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Post by alvinthechipmunk on Jul 17, 2022 0:17:23 GMT
Just a bare-bones look, comparing short term, YTD performance.
PRWCX (closed) -13.18%
BRUFX. -10.62
DODBX. -9.38
FBALX. -16.79
SWOBX. -17.32 (But check that YIELD: 5.37.)
*We own those funds, at my house.
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Post by yogibearbull on Jul 17, 2022 0:54:39 GMT
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Post by alvinthechipmunk on Jul 17, 2022 1:38:03 GMT
OK, I see what you mean. But how do you "see" that? How are you able to tease that out of the data? Because it sounds like you've stumbled into something that's NOT been reported(?). yogibearbull *EDITED to add: ok, yes, distributions certainly DO include S/T and L/T capital gains as well as income. Is that the same as yield? |
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Post by yogibearbull on Jul 17, 2022 3:02:41 GMT
alvinthechipmunk, when you pointed out unusually high "yield" for SWOBX, I checked and it didn't make sense for what seemed a very ordinary fund-of-funds balanced fund. So, what is happening here is that while no fund will directly treat CGs as part of its stated "yield", that becomes OK when such is transmitted via the underlying funds. The IRS makes this pretense easy as it treats short-term CGs as ordinary income for taxes. There are various different presentations that funds make and for a true picture, just check Financial Highlights in semiannual/annual report. So, the Net Income for SWOBX shown in Semiannual 4/30/22, pg 9, is in the range of only 1.01-1.55% over the last 5 years (FY: Nov-Oct). So, the high "yield" that you noted must have included CGs. connect.rightprospectus.com/Schwab/TADF/808509863/SP?site=Funds There are some income-builder funds (CAIBX, TIBAX, etc) that do have high yields but that requires some extra effort and those aren't simple fund-of-funds.
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Post by alvinthechipmunk on Jul 17, 2022 4:54:12 GMT
alvinthechipmunk , when you pointed out unusually high "yield" for SWOBX, I checked and it didn't make sense for what seemed a very ordinary fund-of-funds balanced fund. So, what is happening here is that while no fund will directly treat CGs as part of its stated "yield", that becomes OK when such is transmitted via the underlying funds. The IRS makes this pretense easy as it treats short-term CGs as ordinary income for taxes. There are various different presentations that funds make and for a true picture, just check Financial Highlights in semiannual/annual report. So, the Net Income for SWOBX shown in Semiannual 4/30/22, pg 9, is in the range of only 1.01-1.55% over the last 5 years (FY: Nov-Oct). So, the high "yield" that you noted must have included CGs. connect.rightprospectus.com/Schwab/TADF/808509863/SP?site=Funds There are some income-builder funds (CAIBX, TIBAX, etc) that do have high yields but that requires some extra effort and those aren't simple fund-of-funds. Thanks a lot. Simple and clear!  |
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Post by racqueteer on Jul 17, 2022 11:58:30 GMT
Interestingly, one I still track is BUFBX at -3.55% ytd! In fairness, though, now virtually all equity. Heavy energy, healthcare, discretionary, and tech. Right place(s), high conviction. So not truly 'balanced' any longer, but considering the high equity stake, has done EXTREMELY well in an overall negative environment.
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Post by Deleted on Jul 17, 2022 15:34:14 GMT
"There are some income-builder funds (CAIBX, TIBAX, etc) that do have high yields but that requires some extra effort and those aren't simple fund-of-funds."
I am holding the CEF TBLD (similar to TIBAX). TR YTD -19.08% (Price) and -17.44% (NAV). Last year I began buying new issue term CEFs in small amounts.
Edit to add: I bought PDO as a new term issue, but sold it last year, not for any performance issues, but rather to limit the number of positions in my portfolio.
