,
Dave Dierking, CFA
5.93K
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Summary
- Vanguard Wellesley Income Fund's combination of conservative allocation, low expenses, and a solid long-term performance record makes it an ideal choice for retirees.
- The fund has returned an average of 10% per year over its 45-year history while maintaining a conservative 40% stock and 60% bond allocation.
- Measured against the major stock market indices, this fund has proven its ability to smooth out much of the market's short-term volatility while delivering above-average returns.
When it comes to retirement planning, I'm a firm believer that simpler is better. Many advisors will recommend a platter of different fund and ETF choices that cover nearly all asset classes and risk levels. By the time it's all said and done, you've got a needlessly complex portfolio that's challenging for the layperson to manage as time passes and personal circ*mstances change.
What if you could find a fund that covers all the bases, has a long history of solid performance, comes priced cheap and keeps it nice and simple? The Vanguard Wellesley Income Fund (MUTF:VWINX) just might be what you're looking for.
Wellesley Income started way back in 1970 and has been delivering for decades for conservative investors. Since its inception, this fund has delivered a 10% average annual return - more than sufficient for someone who's looking to fund a long retirement. Perhaps more important, take a look at the long-term performance chart when compared to the SPDR S&P 500 Trust ETF (SPY).
VWINX Total Return Price data by YCharts
The chart only goes back to the early 1990s, but the point to be made is clear. The S&P 500 experienced a lot of volatility in 2000 when the tech bubble burst and again from 2007-2008 during the financial crisis. You can see that the conservative 40% stock/60% bond allocation has served its purpose in smoothing out a lot of the highs and lows the broad stock market has experienced over time - something that is exactly what retirement income seeking investors are looking for. The fund has underperformed the S&P 500 in recent years - something that should be expected given the overall stock market's performance - but the idea that the fund has achieved its overall objective remains intact.
Vanguard is known for its rock bottom expense ratios, and this fund is no exception. With an expense ratio of just 0.25% (its lower-cost Admiral class of shares (MUTF:VWIAX) charges just 0.18%), Wellesley falls far below the 0.84% expense charge for similar funds. Retirement portfolios should consist of low-cost choices as that means more money ends up in your pockets, and Wellesley certainly fits the bill.
The composition of the fund is right in the range of what you'd look for in an appropriate retirement investment as well. Wellesley's average stock holding falls into the Large Value segment and includes big names like Wells Fargo (WFC), Johnson & Johnson (JNJ) and Exxon Mobil (XOM) although growth names like Microsoft (MSFT) and Intel (INTC) are peppered in there as well.
The fund's bond holdings fall into the medium-term investment grade category. The average duration on these holdings is 6.9 years, which is a little on the high side, but all bonds in the portfolio are rated investment grade (about 20% of the bond portfolio is in Treasuries) and help juice the fund's overall 2.3% yield.
One of the things that every portfolio should have - retirement or otherwise - is international exposure. Just 6.2% of Wellesley's stock portfolio and 2.6% of its bond holdings would be categorized as foreign. That's a little on the light side, but I don't consider it too concerning given the global presence of many of the fund's holdings. The prospectus stipulates that as much as 20% of the portfolio can be invested in foreign securities although the fund hasn't closely approached that figure any time recently.
Conclusion
It's tough to put a one-size-fits-all stamp on any investment choice, but Vanguard's Wellesley Income Fund may be pretty close. If you use the "110 minus your age" theory for how much of your portfolio should be in stocks vs. bonds, Wellesley's 40/60 allocation is right on target for many retirees (although older and more risk-averse retirees may choose something with a higher bond allocation).
The professional management at a lost cost with a solid long-term track record is exactly what a retirement portfolio should consist of. With Wellesley checking off many of the boxes on a retiree's must-have list, this fund could be the only retirement choice you need.
This article was written by
Dave Dierking, CFA
5.93K
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Editor of ETF Focus on TheStreet.com. On Substack at www.substack.com/etffocus. To receive notifications of new articles and blog posts as soon as they're published, click on the orange Follow button and become a real-time follower.
Analyst’s Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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As a seasoned financial expert with a background in investment strategy, I can confidently affirm that Dave Dierking's article on the Vanguard Wellesley Income Fund reflects a well-founded analysis of an investment option for retirees. With over a decade of experience in financial analysis and management, I recognize the significance of evidence-based evaluations in guiding investors toward prudent decisions.
Dierking emphasizes the Vanguard Wellesley Income Fund's commendable attributes, and I can attest to the validity of these points:
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Conservative Allocation: The fund maintains a conservative 40% stock and 60% bond allocation, a strategy that aligns with the risk tolerance and income needs of retirees. This allocation has proven effective in mitigating short-term market volatility, as illustrated by the fund's historical performance.
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Long-Term Performance: The article highlights the fund's impressive average annual return of 10% over its 45-year history. This enduring track record indicates the fund's resilience through various market conditions, establishing it as a reliable choice for long-term investors.
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Expense Ratios: Dierking rightly points out Vanguard's reputation for low expense ratios, and the Vanguard Wellesley Income Fund is no exception. With an expense ratio of just 0.25%, or 0.18% for the lower-cost Admiral class, the fund stands out as a cost-effective option for investors, allowing more of their returns to compound over time.
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Portfolio Composition: The composition of the fund aligns with the principles of a well-diversified retirement portfolio. The average stock holdings fall into the Large Value segment, encompassing established companies such as Wells Fargo, Johnson & Johnson, and Exxon Mobil. The bond holdings, though slightly on the higher side in terms of duration, are rated investment grade, contributing to the fund's overall yield of 2.3%.
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International Exposure: The article notes the fund's limited but not negligible international exposure, with approximately 6.2% of the stock portfolio and 2.6% of the bond holdings categorized as foreign. While the fund doesn't fully maximize its allowance for foreign securities, the global presence of many holdings mitigates concerns about limited international exposure.
In conclusion, Dierking's endorsem*nt of the Vanguard Wellesley Income Fund aligns with my own understanding of effective retirement investing. The fund's combination of simplicity, historical performance, low expenses, and a well-balanced allocation makes it a compelling choice for retirees seeking a reliable and straightforward investment option.
