoLover wrote: Thu Jul 07, 2022 10:32 am
willthrill81 wrote: Thu Jul 07, 2022 10:28 am
burritoLover wrote: Thu Jul 07, 2022 10:26 am
willthrill81 wrote: Thu Jul 07, 2022 9:37 am

I don't think that many here are too concerned about an -18.8% drawdown vs. -16.4%, which is what the difference in monthly maximum drawdowns of Wellesley vs. TSM/TBM were in the GFC. Similarly, the difference in drawdowns in 2020 was only 2%. And Portfolio Visualizer indicates that TSM/TBM has had a deeper drawdown in 2022 than Wellesley, -14.3% vs. -10%.

So far, the risks involved appear to have been largely theoretical, not meaningfully realized in 50+ years.



So now you're switching from 'mythical' to 'magical'? Who has attributed 'magical permanent qualities' to Wellesley?
I call them magical because they are implied permanent outperformance cause Wellington knows something we don't know apparently. Permanent outperformance of an active fund is pretty magical, no?
Who has said that Wellesley, the topic of the thread, would permanently outperform a 35/65?
Maybe the word "permanent" wasn't uttered as such but things like below are examples of the myth surrounding Wellington.
garlandwhizzer wrote: Wed Jul 06, 2022 3:06 pmIt is expected to weather equity bear markets better than TSM and perhaps better than TSM/TBM.
....
True investing skill is IMO very rare among individuals even more rare among financial firms, but Wellington Management has succeeded in outperforming in a risk adjusted manner comparable benchmarks for so long that it is unlikely to be just luck.
I still don't anything mythical or magical about what was said. Expecting a fund to perform similar to the way it has for the last 50+ years is neither, nor is a statement about the past (i.e., 'has succeeded').
So, since the US has outperformed international the last 50 years, that means that we should expect the US to outperform going forward? And that is just an index without any of the manager risks of an active fund which we are now assuming will continue its performance into the future. That is pretty magical and mythical at least in the finance world - to have an active fund that generates alpha forever because it is unlikely to be luck.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by burritoLover »

I'll end with this. There's no reason to invest in a more concentrated active fund such as Wellesley unless you think that the fund can generate alpha over a similar lower-cost index set-up going forward. Otherwise, why bother to pay more? Call it magical/mythical or not, but there's an expectation of Wellesley investors that it has some perpetual secret sauce because they look at a 50 year back-test vs. TSM/TBM which has a less risky profile (4000 broad market stocks vs 60-ish dividend paying stocks, much more treasuries vs corporates, shorter duration, etc).
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by willthrill81 »

burritoLover wrote: Thu Jul 07, 2022 10:42 am
willthrill81 wrote: Thu Jul 07, 2022 10:35 am
burritoLover wrote: Thu Jul 07, 2022 10:32 am
willthrill81 wrote: Thu Jul 07, 2022 10:28 am
burritoLover wrote: Thu Jul 07, 2022 10:26 am
I call them magical because they are implied permanent outperformance cause Wellington knows something we don't know apparently. Permanent outperformance of an active fund is pretty magical, no?
Who has said that Wellesley, the topic of the thread, would permanently outperform a 35/65?
Maybe the word "permanent" wasn't uttered as such but things like below are examples of the myth surrounding Wellington.
garlandwhizzer wrote: Wed Jul 06, 2022 3:06 pmIt is expected to weather equity bear markets better than TSM and perhaps better than TSM/TBM.
....
True investing skill is IMO very rare among individuals even more rare among financial firms, but Wellington Management has succeeded in outperforming in a risk adjusted manner comparable benchmarks for so long that it is unlikely to be just luck.
I still don't anything mythical or magical about what was said. Expecting a fund to perform similar to the way it has for the last 50+ years is neither, nor is a statement about the past (i.e., 'has succeeded').
So, since the US has outperformed international the last 50 years, that means that we should expect the US to outperform going forward? And that is just an index without any of the manager risks of an active fund which we are now assuming will continue its performance into the future. That is pretty magical and mythical at least in the finance world - to have an active fund that generates alpha forever because it is unlikely to be luck.
First, let's remember that the EMH is only a hypothesis, not a law.