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Post by yogibearbull on Jul 17, 2022 15:45:05 GMT
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Post by Mustang on Jul 18, 2022 0:04:10 GMT
Just a bare-bones look, comparing short term, YTD performance. PRWCX (closed) -13.18% BRUFX. -10.62 DODBX. -9.38 FBALX. -16.79 SWOBX. -17.32 (But check that YIELD: 5.37.) * We own those funds, at my house. I'm too lazy to look up their asset allocations. Here are three others:
ABALX (60/40) -13.2% VWENX (60/40) -15.2% VWIAX (40/60) -9.5%
Half Wellington and half Wellesley (basically a 50/50 asset allocation ) is -12.5%. This is what I expect to happen. The greater the proportion of stocks the greater the volatility. SP500 is down 18.3%. I expect balanced funds to mitigate volatility. SWOBX doesn't seem to be doing that. That is good for the accumulation phase but bad for withdrawing. Maybe that means its a good opportunity to buy a little. That is what I'm doing with Wellington.
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Post by mozart522 on Jul 18, 2022 15:16:29 GMT
Mustang, How do balanced funds mitigate volatility? Wellesley is -9.5. VHYAX and VFIDX in a 40/60 combination are down about 10. Don't see any real volatility difference. The difference is visual, and for that, you are giving up the ability to sell bonds alone when the equity portion is down and vice-versa.
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Post by racqueteer on Jul 18, 2022 17:34:27 GMT
Mustang , How do balanced funds mitigate volatility? Wellesley is -9.5. VHYAX and VFIDX in a 40/60 combination are down about 10. Don't see any real volatility difference. The difference is visual, and for that, you are giving up the ability to sell bonds alone when the equity portion is down and vice-versa. He's not saying that you can't put together your own version of a 'balanced' fund and do as well with the same volatility. He's saying that a balanced fund will be less volatile than, say, VOO.
Beyond THAT, the whole idea behind using a balanced fund is to NOT have to fiddle with your portfolio in reaction to the market (or at all). If you're going to be active, that's a different thing entirely, and lends itself to a variety of approaches. Too, a situation where something is CLEARLY going to be an issue (bonds) would be something an active investor would obviously bail on.
Otoh, if I want to be a passive investor, a balanced fund, which matches my risk tolerance, is an obvious solution to the problem.
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Post by mozart522 on Jul 18, 2022 18:50:43 GMT
Mustang , How do balanced funds mitigate volatility? Wellesley is -9.5. VHYAX and VFIDX in a 40/60 combination are down about 10. Don't see any real volatility difference. The difference is visual, and for that, you are giving up the ability to sell bonds alone when the equity portion is down and vice-versa. He's not saying that you can't put together your own version of a 'balanced' fund and do as well with the same volatility. He's saying that a balanced fund will be less volatile than, say, VOO.
Beyond THAT, the whole idea behind using a balanced fund is to NOT have to fiddle with your portfolio in reaction to the market (or at all). If you're going to be active, that's a different thing entirely, and lends itself to a variety of approaches. Too, a situation where something is CLEARLY going to be an issue (bonds) would be something an active investor would obviously bail on.
Otoh, if I want to be a passive investor, a balanced fund, which matches my risk tolerance, is an obvious solution to the problem.
Well then, I guess another way of saying "balanced funds mitigate volatility" would be to say "balanced funds mitigate returns"  |
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Post by racqueteer on Jul 18, 2022 20:25:07 GMT
He's not saying that you can't put together your own version of a 'balanced' fund and do as well with the same volatility. He's saying that a balanced fund will be less volatile than, say, VOO.
Beyond THAT, the whole idea behind using a balanced fund is to NOT have to fiddle with your portfolio in reaction to the market (or at all). If you're going to be active, that's a different thing entirely, and lends itself to a variety of approaches. Too, a situation where something is CLEARLY going to be an issue (bonds) would be something an active investor would obviously bail on.
Otoh, if I want to be a passive investor, a balanced fund, which matches my risk tolerance, is an obvious solution to the problem.
