VWIAX

[Sageegirl]

Have any of you older Bogleheads had any experience with VWIAX? (Wellesley Income Fund)

[peteyboy]

Yep. I hold a chunk of it. Better for tax-advantage accounts as it typically kicks out a hefty capital gains every year. I’m 57 but recently retired.

[tibbitts]

Have any of you older Bogleheads had any experience with VWIAX? (Wellesley Income Fund)

If you search on Wellesley you'll find countless threads and opinions. I used to own it but don't now. You should only use it in a deferred or Roth account. I just find it amusing how Wellesley and Wellington are so often referred to here as "The Wellesley" or "The Wellington"... always sound like hotels to me.

[John Z]

It's an excellent, in my opinion and own it, 40/60 conservative managed fund with a long history. Go to morningstar.com and enter the ticker and look at the Chart and Performance tabs and you'll get a picture of its short to long term performance. Short term (1-day, 1-week, 1-month, 3-month and YTD are in the bottom 2 quartiles of performance which is a good thing, you would be buying in low. Long term performance is consistently in the top 2 quartiles. Its 15 year performance ranks it number 3 out of 190 similar funds.

[Charles Joseph]

Short term (1-day, 1-week, 1-month, 3-month and YTD are in the bottom 2 quartiles of performance which is a good thing, you would be buying in low.

Or, manager risk is showing up. Matt Hand just recently took the helm with Michael Reckmeyer's retirement (equity side).

I sold Wellesley a few months ago when I finally surrendered to all index. I miss it, but for me (and me only) I had to pick sides in order to keep sane. Active? Or index?

[steadyosmosis]

Short term (1-day, 1-week, 1-month, 3-month and YTD are in the bottom 2 quartiles of performance which is a good thing, you would be buying in low.

Or, manager risk is showing up. Matt Hand just recently took the helm with Michael Reckmeyer's retirement (equity side).

I sold Wellesley a few months ago when I finally surrendered to all index. I miss it, but for me (and me only) I had to pick sides in order to keep sane. Active? Or index?

Isn't it nice to no longer need to care about manager movements?

[Charles Joseph]

Short term (1-day, 1-week, 1-month, 3-month and YTD are in the bottom 2 quartiles of performance which is a good thing, you would be buying in low.

Or, manager risk is showing up. Matt Hand just recently took the helm with Michael Reckmeyer's retirement (equity side).

I sold Wellesley a few months ago when I finally surrendered to all index. I miss it, but for me (and me only) I had to pick sides in order to keep sane. Active? Or index?

Isn't it nice to no longer need to care about manager movements?

Yes it is. It really is a relief. Dealing with active management was for me something between being a kid in a candy store, and entering a dark wood, with paths leading everywhere. Do I go here? Do I go there? I'll change to this. I'll switch to that. I'm just talking about me, now. Nobody else. I'm too old for that nonsense.

I am the poster boy for Rick Ferri's "4 Stages of the Index Investor's Education." Except I was stuck in "Complexity" for, like, four years.

Thanks for reminding me how nice it is to be done with it all.

[Kenkat]

Short term (1-day, 1-week, 1-month, 3-month and YTD are in the bottom 2 quartiles of performance which is a good thing, you would be buying in low.

Or, manager risk is showing up. Matt Hand just recently took the helm with Michael Reckmeyer's retirement (equity side).

I sold Wellesley a few months ago when I finally surrendered to all index. I miss it, but for me (and me only) I had to pick sides in order to keep sane. Active? Or index?

It tends to hold more value stocks which have not done well this year. Last year value stocks were great. Overall it’s a solid, low cost low turnover active fund.

[Artsdoctor]

I started using Wellesley several years ago mostly out of curiosity. It was not a major part of my portfolio. Over the years, it's grown and is now about 9-10% of my portfolio. It's mostly large-cap value and the bonds are mostly intermediate investment-grade corporates. It's not tax-efficient. Some people use it for a larger chunk of their portfolio but this 10% allocation is about right for me.

[AlwaysLearningMore]

Short term (1-day, 1-week, 1-month, 3-month and YTD are in the bottom 2 quartiles of performance which is a good thing, you would be buying in low.

Or, manager risk is showing up. Matt Hand just recently took the helm with Michael Reckmeyer's retirement (equity side).

I sold Wellesley a few months ago when I finally surrendered to all index. I miss it, but for me (and me only) I had to pick sides in order to keep sane. Active? Or index?

Some people like vanilla ice cream.
Some people like chocolate ice cream.
Some people like Neapolitan ice cream.

[Charles Joseph]

Short term (1-day, 1-week, 1-month, 3-month and YTD are in the bottom 2 quartiles of performance which is a good thing, you would be buying in low.

Or, manager risk is showing up. Matt Hand just recently took the helm with Michael Reckmeyer's retirement (equity side).

I sold Wellesley a few months ago when I finally surrendered to all index. I miss it, but for me (and me only) I had to pick sides in order to keep sane. Active? Or index?

Some people like vanilla ice cream.
Some people like chocolate ice cream.
Some people like Neapolitan ice cream.