Second, awhile back, I calculated the odds of a fund like Wellesley having performed as it has for as long as it has due to random chance and estimated it to be about 2,000 to 1. Some might retort that to only be survivor bias for Wellesley, but others take it as evidence that Wellesley may indeed have generated alpha by manager skill. While you obviously disagree with those in the latter camp, referring to their position as founded on magic and myth doesn't seem appropriate.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by jeffyscott »

There are some who see a fund manager as a negative, others see them as a potential positive, except that they generally charge too much.

Wellesley, or really the Wellington management company, to me is a positive, when I am getting them for something like 15-25 basis points. That's a pretty small hurdle for a fund manager.

I don't think manager skill is rare, l think it's common enough but usually costs too much. When so many players are as highly skilled as they are, outperforming the average is difficult, and next to impossible if you have to overcome the handicap of a high expense ratio.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by hoops777 »

I have no idea what Wellesley will do in the future, but I do tire of constantly hearing that humans have no ability to do better than an index fund.
Like in any field, there are very talented people that produce exceptional work. Investing is no different.
Yes the general majority do not beat index funds over time.
That is not everyone.
60 stocks is not enough?
Well maybe 60 stocks is enough because of the ability of an exceptional team to really understand and analyze the companies.
With that being said, most people should just buy an index fund and get on with their life.

I am quite certain that someone like burrito lover could pick 60 stocks and he would be just fine. I am actually certain of it. He may or may not beat the market but it would be very close either way.
K.I.S.S........so easy to say so difficult to do.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by Da5id »

hoops777 wrote: Thu Jul 07, 2022 11:17 am I have no idea what Wellesley will do in the future, but I do tire of constantly hearing that humans have no ability to do better than an index fund.
Like in any field, there are very talented people that produce exceptional work. Investing is no different.
Yes the general majority do not beat index funds over time.
That is not everyone.
60 stocks is not enough?
Well maybe 60 stocks is enough because of the ability of an exceptional team to really understand and analyze the companies.
With that being said, most people should just buy an index fund and get on with their life.

I am quite certain that someone like burrito lover could pick 60 stocks and he would be just fine. I am actually certain of it. He may or may not beat the market but it would be very close either way.
I think Wellesley an OK choice. It is cheap and has a decent track record. For those who prefer active management, it seems fine to me.

But SPIVA seems to have pretty solid data that beating the market is kind of unicorn territory as you go out for more years.

Data on beating the market net: https://www.spglobal.com/spdji/en/resea ... hts/spiva/

Data on persistence of funds in top quartile/half: https://www.spglobal.com/spdji/en/spiva ... scorecard/

Selecting funds which will beat the market prospectively after expenses (and after taxes for higher turnover active holdings in taxable accounts) has not been a winning game as far as I can tell. But hope does spring eternal.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by sycamore »

Regarding the risks of Wellesley, here's what the fund itself says in its prospectus:
Principal Risks
The Fund is subject to the risks associated with the stock and bond markets, any
of which could cause an investor to lose money, and the level of risk may vary
based on market conditions. However, because fixed income securities such as
bonds usually are less volatile than stocks and because the Fund invests more
than half of its assets in fixed income securities, the Fund’s overall level of risk is
expected to be low to moderate.

• With approximately 60% to 65% of its assets allocated to bonds, the Fund is
proportionately subject to the following bond risks: interest rate risk, which is the
chance that bond prices overall will decline because of rising interest rates;
income risk, which is the chance that the Fund’s income will decline because of
falling interest rates; credit risk, which is the chance that a bond issuer will fail to
pay interest or principal in a timely manner or that negative perceptions of the
issuer’s ability to make such payments will cause the price of that bond to
decline; liquidity risk, which is the chance that the Fund may not be able to sell a
security in a timely manner at a desired price; and call risk, which is the chance
that during periods of falling interest rates, issuers of callable bonds may call
(redeem) securities with higher coupon rates or interest rates before their
maturity dates. The Fund would then lose any price appreciation above the
bond’s call price and would be forced to reinvest the unanticipated proceeds at
lower interest rates, resulting in a decline in the Fund’s income. Such
redemptions and subsequent reinvestments would also increase the Fund’s
portfolio turnover rate. For mortgage-backed securities, this risk is known as
prepayment risk.

• With approximately 35% to 40% of its assets allocated to stocks, the Fund is
proportionately subject to the following stock risks: stock market risk, which is
the chance that stock prices overall will decline; and investment style risk, which
is the chance that returns from mid- and large-capitalization dividend-paying
value stocks will trail returns from the overall stock market. Mid- and large-cap
stocks each tend to go through cycles of doing better—or worse—than other
segments of the stock market or the stock market in general. These periods
have, in the past, lasted for as long as several years. Historically, mid-cap stocks
have been more volatile in price than large-cap stocks. The stock prices of
mid-size companies tend to experience greater volatility because, among other
things, these companies tend to be more sensitive to changing
economic conditions.