Well then, I guess another way of saying "balanced funds mitigate volatility" would be to say "balanced funds mitigate returns" That’s certainly half of it, but of course the OTHER half is that it mitigates LOSSES; volatility cuts both ways! Cup half full or half empty. 🤔 |
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Post by Mustang on Jul 18, 2022 23:03:24 GMT
Well then, I guess another way of saying "balanced funds mitigate volatility" would be to say "balanced funds mitigate returns" That’s certainly half of it, but of course the OTHER half is that it mitigates LOSSES; volatility cuts both ways! Cup half full or half empty. 🤔 Volatility can be a good thing if you are in the accumulation phase. It allows the investor to buy low. But, it can be a disaster in the withdrawal phase because it forces the investor to sell when the market is down. Diversification (funds with a negative correlation) reduces volatility; reduces the risk of being forced to sell when the market is down. Traditionally that has been stocks and bonds. When one is down the other is up.
YTD returns are an example. S&P500 is down 18%. In general a 60/40 fund is down 13% and a 40/60 fund is down 9.5%. Another example is 2008. S&P500 was down 37%. A 60/40 fund was down 22% and a 40/60 fund 9.8%. 2022 is a bit unusual because stock and bond movement is more similar than in the past. 100% stock portfolios have greater upside returns but as this data shows they also have greater downside losses.
Most investors transition from an accumulation asset allocation to a withdrawal asset allocation when they approach retirement. Young investors might be 80-100% stock. When getting ready to retire they might drop down to 40/60. Modern Portfolio Theory talks about a minimum risk portfolio. The minimum risk asset allocation changes over time depending on market conditions. For the period 1970-2019 the minimum risk portfolio was 33% stock and 67% bonds. That is probably why Vanguard Wellesley Income Fund is so popular among retirees.
If the retiree can tolerate more risk because they have other stable income sources then portfolios that maximize returns for the amount of risk (the line between them is called the efficient frontier) is 50/50, 60/40 and 80/20. The withdrawal method also plays a part. Dynamic withdrawal methods protect the portfolio. Fixed withdrawal methods protect the retirees income. MRDs are a dynamic withdrawal method. I intend to use that for withdrawals from my traditional IRA which has an asset allocation of 60/40. For more stable income I intend to use the 4% rule for withdrawals from my taxable accounts which will have an asset allocation of 50/50.
High returns are not everything. Having a retirement portfolio last is actually more important.
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Post by retiredat48 on Jul 19, 2022 4:58:42 GMT
How do balanced funds mitigate volatility? Wellesley is -9.5. VHYAX and VFIDX in a 40/60 combination are down about 10. Don't see any real volatility difference. The difference is visual, and for that, you are giving up the ability to sell bonds alone when the equity portion is down and vice-versa. You don't see much difference NOW, because bonds had their worst H1 performance ever, in terms of a swift decline, almost mirroring stocks. So the 40/60 and 60/40 balanced funds seem identical in this time period. R48 |
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Post by mozart522 on Jul 19, 2022 12:11:07 GMT
How do balanced funds mitigate volatility? Wellesley is -9.5. VHYAX and VFIDX in a 40/60 combination are down about 10. Don't see any real volatility difference. The difference is visual, and for that, you are giving up the ability to sell bonds alone when the equity portion is down and vice-versa. You don't see much difference NOW, because bonds had their worst H1 performance ever, in terms of a swift decline, almost mirroring stocks. So the 40/60 and 60/40 balanced funds seem identical in this time period. R48 Huh? 40/60 Wellesley is down -9.5%, 60/40 Wellington is down -15%, that is a 50% difference which is directly in line with its 50% more equities than Wellesley. My post was about the comparing Wellesley to its parts. I see no real advantage to holding Wellesley over its parts. I believe balanced funds can be popular because they often give the illusion of being less volatile than their parts. However, a buy and hold investor could do a lot worse than W&W or W and VBINX. |
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Post by Deleted on Jul 19, 2022 12:40:01 GMT
When balanced funds have attractive yields, I want to own them. Their day of basking in the sun may come again unless the FED weakens.
