Author Topic: Moderate (balanced) allocation Funds  (Read 3598 times)

brad3184

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Moderate (balanced) allocation Funds
« on: February 06, 2016, 08:51:18 AM »
My Allocation is presently all equities but as I draw closer to FIRE (I'm 31, likely between ages 40-42) I'm looking to be as passive as possible in my investments.  (Rental property likely have a property manager, Investments I don't even want to have to rebalance or think about much).  That said, my question:

I really like what I see out of some of the balanced/moderate/allocation funds that are reasonable on costs & do a good job managing risk.  I know how most on this forum feel about costs/expense ratios.  I'm leaning toward VWELX for the entirety of my portfolio as I draw near FIRE and then throughout FIRE.  This fund (and others like it though I'm heavily leaning toward this fund due to low cost and incredibly long track record) will help just like any Asset Allocation fund to reduce volatility in down times relative to the overall market and reduce "sequence of return risk."  At 0.26% Exp Ratio and no fees to get in or out - thoughts on using this as a sole holding in FIRE?  No decisions on how much domestic,intl, bonds...this fund drives all that.

Curious on thoughts.
« Last Edit: February 06, 2016, 08:53:22 AM by brad3184 »

Another Reader

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Re: Moderate (balanced) allocation Funds
« Reply #1 on: February 06, 2016, 09:14:50 AM »
You will find a lot of people over at early-retirement.org that use Wellington and Wellesley.  I have Wellington in a retirement account.   I prefer a little common sense active management over blind indexing, especially when it comes to bonds, and I think these folks have a good track record.  Especially for the price.

Woody Viet

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Re: Moderate (balanced) allocation Funds
« Reply #2 on: February 06, 2016, 10:21:22 AM »
What kind of SWR are you aiming for in the financial part of your assets? If you're at or under 3% you might want to consider buying an all equities fund with a similar philosophy to Wellington. You could then reliably draw the dividends without ever depleting your capital. This requires the dividends to be sufficient to meet your income needs, hence my question above.

Aside from that I would imagine VWELX is probably a sound choice. However you will need to keep an eye on management and ensure that they stick to investment principles that have seen the fund run so well in the past.

Also, you mention sequence of return risk. Are you planning to slowly build up this portfolio over the next ten years? If that's the case then your sequence of return risk should be greatly reduced. It only becomes a major problem if you do all of your buying in an expensive/over-priced market
« Last Edit: February 06, 2016, 10:23:46 AM by Woody Viet »

Tyler

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Re: Moderate (balanced) allocation Funds
« Reply #3 on: February 06, 2016, 10:34:58 AM »
Wellington and Wellesley are both very nice funds.  I often recommend them to people who just aren't comfortable managing their investments for themselves. 

I also appreciate how they have been around for a very long time, which allows you to study their long-term track records. (click to enlarge -- I didn't want to hog the page).

Wellington



Wellesley



Basically, VWELX has more stocks and a little more growth (and volatility), while VWINX focuses more on steady income and has worked a little better retirement. 

BTW, it's not too difficult to replicate their performance with a handful of index funds with even lower fees.  But if you prefer a truly hands-off approach, IMHO both are well-managed and are perfectly good choices. 

brad3184

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Re: Moderate (balanced) allocation Funds
« Reply #4 on: February 06, 2016, 11:03:15 AM »
Thanks for the replies - a couple of follow up items:

*I simply meant Sequence of Return risk in retirement as I draw probably 4% (though as I look back in these funds - even if I were to FIRE in 2008 I could likely sustainably do a 5% w/d rate

*I also tend toward an actively managed mutual fund like this. Do we really think we could replicate the performance of VWELX by simply going with a 50/50 -60/40 - 70/30 regularly rebalanced set of Index Funds?  Yes you likely shave 15-20 BPS off your cost but do we really believe we could replicate this by using simple index funds & rebalancing?

>My thought is that they have a wonderfully long track record of doing better than just rebalancing index funds.  Can anyone show me anything to the contrary? Part of my reasoning is not only is it SIMPLE in FIRE to have my retirement funds in here that I"m drawing off, but it in fact would perform better than a passively managed (rebalanced by me) index fund approach.  Thoughts?