Manager risk, which is the chance that poor security selection will cause the
Fund to underperform relevant benchmarks or other funds with a similar
investment objective.
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Re: Wellesley Gives TSM/TBM a Smackdown

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hoops777 wrote: Thu Jul 07, 2022 11:17 am I have no idea what Wellesley will do in the future, but I do tire of constantly hearing that humans have no ability to do better than an index fund.
Like in any field, there are very talented people that produce exceptional work. Investing is no different.
Yes the general majority do not beat index funds over time.
That is not everyone.
60 stocks is not enough?
Well maybe 60 stocks is enough because of the ability of an exceptional team to really understand and analyze the companies.
With that being said, most people should just buy an index fund and get on with their life.

I am quite certain that someone like burrito lover could pick 60 stocks and he would be just fine. I am actually certain of it. He may or may not beat the market but it would be very close either way.
Lol - definitely not. :D
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Re: Wellesley Gives TSM/TBM a Smackdown

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jeffyscott wrote: Thu Jul 07, 2022 11:02 am There are some who see a fund manager as a negative, others see them as a potential positive, except that they generally charge too much.

Wellesley, or really the Wellington management company, to me is a positive, when I am getting them for something like 15-25 basis points. That's a pretty small hurdle for a fund manager.

I don't think manager skill is rare, l think it's common enough but usually costs too much. When so many players are as highly skilled as they are, outperforming the average is difficult, and next to impossible if you have to overcome the handicap of a high expense ratio.
Even though he is considered to be the father of index investing, Bogle was fine with active management as long as it didn't cost too much. He held a significant portion of his portfolio in Wellington.
hoops777 wrote: Thu Jul 07, 2022 11:17 am 60 stocks is not enough?
Well maybe 60 stocks is enough because of the ability of an exceptional team to really understand and analyze the companies.
If you're closely analyzing the companies you're buying, there's obviously an upper limit to how many companies you can buy, even if you have a team of experts working for you. Also, in this context, there is such a thing as 'over-diversification', where you own so many companies that the likelihood of you outperforming the broad market goes down.
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Re: Wellesley Gives TSM/TBM a Smackdown

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Re: Wellesley Gives TSM/TBM a Smackdown

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burritoLover wrote: Thu Jul 07, 2022 6:58 am And it is also concentrated in a high percentage of corporates on the bond side with an average duration of over 10 years.
To all reading this thread and/or considering Wellesley, the above statement is incorrect.The average duration of Wellesley fixed income is 7.4 years.

Edited.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by Charles Joseph »

AerialWombat wrote: Thu Jul 07, 2022 12:50 pm I have held Wellesley since the day I started investing in securities, all those long four years ago. Today, it is my single largest holding at nearly 1/3 of my portfolio, all in 401k. I have even been a little bit of an evangelist for the fund on this board.

I never thought I'd type these words, but: I'm seriously thinking about swapping it 100% for the Vanguard Total Stock Market Index ETF (VTI).

The money I currently hold in Wellesley will go through Roth conversion from 2024 onward. That pool of funds will be the last money I ever touch in very late retirement -- if I ever touch it at all. Based on all the modeling I've done, it will most likely all go to charity when I die.

Since it's either going to be "backup funds" or donated, I'm thinking it might as well be all in equities in order to (theoretically) maximize it's final value. Even if I did need to tap into it later in retirement, I would not need to touch it for at least 20-30 years.

I've been letting this idea simmer for several weeks, trying to be rational instead of pulling the trigger on a whim. But this still makes sense to me. To maintain my AA, I would sell VTI in taxable.