Some people like manager risk.
Some people like sector risk.
Smart people just stick to market risk. That's plenty enough.

[Sandwich]

Have any of you older Bogleheads had any experience with VWIAX? (Wellesley Income Fund)

Loved this fund ... for a long time .. still have a bunch of "non-covered" shares

At this point in time, I want to simplify the portfolio as well as make it more "tax efficient"

I am taking advantage of recent TLH opportunities to exchange out of Wellesley and balance proceeds into index funds.

[Sageegirl]

Thanks for all your feedback on VWIAX. As I am 85 and wanted to keep things simple, I have been in it for quite a few years. Hasn't done well lately but I got tired of juggling the 3 fund portfolio and this just seemed easier for me. I appreciate all the comments.

[ScooterBob]

Thanks for all your feedback on VWIAX. As I am 85 and wanted to keep things simple, I have been in it for quite a few years. Hasn't done well lately but I got tired of juggling the 3 fund portfolio and this just seemed easier for me. I appreciate all the comments.

Almost in the same boat. Love this fund for the simplicity and performance.

Bob

[tibbitts]

Thanks for all your feedback on VWIAX. As I am 85 and wanted to keep things simple, I have been in it for quite a few years. Hasn't done well lately but I got tired of juggling the 3 fund portfolio and this just seemed easier for me. I appreciate all the comments.

It's pretty marginal as a 3-fund replacement, given the limited international exposure, and of course not a wide variation on stock/bond style. But not the worst choice for sure and probably appropriate at an older age.

[hudson]

Have any of you older Bogleheads had any experience with VWIAX? (Wellesley Income Fund)

Wellesley is a good choice. (Depending on your needs...but you already knew that!)
It's about 32% stocks and 68% bonds.
A good replacement would be total stock and total bond.

Even better to cover all bases (all Vanguard) would be
32% VTI (total stock) https://investor.vanguard.com/investmen ... rofile/vti
34% VIPSX (Intermediate TIPS) https://investor.vanguard.com/investmen ... ipix#price (I like SCHP better than VIPSX...lower expenses)
34% VFITX (Intermediate Treasury) https://investor.vanguard.com/investmen ... file/vfitx

[GaryA505]

Thanks for all your feedback on VWIAX. As I am 85 and wanted to keep things simple, I have been in it for quite a few years. Hasn't done well lately but I got tired of juggling the 3 fund portfolio and this just seemed easier for me. I appreciate all the comments.

I think Wellesley is a fine all-in-one holding and it is indeed simple, and the cap gains distributions don't matter if it's in a tax-deferred (IRA, 401K, etc.) or tax-free (Roth) account. Even in a taxable account, in lower income brackets the taxes are not an issue.

Of course you can see almost the exact same past result for a 35/65 mix of VIVAX (Vanguard Value Index) and VBILX (Vanguard Interm-Term Bond Index). You would get the pleasure of knowing you don't have manager risk but then you have to do you own balancing.

Like I have said before, Wellesley doesn't have any "secret sauce", check this out:
https://www.portfoliovisualizer.com/bac ... tion3_2=65

[AlwaysLearningMore]

Wellesley Income Fund (as the name implies) has what amounts to a mandate to provide the shareholders with routinely distributed income. Not sure if comparing it to a three fund portfolio is the best lens for examination.

[Houdini563]

VWIAX is my main retirement vehicle. It’s performance over the last 50 plus years is hard to fault. Only seven or eight down years. The dividend payout is significant. I roughly estimate that that I will get back via dividends almost exactly what I will be taking out at least this year. I know this may be a mute point in my situation where it all pre tax $.

Regarding dividends. I am still cloudy regarding their benefits with my situation where all the funds in VWIAX are pre tax. One question I have is will there be a benefit once VWIAX stock price returns to historical highs? In other words I am reinvesting all dividends back into VWIAX and taking monthly $ to live on. The shares I take will be replaced more or less via this dividend reinvestment. The transaction of distributing dividends reduces stock price. Once it’s stock price returns to its historical high is this when reinvesting the dividends becomes a benefit?

If not why are so many so excited about stocks that pay good amounts of dividends? What and when does a realized gain from this transaction occur?

[Sageegirl]

I use VWIAX much the same way you do. It is in my IRA and I use the capital gains distribution to fund my yearly RMD. Someone else commented that my earlier three fund portfolio was not a good comparison, and I didn't mean it to be. I just made the change to simplify my investing life and knew that if I passed away it would be much simpler for my 84 year old wife to manage as well.

[Artsdoctor]

I use VWIAX much the same way you do. It is in my IRA and I use the capital gains distribution to fund my yearly RMD. Someone else commented that my earlier three fund portfolio was not a good comparison, and I didn't mean it to be. I just made the change to simplify my investing life and knew that if I passed away it would be much simpler for my 84 year old wife to manage as well.

Agree fully. I'm also finding that simplicity becomes more and more important with time.

[tibbitts]

If not why are so many so excited about stocks that pay good amounts of dividends? What and when does a realized gain from this transaction occur?