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Post by Deleted on Jul 19, 2022 12:40:05 GMT
What I got using Portfolio Visualizer is
40/60 VWINX/VWELX = -13.69 ytd
60/40 VWINX/VWELX = -12.47 ytd
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Post by racqueteer on Jul 19, 2022 12:58:55 GMT
My post was about the comparing Wellesley to its parts. I see no real advantage to holding Wellesley over its parts. I believe balanced funds can be popular because they often give the illusion of being less volatile than their parts. However, a buy and hold investor could do a lot worse than W&W or W and VBINX. Again, though, I think you may be misstating the purpose of balanced funds. You're right in that you can construct your own fairly effectively, and that gives you more flexibility if you want to actively meddle with it. Without that, what is the advantage of building your own 'fund'?
A 'balanced fund' represents, imo, a PORTFOLIO which will do 'ok', doesn't require personal interaction, and is less volatile, thus easier to live with, than the equity component of your proposed dyi combination of funds. If you make it yourself, and your risk tolerance is low, then you're going to look at that equity component and its volatility will become onerous at some point. There is then likely to be an impulse to fiddle with things; which is almost certainly going to be disadvantageous for the majority of investors. They are a simple solution to a complex problem and encourage investors to just 'let it ride' by (seemingly) lowering risk to acceptable levels. Over time, that has proven to be beneficial for most investors.
Fwiw, though a proponent of balanced funds, the weak 'bond' market led me to seriously reduce bond and balanced funds. I'm an active investor, however, with my basic expenses covered through pension and ss. I can go wherever and with any allocation breakdown I desire.
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Post by Chahta on Jul 19, 2022 12:59:06 GMT
What I got using Portfolio Visualizer is 40/60 VWINX/VWELX = -13.69 ytd 60/40 VWINX/VWELX = -12.47 ytd I track 50/50 in Portfolio Manager. It is -12.86% YTD. |
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Post by mozart522 on Jul 19, 2022 14:19:19 GMT
racqueteer, "Again, though, I think you may be misstating the purpose of balanced funds. You're right in that you can construct your own fairly effectively, and that gives you more flexibility if you want to actively meddle with it. Without that, what is the advantage of building your own 'fund'?" That would depend on some things. So let's make some assumptions. One is retired and using a single balanced fund. Outside of what you call meddling when he takes a withdrawal for expenses, he has to sell both stocks and bonds regardless of market conditions. When he takes his RMDs, same same. Historically, when stocks are down 20%, bonds would be up or at least flat and you would want to take your withdrawals from bonds. I was responding specifically to Mustang. In his case, a balanced fund like Wellesley in a taxable account is far less tax efficient than indexed ETFs that make up its benchmark. Very large CGs are common and combined with dividend distribution are often well over an investor's desired withdrawal. ETFs and index funds do not generally have CGs. By the way, I'm not suggesting building a "fund", unless all one wants is one or two balanced fund surrogates. I would rather build a portfolio with each part serving some purpose. A balanced fund might work perfectly well in a diversified portfolio I know a couple of people who have held just Wellesley for over 25 years. They are not complaining. But they also know they may have done marginally better had they "meddled" a little. They were holding in TIRAs however. I'm not against balanced funds. But in my opinion, their benefits, as compared to their parts, are simplicity and psychological. In the withdrawal phase, it seems like they have to be leaving some money on the table. And of course, if one's portfolio contained other funds and investments, then separating the parts might make no difference at all.