VWINX, I love you, but I think it might be time for us to start seeing other funds.
Your plan makes total sense. But I understand. When it comes to Wellesley, breakin' up is truly hard to do. 8-)
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by burritoLover »

Charles Joseph wrote: Thu Jul 07, 2022 3:00 pm
burritoLover wrote: Thu Jul 07, 2022 6:58 am And it is also concentrated in a high percentage of corporates on the bond side with an average duration of over 10 years.
To all reading this thread and/or considering Wellesley, the above statement is false. The average duration of Wellesley fixed income is 7.4 years.
Sorry, you are correct. Average duration for BND is 6.7 years so not important distinction presently but I think Wellesley has carried longer duration before. The high percentage of corporates is accurate however (relative to BND).
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by Miriam2 »

burritoLover wrote: Thu Jul 07, 2022 10:54 am I'll end with this. There's no reason to invest in a more concentrated active fund such as Wellesley unless you think that the fund can generate alpha over a similar lower-cost index set-up going forward. Otherwise, why bother to pay more? Call it magical/mythical or not, but there's an expectation of Wellesley investors that it has some perpetual secret sauce because they look at a 50 year back-test vs. TSM/TBM which has a less risky profile (4000 broad market stocks vs 60-ish dividend paying stocks, much more treasuries vs corporates, shorter duration, etc).
Several years ago at the Bogleheads Conference, after Gus Sauter gave a presentation on actively managed funds, Bill Bernstein stood up and asked Gus what the secret sauce was for Wellington. Gus replied, "Low expense ratio (he might have said low fees)." He then explored that further, but made it clear that the low fees contributed to its success. I would assume he would have the same to say for Wellesley.
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Re: Wellesley Gives TSM/TBM a Smackdown

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Miriam2 wrote: Thu Jul 07, 2022 3:23 pm
burritoLover wrote: Thu Jul 07, 2022 10:54 am I'll end with this. There's no reason to invest in a more concentrated active fund such as Wellesley unless you think that the fund can generate alpha over a similar lower-cost index set-up going forward. Otherwise, why bother to pay more? Call it magical/mythical or not, but there's an expectation of Wellesley investors that it has some perpetual secret sauce because they look at a 50 year back-test vs. TSM/TBM which has a less risky profile (4000 broad market stocks vs 60-ish dividend paying stocks, much more treasuries vs corporates, shorter duration, etc).
Several years ago at the Bogleheads Conference, after Gus Sauter gave a presentation on actively managed funds, Bill Bernstein stood up and asked Gus what the secret sauce was for Wellington. Gus replied, "Low expense ratio (he might have said low fees)." He then explored that further, but made it clear that the low fees contributed to its success. I would assume he would have the same to say for Wellesley.
Certainly, if you are comparing to other active funds, Vanguard kills it, but if you are comparing to say VTI/BND, you can save 20 bps going that route over Wellesley, with less risk (unless you believe in to-the-end-of-the-world Wellesley alpha generation). Or you could do a dividend appreciation index (VIG) for about 6 bps if you want something that more closely resembles Wellesley equity value tilt (with 289 stocks vs <100 with Wellesley). Corporate bond ETF can be had for about 4 basis points. Ultimately, if you want an active fund, at least with Vanguard the costs are relatively low compared to other options. But the big question is why do you want it at higher cost with additional risk (including manager risk) over an indexed approach?
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by Charles Joseph »

burritoLover wrote: Thu Jul 07, 2022 3:35 pm
Miriam2 wrote: Thu Jul 07, 2022 3:23 pm
burritoLover wrote: Thu Jul 07, 2022 10:54 am I'll end with this. There's no reason to invest in a more concentrated active fund such as Wellesley unless you think that the fund can generate alpha over a similar lower-cost index set-up going forward. Otherwise, why bother to pay more? Call it magical/mythical or not, but there's an expectation of Wellesley investors that it has some perpetual secret sauce because they look at a 50 year back-test vs. TSM/TBM which has a less risky profile (4000 broad market stocks vs 60-ish dividend paying stocks, much more treasuries vs corporates, shorter duration, etc).
Several years ago at the Bogleheads Conference, after Gus Sauter gave a presentation on actively managed funds, Bill Bernstein stood up and asked Gus what the secret sauce was for Wellington. Gus replied, "Low expense ratio (he might have said low fees)." He then explored that further, but made it clear that the low fees contributed to its success. I would assume he would have the same to say for Wellesley.
Certainly, if you are comparing to other active funds, Vanguard kills it, but if you are comparing to say VTI/BND, you can save 20 bps going that route over Wellesley, with less risk (unless you believe in to-the-end-of-the-world Wellesley alpha generation). Or you could do a dividend appreciation index (VIG) for about 6 bps if you want something that more closely resembles Wellesley equity value tilt (with 289 stocks vs <100 with Wellesley). Corporate bond ETF can be had for about 4 basis points. Ultimately, if you want an active fund, at least with Vanguard the costs are relatively low compared to other options. But the big question is why do you want it at higher cost with additional risk (including manager risk) over an indexed approach?
You make a lot of good points here. FYI - the equity management just changed hands at Wellesley, literally just a few days ago. Time will tell about continued execution of process. I'm not putting any more money in Wellesley, mainly because I own enough of it already, but I can't deny that the manager change and attendant potential risk concerns me.
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Re: Wellesley Gives TSM/TBM a Smackdown