You've been reading a different forum; not "so many" people here are excited about dividends, although there is an occasionally vocal minority who are. There are some people here somewhat excited about the value factor, which sometimes is accompanied by a slightly higher-than-market-average dividend yield, but not for the dividends themselves.

In a deferred or Roth account probably most of us mostly consider them a non-issue, since all withdrawals will either not be taxed or taxed as ordinary income.

[dbr]

VWIAX is my main retirement vehicle. It’s performance over the last 50 plus years is hard to fault. Only seven or eight down years. The dividend payout is significant. I roughly estimate that that I will get back via dividends almost exactly what I will be taking out at least this year. I know this may be a mute point in my situation where it all pre tax $.

Regarding dividends. I am still cloudy regarding their benefits with my situation where all the funds in VWIAX are pre tax. One question I have is will there be a benefit once VWIAX stock price returns to historical highs? In other words I am reinvesting all dividends back into VWIAX and taking monthly $ to live on. The shares I take will be replaced more or less via this dividend reinvestment. The transaction of distributing dividends reduces stock price. Once it’s stock price returns to its historical high is this when reinvesting the dividends becomes a benefit?

If not why are so many so excited about stocks that pay good amounts of dividends? What and when does a realized gain from this transaction occur?

It is very simple math to write

newvalue=oldvalue*(1+return)-withdrawals return being expressed as a ratio of gain to principal in decimal numbers.

Everything derives from return. Return in its place is defined to be the sum of dividends and capital increases. Different investments split returns differently over those two items, but it is irrelevant what that split is given equal returns. If the higher dividend investment also delivers a higher return that is a different story. It is left as an exercise for the reader to determine if this fund, those funds, or some other funds are going to deliver higher returns (or has delivered higher returns in the past).

As to the transaction, your question about realized gain is a tax question. A dividend is taxed as its own thing and there is no concept of realizing a gain when a dividend is received. The original investment has not yet transacted any sales so there is no realized gain. If hypothetically you were to compare the case of selling all your shares before or after a dividend, then the sale after the dividend would be at a hypothetically lower price and would realize less gain. To that you would have to add the tax on the dividend. Since dividends and long term realized capital gains are taxed at the same rate, selling before or after the dividend is a wash.

I refuse to comment ever again on the subject of why someone or anyone might be excited about dividends. It is a discussion carried on ad nauseum to such a degree the topic should probably be banned from the forum.

[John Z]

Totally agree, I don't think I've ever commented on anything about dividends (except for this post). Could we have a sub-forum for the dividend topic? Anytime the word dividend shows up in a post it could be automatically funneled to that sub-forum.

[tibbitts]

Totally agree, I don't think I've ever commented on anything about dividends (except for this post). Could we have a sub-forum for the dividend topic? Anytime the word dividend shows up in a post it could be automatically funneled to that sub-forum.

But then we'd need a forum for U.S. vs. ex-U.S. And pretty soon for "is my bank/brokerage secure?"

[Houdini563]

If not why are so many so excited about stocks that pay good amounts of dividends? What and when does a realized gain from this transaction occur?

You've been reading a different forum; not "so many" people here are excited about dividends, although there is an occasionally vocal minority who are. There are some people here somewhat excited about the value factor, which sometimes is accompanied by a slightly higher-than-market-average dividend yield, but not for the dividends themselves.

In a deferred or Roth account probably most of us mostly consider them a non-issue, since all withdrawals will either not be taxed or taxed as ordinary income.

I am still not “getting” it.

I am roughly estimating VWIAX will distribute $58,000 in dividends to me this year (which will be reinvested). This $58,000 no matter how I look at it provides zero value to me the day they are distributed and at no time into the future, correct? If the value of my holdings in VWIAX is $1,000,000 January 1 and I receive $58,000 in dividends during 2023 that $58,000 will not contribute a single dollar of additional growth to that $1,000,000 no matter the stock price, correct?

When I google articles regarding dividends predominantly they are described very positively. Certainly it’s rare to find any information that is NEGATIVE regarding dividends. Thus my confusion regarding the matter.

[tibbitts]

If not why are so many so excited about stocks that pay good amounts of dividends? What and when does a realized gain from this transaction occur?

You've been reading a different forum; not "so many" people here are excited about dividends, although there is an occasionally vocal minority who are. There are some people here somewhat excited about the value factor, which sometimes is accompanied by a slightly higher-than-market-average dividend yield, but not for the dividends themselves.

In a deferred or Roth account probably most of us mostly consider them a non-issue, since all withdrawals will either not be taxed or taxed as ordinary income.

I am still not “getting” it.

I am roughly estimating VWIAX will distribute $58,000 in dividends to me this year (which will be reinvested). This $58,000 no matter how I look at it provides zero value to me the day they are distributed and at no time into the future, correct? If the value of my holdings in VWIAX is $1,000,000 January 1 and I receive $58,000 in dividends during 2023 that $58,000 will not contribute a single dollar of additional growth to that $1,000,000 no matter the stock price, correct?