Kaspian

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Re: Moderate (balanced) allocation Funds
« Reply #5 on: February 06, 2016, 11:24:28 AM »
I think it worth noting here that oil and energy make up a HUGE portion of the S&P 500.  If oil rockets up, then so theoretically should the S&P.  (Or, it will be at least bolstered by it.)   Oil is therefore automatically incorporated in my portfolio as a percentage of the S&P500 index fund.

Tyler

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Re: Moderate (balanced) allocation Funds
« Reply #6 on: February 06, 2016, 11:39:15 AM »
My thought is that they have a wonderfully long track record of doing better than just rebalancing index funds.  Can anyone show me anything to the contrary? Part of my reasoning is not only is it SIMPLE in FIRE to have my retirement funds in here that I"m drawing off, but it in fact would perform better than a passively managed (rebalanced by me) index fund approach.  Thoughts?

There are lots of different passive asset allocations.  Here's a collection for comparison.  Actively managed portfolios do better than some of the passive options and worse than others, and the ultimate choice often comes down to personal preference and individual needs.

brad3184

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Re: Moderate (balanced) allocation Funds
« Reply #7 on: February 06, 2016, 11:46:15 AM »
My thought is that they have a wonderfully long track record of doing better than just rebalancing index funds.  Can anyone show me anything to the contrary? Part of my reasoning is not only is it SIMPLE in FIRE to have my retirement funds in here that I"m drawing off, but it in fact would perform better than a passively managed (rebalanced by me) index fund approach.  Thoughts?

There are lots of different passive asset allocations.  Here's a collection for comparison.  Actively managed portfolios do better than some of the passive options and worse than others, and the ultimate choice often comes down to personal preference and individual needs.


Great Link - thank you - I'd not seen this before (relatively new to this forum).  Very interesting the type of portfolios that produce the highest sustainable Withdrawal Rates over Long FIRE Periods

tj

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Re: Moderate (balanced) allocation Funds
« Reply #8 on: February 06, 2016, 03:18:09 PM »
Wellington is certainly a reasonable choice, but might as well use the Admiral Shares class.

For my retirement acccounts, I use VEIRX (essentially the stock portion of wellington), because the management fee is actually cheaper than the equivalent index ETF, which by definition has to be a bit more rigid in it's holdings. i'm indexing in my taxable account but I like the idea of using cost-efficients mangers such as Wellington to allow myself to be even less hands-on. It's certainly a better idea than using an investment manager who charges you 50bps to put you into index funds

MustacheAndaHalf

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Re: Moderate (balanced) allocation Funds
« Reply #9 on: February 06, 2016, 06:23:12 PM »
Kaspian - Your post seems more relevant to the thread about oil investing.

If you want some ideas to try instead of an actively managed bond fund, these are all available at Vanguard:
* municipal bonds in your state.  If you have a high tax state like CA or NY, this might help with taxes.  But it also focuses your bonds near where you work, and could concentrate your risk.
* diversified municipal bonds.  Especially with something like Vanguard Tax-Exempt Bond fund, this can be reasonable.  It's exempt from Federal US taxes, and diversifies across states.
* Certificates of Deposit (CDs).  If you're afraid of interest rates, there's CDs paying 2.00% (as of this weekend).  Once you start the CD, you earn the listed rate of return even if rates drop.  If rates rise enough, you can take a penalty and reinvest.  Tax treatment is usually worse, though.
* You could buy US treasury bonds through Vanguard.  These need no diversification - they are backed by the full faith and credit of the US government.  Unfortunately in January the 5-year notes fell 0.50%, so they're not as good a deal today as they were a month ago.

Oh, and yes I know about treasurydirect.gov, where you can also buy treasuries.  But I hate the interface, I hate the virtual keyboard, and I hate their 2-factor security.  If you like it, more power to you.

Kaspian

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Re: Moderate (balanced) allocation Funds
« Reply #10 on: February 08, 2016, 08:18:20 AM »
Kaspian - Your post seems more relevant to the thread about oil investing.


Yes, indeed--somehow replied in the wrong thread, sorry 'bout that!