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Re: Wellesley Gives TSM/TBM a Smackdown

Post by tibbitts »

For those who believe in the Wellington Secret Sauce theory, why no love for the Capital Cycles fund, now that Wellington manages it?
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by jeffyscott »

I wasn't aware that Wellington was managing capital cycles (or really that this fund exists). But after a brief look, it seems to be a kind of sector fund, or 3 sectors? I'm not interested in sector funds.

In the case of managed funds, I prefer that they not be overly restricted. It doesn't make sense to me to hire a fund manager, but then tell them to buy only precious metals and mining stocks with at least 25% of the money and utilities and telecom with (most of?) the rest.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by tibbitts »

jeffyscott wrote: Fri Jul 08, 2022 2:18 pm I wasn't aware that Wellington was managing capital cycles (or really that this fund exists). But after a brief look, it seems to be a kind of sector fund, or 3 sectors? I'm not interested in sector funds.

In the case of managed funds, I prefer that they not be overly restricted. It doesn't make sense to me to hire a fund manager, but then tell them to buy only precious metals and mining stocks with at least 25% of the money and utilities and telecom with (most of?) the rest.
We'll never know the backstory, but my guess is that Wellington came up with the revised mandate Capital Cycles has now. Vanguard might have solicited a proposal, sort of "what do we do with this thing???" after so many years of relatively dismal performance.

While not sector-specific, at least a number of years ago it seems like I recall one of the Wellington commentaries complaining (or stating, subject to interpretation) that they had to exclude some specific equities from Wellesley. Maybe it was during the GFC, when some companies had cut their dividends, so those equities no longer met their mandate for the fund. So it's not like they're not familiar with being constrained by mandates in one way or another.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by jeffyscott »

tibbitts wrote: Fri Jul 08, 2022 3:40 pm
jeffyscott wrote: Fri Jul 08, 2022 2:18 pm I wasn't aware that Wellington was managing capital cycles (or really that this fund exists). But after a brief look, it seems to be a kind of sector fund, or 3 sectors? I'm not interested in sector funds.

In the case of managed funds, I prefer that they not be overly restricted. It doesn't make sense to me to hire a fund manager, but then tell them to buy only precious metals and mining stocks with at least 25% of the money and utilities and telecom with (most of?) the rest.
We'll never know the backstory, but my guess is that Wellington came up with the revised mandate Capital Cycles has now. Vanguard might have solicited a proposal, sort of "what do we do with this thing???" after so many years of relatively dismal performance.

While not sector-specific, at least a number of years ago it seems like I recall one of the Wellington commentaries complaining (or stating, subject to interpretation) that they had to exclude some specific equities from Wellesley. Maybe it was during the GFC, when some companies had cut their dividends, so those equities no longer met their mandate for the fund. So it's not like they're not familiar with being constrained by mandates in one way or another.
It's not about them, it's about me. I don't want to invest in a managed fund that restricts itself to this:
At least 25% of the fund will be invested in precious metals and mining securities. It also focuses on opportunities to invest in companies with scarce, high-quality infrastructure assets—typically in utilities and telecommunications—that are viewed as irreplaceable and therefore have enduring value.

IMO, that's overly prescriptive. It's not as bad as, say, Vanguard Energy Fund but still not something I'd buy.

If I want Wellington Management, I can get it cheaper in Wellesley, Wellington, Global Wellington, Global Wellesley, and/or Dividend Growth. I can see no reason to choose the peculiar Capital Cycles over any of those less prescriptive and cheaper options.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by Charles Joseph »

AerialWombat wrote: Thu Jul 07, 2022 10:12 pm
Charles Joseph wrote: Thu Jul 07, 2022 3:03 pm Your plan makes total sense. But I understand. When it comes to Wellesley, breakin' up is truly hard to do. 8-)
Great song. :)

Yes, very difficult. But, I went ahead and executed the mutual fund sell today, and have a limit order for VTI to execute tomorrow at the open. :beer
Congrats! I'm a longtime lurker and will miss your Wellesley comments.