When I google articles regarding dividends predominantly they are described very positively. Certainly it’s rare to find any information that is NEGATIVE regarding dividends. Thus my confusion regarding the matter.

Although a gross oversimplification, roughly the amount of dividends from a dividend fund are in lieu of capital appreciation in a more growth oriented fund. You would have to sell shares in the growth fund to realize the income. Those sales might (or might not) be more favorably taxed, but to some extent your sales would be at times you select, vs. dividends being paid out at times the fund selects.

[Houdini563]

If not why are so many so excited about stocks that pay good amounts of dividends? What and when does a realized gain from this transaction occur?

You've been reading a different forum; not "so many" people here are excited about dividends, although there is an occasionally vocal minority who are. There are some people here somewhat excited about the value factor, which sometimes is accompanied by a slightly higher-than-market-average dividend yield, but not for the dividends themselves.

In a deferred or Roth account probably most of us mostly consider them a non-issue, since all withdrawals will either not be taxed or taxed as ordinary income.

I am still not “getting” it.

I am roughly estimating VWIAX will distribute $58,000 in dividends to me this year (which will be reinvested). This $58,000 no matter how I look at it provides zero value to me the day they are distributed and at no time into the future, correct? If the value of my holdings in VWIAX is $1,000,000 January 1 and I receive $58,000 in dividends during 2023 that $58,000 will not contribute a single dollar of additional growth to that $1,000,000 no matter the stock price, correct?

When I google articles regarding dividends predominantly they are described very positively. Certainly it’s rare to find any information that is NEGATIVE regarding dividends. Thus my confusion regarding the matter.

Although a gross oversimplification, roughly the amount of dividends from a dividend fund are in lieu of capital appreciation in a more growth oriented fund. You would have to sell shares in the growth fund to realize the income. Those sales might (or might not) be more favorably taxed, but to some extent your sales would be at times you select, vs. dividends being paid out at times the fund selects.

Let’s just concentrate on my VWIAX situation.

If the market value of my holdings in VWIAX is $1,000,000 January 1 and I receive $58,000 in dividends during 2023 that $58,000 will not contribute a single dollar of additional growth to that $1,000,000 no matter the stock price into the future, correct or am I missing something?

[tibbitts]

Let’s just concentrate on my VWIAX situation.

If the market value of my holdings in VWIAX is $1,000,000 January 1 and I receive $58,000 in dividends during 2023 that $58,000 will not contribute a single dollar of additional growth to that $1,000,000 no matter the stock price into the future, correct or am I missing something?

If you receive dividends vs. reinvesting them, no they won't contribute to growth. At least not in a positive way.

[MP123]

If the market value of my holdings in VWIAX is $1,000,000 January 1 and I receive $58,000 in dividends during 2023 that $58,000 will not contribute a single dollar of additional growth to that $1,000,000 no matter the stock price into the future, correct or am I missing something?

It would if you reinvested the $58k by buying more VWIAX. Then you would have $1,0058,000, which would throw off more dividends next year, which you could reinvest, and so on...

Or maybe I'm misunderstanding your misunderstanding?

[sycamore]

If the market value of my holdings in VWIAX is $1,000,000 January 1 and I receive $58,000 in dividends during 2023 that $58,000 will not contribute a single dollar of additional growth to that $1,000,000 no matter the stock price into the future, correct or am I missing something?

It would if you reinvested the $58k by buying more VWIAX. Then you would have $1,0058,000, which would throw off more dividends next year, which you could reinvest, and so on...

Or maybe I'm misunderstanding your misunderstanding?

To be picky, he wouldn't have 1,058,000 -- the price of the fund drops by the amount of the dividend.

If he reinvested, he'd have 1,000,000 in shares.
If he didn't reinvest, he'd have 942,000 in shares and 58,000 in cash.
In both cases, there's the tax liability on 58,000 in dividends to be paid.

[Houdini563]

Let’s just concentrate on my VWIAX situation.

If the market value of my holdings in VWIAX is $1,000,000 January 1 and I receive $58,000 in dividends during 2023 that $58,000 will not contribute a single dollar of additional growth to that $1,000,000 no matter the stock price into the future, correct or am I missing something?

If you receive dividends vs. reinvesting them, no they won't contribute to growth. At least not in a positive way.

This is what is so confusing. So many articles regarding dividends and they are spoken in such positive terms. Yet they in actuality contribute no dollar value whatsoever? The act of reinvesting long term has absolutely no ability to increase the value of my investment. Why then issue dividends? What is the point if no value is gained by the shareholders???

[Houdini563]

If the market value of my holdings in VWIAX is $1,000,000 January 1 and I receive $58,000 in dividends during 2023 that $58,000 will not contribute a single dollar of additional growth to that $1,000,000 no matter the stock price into the future, correct or am I missing something?

It would if you reinvested the $58k by buying more VWIAX. Then you would have $1,0058,000, which would throw off more dividends next year, which you could reinvest, and so on...

Or maybe I'm misunderstanding your misunderstanding?

To be picky, he wouldn't have 1,058,000 -- the price of the fund drops by the amount of the dividend.

