Tag Archives: investing

VWELX: This 86 Year Old Fund Is Still An Ideal Choice For Retirement

Summary Vanguard Wellington is the first balanced fund in the U.S. having launched in 1929. The fund has ranked in the top 10% of its Morningstar peer group over the past 5-, 10- and 15-year periods. The fund has a beta of 0.65 compared to the S&P 500 while outperforming the index over the long term. Wellington held up remarkably well during the 2000 and 2008 bear markets. In a world where there are literally thousands of funds and ETFs available that cover almost every niche, sector and style available, sometimes it’s the most tried and true investment vehicles that still remain the best choices. In the case of the Vanguard Wellington Fund (MUTF: VWELX ), we’re talking about literally the oldest balanced mutual fund in the country. Launched all the way back in 1929, Wellington looks to maintain a balance of roughly two-thirds of assets in conservative large cap stocks and one-third of assets in a mix of high quality bonds. It’s this type of asset allocation that makes for an ideal core holding in many retirement portfolios. Historically, Wellington has provided exactly what retirement investors should be seeking – above average returns with below average risk. With a current beta of 0.65, you’d expect the fund to return about two-thirds of the SPDR S&P 500 Trust ETF’s (NYSEARCA: SPY ) return but over the past 20+ years that hasn’t been the case. VWELX Total Return Price data by YCharts Looking at the past 2+ decades of history is especially appropriate because it takes into account both bull and bear market environments. The fund has performed about how one would expect – outperforming the S&P 500 in a down market but trailing in an up market. The fund’s risk minimization strategy proved especially effective during the Nasdaq bubble providing a relatively steady market performance given the economic environment. While the chart above doesn’t illustrate Wellington’s performance during the financial crisis particularly well but you can see below how well the fund held up. VWELX Total Return Price data by YCharts While the S&P 500 dropped around 55% from its 2007 peak, Wellington was down about 35%. That’s roughly what you’d expect considering the fund’s 60/40 allocation but the fund’s long term performance has been exceptional. Over the last 10 years, the overall performance of Wellington and the S&P 500 has been almost identical. Using a more apples to apples comparison, Wellington has also outperformed the Vanguard Balanced Index Fund (MUTF: VBINX ) – a fund with a 60/40 stock and bond allocation – during the same 10 year period. Morningstar drops Wellington into the Moderate Target Risk bucket. While the fund has returned 8.2% per year since the fund’s inception, it has consistently ranked at the top of its peer group. Wellington ranks in the top 6% of its peer group over the past 5-year and 10-year periods and ranks in the top 4% in the past 15-year period. It’s this type of risk-managed performance history that retirement investors should be seeking out. Retirement income investors will also appreciate the fund’s 2.43% yield. The fund has a few dividend champions among its equity holdings and the bond holdings are almost entirely high quality corporate and Treasury securities ensuring that the fund’s dividend is secure and reliable. Conclusion I’m a firm believer that in the case of most retirement investors, simpler is better. Sophisticated investors may feel comfortable building a more complex portfolio using stock, sector ETFs, etc. but for those who want an all-in-one long term holding that they can just establish and forget about, it’s hard to imagine someone doing much better than Vanguard Wellington. The combination of strong long term performance, risk minimization and low costs make this an ideal core retirement holding even if it’s not as exciting as some of the newer niche products hitting the market today.