I have what I know is likely a suboptimal strategy but my goal is simple: close the income gap between social security and expenses. As such, I view my stake in Wellesley as almost a partial annuity. I just leave it alone and in three years dividend reinvestment will get turned off and it will pay a fairly large chunk of my bills.

Drives people crazy around here, I know.

Good luck with your new strategy. It's a strong and sound one! Always appreciate your posts (and your amazing stories about your past - so much encouragement).
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by KneeReplacementTutor »

willthrill81 wrote: Wed Jul 06, 2022 9:32 pm
burritoLover wrote: Wed Jul 06, 2022 8:37 pm
willthrill81 wrote: Wed Jul 06, 2022 8:25 pm
burritoLover wrote: Wed Jul 06, 2022 8:15 pm
Charles Joseph wrote: Wed Jul 06, 2022 7:50 pm

I see no mythical attributes applied to Wellesley on that thread. Please support your claim about "mythical qualities that are spouted by many about Wellesley."

Please share the comments you are referencing.

Thanks.
In the current thread, I’d say calling a fund of 60-ish value stocks and a bond allocation with a boatload of corporates as less risky than total stock/bond is pretty mythical as far as funds go. Or maybe that’s just “incredible”.
It's certainly seems to have been no more risky as a strategy over the last 50+ years.

Contrary to what many believe (not necessarily saying you), it's not necessary to own TSM in order to largely remove idiosyncratic risk.
Generally the consensus is about 100 stocks covering the broad market to mitigate idiosyncratic risk. But we have 60-ish stocks concentrated in dividend payers. It isn’t ARKK but I think we can say the equity side it is riskier than TSM and 60% or whatever corporates on bond side is riskier than roughly the same
% in treasuries in BND.
Then why hasn't that risk manifested itself in 50+ years?
If risk doesn’t manifest itself in 50+ years does it not exist?
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by GP813 »

Manager risk is the downside but also what probably has provided the upside. We don't know what Vanguard will look like in 20 years. Whenever I read interviews or listen to podcasts of Vanguard fund mangers one thing that stands out is the tremendous weight they have on the market because they manage so much money in these funds. So you could imagine a competent active manager takes advantage of this fact. I choose passive index funds and pick my own stocks when I see a "deal" but for somebody like a senior citizen who has no patience for markets and needs income to live, it's been a very good fund.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by willthrill81 »

KneeReplacementTutor wrote: Fri Jul 08, 2022 4:19 pm
willthrill81 wrote: Wed Jul 06, 2022 9:32 pm
burritoLover wrote: Wed Jul 06, 2022 8:37 pm
willthrill81 wrote: Wed Jul 06, 2022 8:25 pm
burritoLover wrote: Wed Jul 06, 2022 8:15 pm
In the current thread, I’d say calling a fund of 60-ish value stocks and a bond allocation with a boatload of corporates as less risky than total stock/bond is pretty mythical as far as funds go. Or maybe that’s just “incredible”.
It's certainly seems to have been no more risky as a strategy over the last 50+ years.

Contrary to what many believe (not necessarily saying you), it's not necessary to own TSM in order to largely remove idiosyncratic risk.
Generally the consensus is about 100 stocks covering the broad market to mitigate idiosyncratic risk. But we have 60-ish stocks concentrated in dividend payers. It isn’t ARKK but I think we can say the equity side it is riskier than TSM and 60% or whatever corporates on bond side is riskier than roughly the same
% in treasuries in BND.
Then why hasn't that risk manifested itself in 50+ years?
If risk doesn’t manifest itself in 50+ years does it not exist?
Certainly it may exist, but if the risk doesn't occur over a long enough period of time and across a wide variety of economic conditions, its presence becomes at least questionable.

But when it comes to idiosyncratic risk, we already know that the risk is very much reduced with only 30 stocks. For instance, observe how closely the Dow, with only 30 stocks, has followed the S&P 500 over time, though there has been divergence in recent years since large-caps that the Dow favors have done so well.

Clearly, the forum's namesake didn't have a problem with Wellington's approach as he held a big portion of his portfolio in VWELX.
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Re: Wellesley Gives TSM/TBM a Smackdown

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Re: Wellesley Gives TSM/TBM a Smackdown

Post by Charles Joseph »

AerialWombat wrote: Fri Jul 08, 2022 10:16 pm
Charles Joseph wrote: Fri Jul 08, 2022 4:09 pm I have what I know is likely a suboptimal strategy but my goal is simple: close the income gap between social security and expenses. As such, I view my stake in Wellesley as almost a partial annuity. I just leave it alone and in three years dividend reinvestment will get turned off and it will pay a fairly large chunk of my bills.