If he reinvested, he'd have 1,000,000 in shares.
If he didn't reinvest, he'd have 942,000 in shares and 58,000 in cash.
In both cases, there's the tax liability on 58,000 in dividends to be paid.

That’s not being picky. That’s a big deal. The act of issuing and reinvesting dividends offers no value no matter what occurs with share price at no times into the future. Why doesn’t every article regarding dividends just say just that? “Dividends are a worthless accounting calculation that offers no value to the shareholder”. Instead dividends are presented as a big deal. Don’t get it.

[tibbitts]

That’s not being picky. That’s a big deal. The act of issuing and reinvesting dividends offers no value no matter what occurs with share price at no times into the future. Why doesn’t every article regarding dividends just say just that? “Dividends are a worthless accounting calculation that offers no value to the shareholder”. Instead dividends are presented as a big deal. Don’t get it.

Some people regard the type of company that pays some combination of higher-than-average dividends and possibly rising dividends as likely to have higher total returns going forward and/or lower drawdowns during difficult periods. So for some people the value isn't in the dividends themselves; it's in the other characteristics of companies that pay out those dividends. For those people, the dividends are more a way of identifying those companies.

[dbr]

That’s not being picky. That’s a big deal. The act of issuing and reinvesting dividends offers no value no matter what occurs with share price at no times into the future. Why doesn’t every article regarding dividends just say just that? “Dividends are a worthless accounting calculation that offers no value to the shareholder”. Instead dividends are presented as a big deal. Don’t get it.

OK I am going to violate my rule and add some reasons both good and bad someone might like dividends.

1. They think dividends are free money and the dividend investment grows as fast as the non-dividend investment while also paying dividends that the other investment does not. This is stupid and most investors who like dividends don't think this. Occasionally someone comes along that really does make this mistake.

2. A person might think dividends are a good screen for higher return or less risk. There is a grain of truth here in that dividend paying may be correlated with picking stocks on factors of value or quality and it really is true the return is a little higher and/or the risk is a little less. The issue at this point is emphasis on the "little." It may not matter enough to worry about.

3. Dividends may be a convenient way to just take withdrawals over time and a person picks an investment that matches what they want to take. There is nothing wrong with this though it might be more effective to not worry about the dividends and have more control over the issue by just taking dividends and selling to take what one wants.

4. Dividends serve as a kind of self limiting use of the asset meaning the investor believes the dividend payments are reasonable and make a logical set point for what is withdrawn and spent. In many cases this results in spending less than one might. This is certainly safe but seems to penalize the investor by living less well than he might. The opposite can happen where risk is taken to try to obtain too much by concentrating in a narrow selection of stocks and in stocks that are at risk.

5. Dividend taking is psychologically comfortable because a person never has to "sell shares" thus giving one the feeling that the investment is still "all there" and is providing income. As in 4. this is not irrational as a practical plan but is irrational as it does not really do a complete set of accounting involving return and withdrawals. The missing element is whether or not one takes account of share prices as well as number of shares.
There is a link to the traditional accounting of principal and income that is a comfortable point of view. With a reasonable selection of stocks this is practical.

6. There are lots of people who like dividends. They can explain various reasons why.

[MishkaWorries]

If the market value of my holdings in VWIAX is $1,000,000 January 1 and I receive $58,000 in dividends during 2023 that $58,000 will not contribute a single dollar of additional growth to that $1,000,000 no matter the stock price into the future, correct or am I missing something?

It would if you reinvested the $58k by buying more VWIAX. Then you would have $1,0058,000, which would throw off more dividends next year, which you could reinvest, and so on...

Or maybe I'm misunderstanding your misunderstanding?

To be picky, he wouldn't have 1,058,000 -- the price of the fund drops by the amount of the dividend.

If he reinvested, he'd have 1,000,000 in shares.
If he didn't reinvest, he'd have 942,000 in shares and 58,000 in cash.
In both cases, there's the tax liability on 58,000 in dividends to be paid.

That’s not being picky. That’s a big deal. The act of issuing and reinvesting dividends offers no value no matter what occurs with share price at no times into the future. Why doesn’t every article regarding dividends just say just that? “Dividends are a worthless accounting calculation that offers no value to the shareholder”. Instead dividends are presented as a big deal. Don’t get it.

Wellesley is about 65% bonds. Most of the dividends paid out would be interest paid on bonds held. Are we saying that dividends from a bind fund are worthless? Or are we just talking about the portion of dividends derived from dividends paid by the stocks held?

I'm so confused

[MishkaWorries]

If the market value of my holdings in VWIAX is $1,000,000 January 1 and I receive $58,000 in dividends during 2023 that $58,000 will not contribute a single dollar of additional growth to that $1,000,000 no matter the stock price into the future, correct or am I missing something?

It would if you reinvested the $58k by buying more VWIAX. Then you would have $1,0058,000, which would throw off more dividends next year, which you could reinvest, and so on...

Or maybe I'm misunderstanding your misunderstanding?

To be picky, he wouldn't have 1,058,000 -- the price of the fund drops by the amount of the dividend.