My Investment Plan For 2016

Summary I’m overweight on domestic equity (non-REITs) and want to scale it down over the next year. Raising my international allocations looks attractive with policies that favor GDP growth in Europe. I have 22% in equity REITs and intend to bring that allocation higher. The most attractive equity REIT sector for me right now is the triple net lease REIT. My personal tax planning and preference for low expense ratios will push me to continue sending cash to domestic non-REIT equity. I may sell some of my domestic ETFs to offset that allocation. With 2015 nearing a close, I’m looking over my holdings and asking myself what I want my portfolio to look like for the next year. Followers will now I’m primarily a buy and hold investor. I will occasionally sell of shares to make an adjustment to the weights in my portfolio or to harvest a tax loss after a terrible investing decision, but for the most part my investing philosophy is to focus on buying quality and diversification at a reasonable price and then planning to hold that position for decades. I’ll make an exception when it comes to mREITs because there are market failures that indicate very clear opportunities to exit or opportunities to make a short term buy. My Portfolio Investors can see my precise allocations as of late November. For this piece I want to reference my allocation by sectors because that is a major area I expect to modify over the next year: (click to enlarge) Domestic or International? My allocations to the domestic market excluding REITs are over 50% of my portfolio value. That is too high for my taste going into 2016. With the Federal Reserve planning to raise interest rates and with the dollar having strengthened materially against the Euro, I’m expecting the growth rate of GDP in the United States to suffer and growth rates throughout Europe to pick up. Based on expectations of higher growth rates for the general economy there, I want to increase my positions in companies that perform most of their operations outside the United States. To be fair, my domestic equity allocation includes a substantial exposure to large cap multi-national companies that earn substantial revenues abroad. However, I would still like to increase the my exposure to that area. I’ll be looking at a combination of the Schwab International Small-Cap Equity ETF (NYSEARCA: SCHC ) and the Schwab International Equity ETF (NYSEARCA: SCHF ) to get that job done. Why those funds? Because my investments accounts are with Schwab so I get the benefit of free trading on those ETFs. That serves as the tie breaker. Without free trading on those ETFs I would find Vanguard’s funds for that allocation to be very comparable. Those two funds currently combine to be just 1.44% of my portfolio. I’d really like to increase that over the next year. The small-cap companies are particularly interesting to me because I expect them to have more localized exposure to their markets and to see a larger boost in sales. If we were to look at the financial statements of those companies in USD (United States Dollars) the stronger dollar would make their earnings and dividends look weaker. On the other hand, strength in exports should mean more economic activity including more people being hired which should cut down on unemployment. The values should look weaker in the short term, but I would expect better growth over the next several years. Therefore, I think there may be enough short term weakness to get my positions established without having to sell off any current investments to fund it. I’d rather fund the acquisitions by earning more money and sending it to my brokerage account. Equity REITs I work hard to get my assets into tax advantaged accounts. By making that a major part of my investing philosophy, I’m able to hold higher exposure to REITs without concerns about tax implications. While the Federal Reserve is aiming to increase short term rates, I don’t think they’ll be successful in raising rates as quickly as they would like to raise them. If the rates remain low the equity REITs should provide solid value to the portfolio from a combination of dividends and growth in dividends. Share prices may not move perfectly with the dividend growth, but with a holding period measured in decades, I’m just going to treat any low prices as sale prices. While I do a substantial portion of my investing with ETFs, I may be adding a couple individual names here. I started doing some research on Realty Income Corporation (NYSE: O ) a while ago and found the structure of their business was excellent. After that I took a quick look at National Retail Properties (NYSE: NNN ) and found their operations were also exceptional. I see the triple net lease REIT space as being very attractive because of the structural benefits it offers. The way leases are handled in the triple net lease system results in a better alignment of interests because it makes the tenant responsible for most costs. This is a win/win situation for the REIT and the tenant because it allows the property to be held in a more efficient format. However the REIT and the tenant split up the savings created by financing the property through the triple net lease REIT, it is still possible for both sides to profit from the deal. Looking at the combination of dividend yield and growth and AFFO (adjusted funds from operations) yield and growth makes me feel pretty comfortable with either of those REITs. I recently transferred more cash into my brokerage account and I’m looking to open a position in a triple net lease REIT. I’ll probably end up with shares in both of these triple net lease REITs, though I’ll be looking at a couple other options in the sector as well. The timing on my entry will largely be a function of price. Overweight on mREITs I’m already quite overweight on mREITs. I might still make a few short term plays in the sector and I’ve got my holdings set to reinvest dividends, but I don’t expect to be adding more long term positions in the space. I think 10% allocation is fairly heavy so 20% is definitely more than enough. Adding More Domestic Than I Want Remember how I said it was a big priority for me to focus on tax advantaged accounts? My wife’s retirement plan through her employer has very limited choices. After researching the funds available I found precisely one fund that I liked as a long term investment due to intelligent diversification and low costs. Unfortunately, the fund is purely domestic large capitalization. Since I aim to shove as much money as possible into tax advantaged accounts each year, I pick the lowest fee allocation with an intelligent exposure and then build around that using my other accounts. Fortunately, using a solo 401k I have a great deal of flexibility in my holdings. The most likely candidates for sales would be shares in the Schwab U.S. Broad Market ETF (NYSEARCA: SCHB ) or the Vanguard Total Stock Market ETF (NYSEARCA: VTI ) since these holdings are in accounts where I have full control. Conclusion Over the next year I want to increase my allocations to equity REITs and international ETFs. I’ll try to do it by adding new cash to the portfolio to keep buying, but I may need to liquidate some of my domestic allocations within my accounts to accommodate for buying more through my wife’s retirement accounts. I see the Federal Reserve policies offering Europe a path to higher GDP growth and lower unemployment, but I don’t see enough large rate increases in the near future to push me away from wanting to buy the triple net lease REIT sector.