Drives people crazy around here, I know.

Good luck with your new strategy. It's a strong and sound one! Always appreciate your posts (and your amazing stories about your past - so much encouragement).
If you have enough invested in Wellesley to form an income bridge between expenses and what SS provides, from just the dividends, then I’d say you have won the game. All the more power to you!

I’m sure many here will quibble with this next statement, but such a strategy also comes with a generous side of inflation protection, too. Having the inflation protection AND income in one low-cost fund is pretty darn amazing, I think.

OK, commence hate mail. 8-)

I often feel unwelcome (that might be too strong of a word) here because of my real estate tilt and reliance on that income for FIRE. As such, your kind words are sincerely appreciated.

Best wishes on your upcoming retirement!
Thanks! Lots to be grateful for (I was homeless in 1986-87).
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Re: Wellesley Gives TSM/TBM a Smackdown

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Re: Wellesley Gives TSM/TBM a Smackdown

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AerialWombat wrote: Sat Jul 09, 2022 9:16 am
Charles Joseph wrote: Sat Jul 09, 2022 7:43 am Thanks! Lots to be grateful for (I was homeless in 1986-87).
We need a “Formerly Homeless Bogleheads Chapter”. :sharebeer
:sharebeer

We could meet in a car!!! :D :D
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Re: Wellesley Gives TSM/TBM a Smackdown

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jeffyscott wrote: Fri Jul 08, 2022 2:18 pm I wasn't aware that Wellington was managing capital cycles (or really that this fund exists). But after a brief look, it seems to be a kind of sector fund, or 3 sectors? I'm not interested in sector funds.

In the case of managed funds, I prefer that they not be overly restricted. It doesn't make sense to me to hire a fund manager, but then tell them to buy only precious metals and mining stocks with at least 25% of the money and utilities and telecom with (most of?) the rest.
Okay I can't get any traction for Capital Cycles, so how about International Core? What I'm trying to get at of course is whether the secret sauce is Wellington Management, or Wellington Management constrained by the specific mandates of Wellesley. And if it's Wellington management in general, why no enthusiasm for other Wellington-managed funds?
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Re: Wellesley Gives TSM/TBM a Smackdown

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tibbitts wrote: Mon Jul 11, 2022 1:16 pm
jeffyscott wrote: Fri Jul 08, 2022 2:18 pm I wasn't aware that Wellington was managing capital cycles (or really that this fund exists). But after a brief look, it seems to be a kind of sector fund, or 3 sectors? I'm not interested in sector funds.

In the case of managed funds, I prefer that they not be overly restricted. It doesn't make sense to me to hire a fund manager, but then tell them to buy only precious metals and mining stocks with at least 25% of the money and utilities and telecom with (most of?) the rest.
Okay I can't get any traction for Capital Cycles, so how about International Core? What I'm trying to get at of course is whether the secret sauce is Wellington Management, or Wellington Management constrained by the specific mandates of Wellesley. And if it's Wellington management in general, why no enthusiasm for other Wellington-managed funds?
Well, in my case, I like the management company and we have owned dividend growth for a long time. I formerly had Wellington fund in an employer account but dropped it when I rolled over.

I'd probably take Core international over an index fund, like total international. But were I looking to realign things in our international holdings by adding a new fund, it's more likely to be global Wellington or global Wellesley because I am inclined to increase the amount we have in asset allocation or balanced funds.

I feel similarly about T Rowe Price, I think the organization as a whole does a good job with managed funds. We had many of their funds in an employer account for a long time. But there, expenses are an issue and the only fund I plan to retain is capital appreciation (TRAIX), at least as long as the current manager is there. There are others that I might have kept had ERs been in the same range as vanguard funds that are managed by Wellington Asset Management.
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by Lawrence of Suburbia »

Anybody know if Wellesley supports the classic "4% Rule" withdrawals for 25-30 years? With those withdrawals keeping up with inflation?

I'm too ADD to try and operate one of those portfolio "what if" apps. I'd get the outcome wrong, almost certainly :annoyed

Thanks
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by petulant »

Lawrence of Suburbia wrote: Tue Aug 09, 2022 2:40 pm Anybody know if Wellesley supports the classic "4% Rule" withdrawals for 25-30 years? With those withdrawals keeping up with inflation?