If he reinvested, he'd have 1,000,000 in shares.
If he didn't reinvest, he'd have 942,000 in shares and 58,000 in cash.
In both cases, there's the tax liability on 58,000 in dividends to be paid.

That’s not being picky. That’s a big deal. The act of issuing and reinvesting dividends offers no value no matter what occurs with share price at no times into the future. Why doesn’t every article regarding dividends just say just that? “Dividends are a worthless accounting calculation that offers no value to the shareholder”. Instead dividends are presented as a big deal. Don’t get it.

Wellesley is about 65% bonds. Most of the dividends paid out would be interest paid on bonds held. Are we saying that dividends from a bind fund are worthless? Or are we just talking about the portion of dividends derived from dividends paid by the stocks held?

I'm so confused

[tibbitts]

Wellesley is about 65% bonds. Most of the dividends paid out would be interest paid on bonds held. Are we saying that dividends from a bind fund are worthless? Or are we just talking about the portion of dividends derived from dividends paid by the stocks held?

I'm so confused

You're correct that the dividends the bond portion of the fund pays out are effectively interest. Balanced funds treat bond income as dividends. But you're still confusing the issue by referring to "growth" but then not saying what you're doing with the dividend payments.

[Harry Livermore]

I won't join the dividend debate here, just chiming in for the OP that we also have a fair amount of Wellesley in our portfolio- 24%-ish at the moment. I like the value tilt and am happy to seek a little alpha (some posters commented on the active management factor)
I also have a small amount of VG Dividend Growth Fund (7%), and the VG Short Term Treasury fund I hold is the managed one (13%)
The vast majority of the rest of our portfolio is VTSAX (we have some VFIAX and I have a small amount of individual stock holdings)
I should add a calculation in the spreadsheet that figures the percentages of index to active. I bet we are close to 50/50. Maybe 55% index, 45% active.
Cheers

[dbr]

Wellesley is about 65% bonds. Most of the dividends paid out would be interest paid on bonds held. Are we saying that dividends from a bind fund are worthless? Or are we just talking about the portion of dividends derived from dividends paid by the stocks held?

I'm so confused

Dividends are part of the return whether stocks or bonds. Dividends per se are certainly not worthless. A consideration is that the payment of a dividend forces you to make a choice what to do with it. If you reinvest the dividend then your assets will continue to grow in proportion to what fraction of the return in that period of time is carried by the dividend. If you don't reinvest the dividend in something in your portfolio, them you have made a withdrawal and your portfolio will not grow as much as the return delivered would result.

Generally most of the return over time from bonds is carried by the dividend. Stocks are more variable in this respect.

You may be confused by discussion regarding stocks that selecting stocks for the dividend paid does not by and large select for more return. There are other properties of stocks that may select for higher returns, though that is a long discussion.* That does not mean that the dividends paid by stocks that pay dividends or pay larger dividends are worthless. It just means more of the return is delivered by the dividend rather than by increases in stock price. In the case of bonds there is a wide range in returns and that range is fairly measured by the yield/interest rate that is offered.**

*An illustration of predicting stock returns from properties of stocks is this model:
https://en.wikipedia.org/wiki/Fama%E2%8 ... ctor_model
There are many different approaches to stock pricing and stock return. Another example that gives a flavor is this:
https://en.wikipedia.org/wiki/Dividend_discount_model
Another source is to just look at what Warren Buffett has done and good luck with being a new Warren Buffett.
You can also look at what the smart (maybe) people at Vanguard have decided what should be in a target retirement fund.

**Bond returns are related to the risk factors of credit and term risk. Corporate bonds have higher credit risk and Treasuries none. Duration measures term risk:
https://en.wikipedia.org/wiki/Bond_duration
You can also consider taking or avoiding inflation risk (see TIPS and I bonds).

[Harry Livermore]

I won't join the dividend debate here, just chiming in for the OP that we also have a fair amount of Wellesley in our portfolio- 24%-ish at the moment. I like the value tilt and am happy to seek a little alpha (some posters commented on the active management factor)
I also have a small amount of VG Dividend Growth Fund (7%), and the VG Short Term Treasury fund I hold is the managed one (13%)
The vast majority of the rest of our portfolio is VTSAX (we have some VFIAX and I have a small amount of individual stock holdings)
I should add a calculation in the spreadsheet that figures the percentages of index to active. I bet we are close to 50/50. Maybe 55% index, 45% active.
Cheers

OK, I was bored this morning, so I added a function in my spreadsheet to sum the amounts in passive versus active. Surprisingly, I'm more active than passive! 57.85% active, 42.15% passive. It will drift closer to 50/50 over the next 10 months as I continue to deploy the proceeds from our rental home sale into VTSAX. There may be other changes towards simplicity over the next couple of years that might ensure a majority of index into retirement. But I plan on keeping both Wellesley and the active STT (VFIRX) indefinitely.
Cheers

[HanSolo]

I use VWIAX much the same way you do. It is in my IRA and I use the capital gains distribution to fund my yearly RMD. Someone else commented that my earlier three fund portfolio was not a good comparison, and I didn't mean it to be. I just made the change to simplify my investing life and knew that if I passed away it would be much simpler for my 84 year old wife to manage as well.

Sounds fine to me. I index in taxable and use active funds in my IRA. Wellesley is one of my major IRA holdings.

To be picky, he wouldn't have 1,058,000 -- the price of the fund drops by the amount of the dividend.

If he reinvested, he'd have 1,000,000 in shares.
If he didn't reinvest, he'd have 942,000 in shares and 58,000 in cash.
In both cases, there's the tax liability on 58,000 in dividends to be paid.

That’s not being picky. That’s a big deal. The act of issuing and reinvesting dividends offers no value no matter what occurs with share price at no times into the future. Why doesn’t every article regarding dividends just say just that? “Dividends are a worthless accounting calculation that offers no value to the shareholder”. Instead dividends are presented as a big deal. Don’t get it.

Imagine you own 100% of a small company but don't work there (i.e., don't draw a salary). The general manager says, "we made a bunch of money that we're holding in the company treasury, we can keep it there or pay it to you as a dividend." Since you own the whole company, you're equally wealthy whether they pay it to you or not (other than tax implications). I'm not sure what "worthless" or "no value" means in this context, since the money is still worth something regardless of whether or not it's paid to you. In this kind of situation, there may be some owners who'd want it paid to them and some who wouldn't, and either outcome is fine, as long as it's what they wanted.

[retiredjg]

Have any of you older Bogleheads had any experience with VWIAX? (Wellesley Income Fund)

No experience yet, but I've been looking at Wellesley a lot lately. I'm considering simplifying my portfolio to a mix of Wellesley and Lifestrategy Moderate Growth, half and half.

I don't want the Lifestrategy alone because of the high percentage of international and the lack of a value tilt which I currently have. This mix would come close to what I currently have with fewer funds and little need to rebalance.

I don't want Wellesley alone because I don't want a 100% actively managed portfolio.

When I put the two portfolios into Portfolio Visualizer earlier this week, the 2 fund portfolio had a tiny bit more return with a little less risk and a tiny bit higher expense ratio than my current set up. Seems like a reasonable mix to me, but I'll cogitate on it a little longer.

[AlwaysLearningMore]

I use VWIAX much the same way you do. It is in my IRA and I use the capital gains distribution to fund my yearly RMD. Someone else commented that my earlier three fund portfolio was not a good comparison, and I didn't mean it to be. I just made the change to simplify my investing life and knew that if I passed away it would be much simpler for my 84 year old wife to manage as well.

Sounds fine to me. I index in taxable and use active funds in my IRA. Wellesley is one of my major IRA holdings.

To be picky, he wouldn't have 1,058,000 -- the price of the fund drops by the amount of the dividend.

If he reinvested, he'd have 1,000,000 in shares.
If he didn't reinvest, he'd have 942,000 in shares and 58,000 in cash.
In both cases, there's the tax liability on 58,000 in dividends to be paid.

That’s not being picky. That’s a big deal. The act of issuing and reinvesting dividends offers no value no matter what occurs with share price at no times into the future. Why doesn’t every article regarding dividends just say just that? “Dividends are a worthless accounting calculation that offers no value to the shareholder”. Instead dividends are presented as a big deal. Don’t get it.

Imagine you own 100% of a small company but don't work there (i.e., don't draw a salary). The general manager says, "we made a bunch of money that we're holding in the company treasury, we can keep it there or pay it to you as a dividend." Since you own the whole company, you're equally wealthy whether they pay it to you or not (other than tax implications). I'm not sure what "worthless" or "no value" means in this context, since the money is still worth something regardless of whether or not it's paid to you. In this kind of situation, there may be some owners who'd want it paid to them and some who wouldn't, and either outcome is fine, as long as it's what they wanted.

As history has shown, management is not always a wise steward of the money in their coffers. Cockamamie expansion plans, lavish offices etc. Theoretical equations don't take that kind of stuff into account.

[GaryA505]

Have any of you older Bogleheads had any experience with VWIAX? (Wellesley Income Fund)

No experience yet, but I've been looking at Wellesley a lot lately. I'm considering simplifying my portfolio to a mix of Wellesley and Lifestrategy Moderate Growth, half and half.

I don't want the Lifestrategy alone because of the high percentage of international and the lack of a value tilt which I currently have. This mix would come close to what I currently have with fewer funds and little need to rebalance.

I don't want Wellesley alone because I don't want a 100% actively managed portfolio.

When I put the two portfolios into Portfolio Visualizer earlier this week, the 2 fund portfolio had a tiny bit more return with a little less risk and a tiny bit higher expense ratio than my current set up. Seems like a reasonable mix to me, but I'll cogitate on it a little longer.

1/2 active, 1/2 index.
1/2 US-only, 1/2 global.

Works great if you can't decide.

I've been considering similar combos. I think there's merit in this sort of approach, as it may be simpler to have two funds in a 50/50 split than a 3-fund with weird percentages. Only in tax-deferred or tax-free accounts of course. Portfolio Visualizer Exposures tab can be used to get a rough idea of the overall allocation.