I'm too ADD to try and operate one of those portfolio "what if" apps. I'd get the outcome wrong, almost certainly :annoyed

Thanks
The worst year for a retiree in a portfolio like Wellesley would be somewhere in the 1966-1968 range, followed by years in the early 1970s. Wellesley was started in 1970, so we can't test it in the worst retirement years. Nevertheless, the simba backtesting spreadsheet does have Wellesley data going back to 1970. For starting years 1970 to 1975, Wellesley would have supported the 4% rule (the worst safe withdrawal rate for 30 years starting 1972 was 4.82%).

Portfoliovisualizer has data going back to 1970 as well, but its portfolio simulation tool will only go back to 1986 for particular asset tickers. I did try the Monte Carlo simulation tool using all "historical returns" and "historical inflation," which should rely on all data going back to 1970, and found that the 10th percentile worst outcome still had a safe withdrawal rate of 5.03%, and the failure rate was 1.81%--that is, in 1.81% of 10,000 simulations, the portfolio was depleted before 30 years passed.

Further, note that these figures are not aftertax--either withdrawals would have to be larger than 4%, or the actual spending would be lower than 4% after paying taxes.

However, these figures all rely on historical data that may not be repeated in the future. At this point, it is concerning that an investor would be starting with low interest rates and high potential for bouts of inflation in the future. These are circumstances that may be reminiscent of 1966, likely the worst year for a retiree in the 20th century. A portfolio with Wellesley's asset allocation modeled as 35% large-cap stocks and 65% intermediate-term treasury bonds would NOT have supported 4% inflation-adjusted withdrawals for 30 years. The simba backtesting spreadsheet says that portfolio would have supported 3.68%. You would have to be relying on Wellesley's active management, value tilt, and credit risk exposure to make up the difference.

I think investors could do much worse than 4% withdrawals from Wellesley, but it's hard to give unqualified approval.
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Lawrence of Suburbia
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by Lawrence of Suburbia »

Wow ... thanks petulant! Exactly what I was seeking.
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Lawrence of Suburbia
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by Lawrence of Suburbia »

Okay ... so I think I've figured out how to operate Portfolio Visualizer. I am trying to see if Vanguard Wellesley has been able to sustain a 4% withdrawal rate, for a couple of decades, adjusted for inflation. I *think* I clicked all the right things in here (ADD be damned!):

https://www.portfoliovisualizer.com/bac ... sisResults

The results seem WAAAY too good to be true. I'm hoping for any correction you all might see, that I didn't.

Edit: OOPS. I can't figure out how to copy over the actual results of my 4% SWR Wellesley backtest! :?
Last edited by Lawrence of Suburbia on Tue Aug 09, 2022 10:09 pm, edited 1 time in total.
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anon_investor
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by anon_investor »

Lawrence of Suburbia wrote: Tue Aug 09, 2022 9:46 pm Okay ... so I think I've figured out how to operate Portfolio Visualizer. I am trying to see if Vanguard Wellesley has been able to sustain a 4% withdrawal rate, for a couple of decades, adjusted for inflation. I *think* I clicked all the right things in here (ADD be damned!):

https://www.portfoliovisualizer.com/bac ... sisResults

The results seem WAAAY too good to be true. I'm hoping for any correction you all might see, that I didn't.
The next 40 years may not be the same past 40 year bond bull market that likely has helped Wellesley's performance.
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jeffyscott
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Re: Wellesley Gives TSM/TBM a Smackdown

Post by jeffyscott »

Lawrence of Suburbia wrote: Tue Aug 09, 2022 9:46 pm Okay ... so I think I've figured out how to operate Portfolio Visualizer. I am trying to see if Vanguard Wellesley has been able to sustain a 4% withdrawal rate, for a couple of decades, adjusted for inflation. I *think* I clicked all the right things in here (ADD be damned!):

https://www.portfoliovisualizer.com/bac ... sisResults

The results seem WAAAY too good to be true. I'm hoping for any correction you all might see, that I didn't.

Edit: OOPS. I can't figure out how to copy over the actual results of my 4% SWR Wellesley backtest! :?
After you run the analysis, look for:
"Portfolio Analysis Results... Link PDF Excel"

The "link" one will give you the page that you can link to, with your results.
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