[retiredjg]

1/2 US-only, 1/2 global.

Actually, Wellesley does have a little international stock - about 9% of the stocks last I looked. But the combo averages to a number I could be happy with.That is one of the reasons I'm considering doing this.

[GaryA505]

Just adding something interesting here. I can't buy Wellington in my 401K, so Wellesley is useful there. I buy 50% Wellesley and 50% Total Stock (VTSAX).

[OverseasBH]

Let’s just concentrate on my VWIAX situation.

If the market value of my holdings in VWIAX is $1,000,000 January 1 and I receive $58,000 in dividends during 2023 that $58,000 will not contribute a single dollar of additional growth to that $1,000,000 no matter the stock price into the future, correct or am I missing something?

If on Jan. 1 your VWIAX is valued at $1m, the value of the fund should grow during the year to $1.058m to accommodate the dividends that have been accrued from the stocks and bonds it owns. When the dividends are paid by WI, your fund's value would decrease back to $1.0m. If you reinvested those dividends back into WI, its value goes back up to $1.058m. If you do not reinvest them, you have WI worth $1.0m and cash worth $0.58m. So the dividends have very much increased your personal wealth to a total of $1.058m and is a significant source of return for both stocks and bonds. With WI, as I recall it was a quarterly payer of dividends, so this will happen four times a year.

There is a lot of misconception here about dividends decreasing the value of your fund. Many forget that the fund will first increase in value by those dividends, which is why it later decreases by the same amount when they are taken out. I forgot if WI declares its bond dividends daily, monthly, or quarterly. If it is daily, then the declared dividend is also a liability essentially cancelling out the accrual of the asset and you will not see an increase in the fund's value for the bond dividends. But if it is a quarterly declarer of bond dividends, then the fund's NAV will also increase for the bond dividends, just like the stock dividends, as there is no offsetting liability without the declaration.

[Houdini563]

Let’s just concentrate on my VWIAX situation.

If the market value of my holdings in VWIAX is $1,000,000 January 1 and I receive $58,000 in dividends during 2023 that $58,000 will not contribute a single dollar of additional growth to that $1,000,000 no matter the stock price into the future, correct or am I missing something?

If on Jan. 1 your VWIAX is valued at $1m, the value of the fund should grow during the year to $1.058m to accommodate the dividends that have been accrued from the stocks and bonds it owns. When the dividends are paid by WI, your fund's value would decrease back to $1.0m. If you reinvested those dividends back into WI, its value goes back up to $1.058m. If you do not reinvest them, you have WI worth $1.0m and cash worth $0.58m. So the dividends have very much increased your personal wealth to a total of $1.058m and is a significant source of return for both stocks and bonds. With WI, as I recall it was a quarterly payer of dividends, so this will happen four times a year.

There is a lot of misconception here about dividends decreasing the value of your fund. Many forget that the fund will first increase in value by those dividends, which is why it later decreases by the same amount when they are taken out. I forgot if WI declares its bond dividends daily, monthly, or quarterly. If it is daily, then the declared dividend is also a liability essentially cancelling out the accrual of the asset and you will not see an increase in the fund's value for the bond dividends. But if it is a quarterly declarer of bond dividends, then the fund's NAV will also increase for the bond dividends, just like the stock dividends, as there is no offsetting liability without the declaration.

So now I am beyond confused. I thought it was settled that dividends do not provide any real benefit. This information turns all that on its head. I am now being told if the fund pays $58,000 in dividends my holdings increase by $58,000. Both scenarios cannot be correct.

If every dollar of dividends paid show up as an additional dollar in my account that is of course a benefit! THE ULTIMATE BENEFIT. However from what I am seeing so far I do not believe it works that way.

[dbr]

So now I am beyond confused. I thought it was settled that dividends do not provide any real benefit. This information turns all that on its head. I am now being told if the fund pays $58,000 in dividends my holdings increase by $58,000. Both scenarios cannot be correct.

What is settled is that sorting funds on the dividend yield does not predict a greater return. Some investments deliver a larger part of the return in dividends and less in share price increases that are in addition to dividends. Some investments can deliver the same return in capital appreciation and not in dividend. In the example above there was no capital appreciation after dividends and all the return was in dividends, obviously of great value. A different investment might have gained the same $58,000 by share price increases while paying no dividends. The returns would be the same and there would be no real benefit to prefer the first fund to the second.

For example in 2020-2021-2022 the high dividend fund VHYAX had a CAGR of 7.43% and a dividend income on $10k invested of $1028 while the total stock fund had CAGR of 7.94%, about the same, but only paid $512 in dividend income. During that time the share price of VTSMX went up more than the share price of VHYAX so that the total of share price increase and dividends reinvested gave about the same gain for either fund.

So, to repeat, the "not any real benefit" means that one cannot get higher returns by selecting on dividends, at least not to a significant degree. And in data where there might be a small effect for dividends to predict return, it appears that this is because there is a small correlation of dividends with size and value factors that might predict higher returns, at least in the Fama-French research those factors do and dividends apparently do not.