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Post by mozart522 on Jul 19, 2022 14:30:37 GMT
racqueteer, "A 'balanced fund' represents, imo, a PORTFOLIO which will do 'ok', doesn't require personal interaction, and is less volatile, thus easier to live with, than the equity component of your proposed dyi combination of funds. If you make it yourself, and your risk tolerance is low, then you're going to look at that equity component and its volatility will become onerous at some point. There is then likely to be an impulse to fiddle with things; which is almost certainly going to be disadvantageous for the majority of investors. They are a simple solution to a complex problem and encourage investors to just 'let it ride' by (seemingly) lowering risk to acceptable levels. Over time, that has proven to be beneficial for most investors" Yup, like I said, purely psychological and behavioral. But so is all investing. I don't agree that the majority of investors, at least the ones on this board, can't handle two funds instead of one if they are dedicated to being passive. Everyone needs to take withdrawals, two funds help with that.
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Post by mozart522 on Jul 19, 2022 14:38:43 GMT
racqueteer, "A 'balanced fund' represents, imo, a PORTFOLIO which will do 'ok', doesn't require personal interaction, and is less volatile, thus easier to live with, than the equity component of your proposed dyi combination of funds." No, it isn't less volatile. The stock side is more volatile and the bond side is less volatile. Overall, the "portfolio" volatility should be the same. All things being equal, and without assuming if an investor can't stay the course, the advantage during withdrawal stage seems undeniable. .
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Post by racqueteer on Jul 19, 2022 16:51:25 GMT
Mozart,
I largely agree with the points you make, and indeed, I agree that one largely chooses hybrid funds for the sake of simplicity and psychological reasons. They are a simple solution for folks who do not want or have to mess with their holdings. While it's true that costs and tax implications may favor using separate indexes, one has to be aware that selling 'bonds' only, results in a change in allocation which, presumably, leads to still MORE 'adjustments' being required. NOT as simple.
I also have to note that in your response:
racqueteer,
"A 'balanced fund' represents, imo, a PORTFOLIO which will do 'ok', doesn't require personal interaction, and is less volatile, thus easier to live with, than the equity component of your proposed dyi combination of funds."
No, it isn't less volatile.
You immediately then repeated what I said:
The stock side is more volatile.
I never compared the PORTFOLIOS; I compared the balanced fund to the EQUITY (stock) side of the diy portfolio. So we're saying the same thing.
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Post by mozart522 on Jul 19, 2022 17:36:23 GMT
racqueteer, OK I misunderstood your comment above. Selling bonds only in a stock downturn does require an extra step, of perhaps buying equities to rebalance if one desires to. Historically however, stocks go up more than bonds and are not down in most years so many years one might be selling equities and buying bonds. As you likely know, studies don't show a great advantage to rebalancing anyway.
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Post by Mustang on Jul 19, 2022 17:47:29 GMT
It is less volatile for those who don't trade. And, I don't understand the dislike for taxable accounts. I have said this before, the biggest reason to not pay taxes now is if you believe you will be in a lower tax bracket later or you are going to let your estate handle it. I kind of understand why traders don't like short-term capital gains. Constant trading means the investor ST capital gains are taxed at the ordinary income rates.
Distributions from a traditional IRAs are taxed as ordinary income.
If assets are held over a year any gains are taxed as LT capital gains. Qualified dividends are taxed as LT capital gains. LT capital gains are taxed at a much lower rate than ordinary income.
Here are the married filing jointly tax brackets for 2022:
Capital Gains: Income Bracket Tax rate Ordinary Income: Income Bracket Tax rate
$0 to $83,350 0% $0 to $20,550 10%
$83,350 to $517,200 15% $20,550 to $83,550 12%
$83,550 to $178,150 15%
If, after all deductions and credits, our taxable income from a pension, traditional IRAs and other ordinary income is $100,000 then we will pay $12,083 in federal taxes. If the taxable income is all LT capital gains then I would pay $2,498.
Its actually worst than that for some people. My wife will not be a qualified widow. We have no children living at home. She will have to file as single. Here are the tax brackets for a single filer.
Capital Gains: Income Bracket Tax rate Ordinary Income: Income Bracket Tax rate
$0 to $41,675 0% $0 to $10,275 0%
$41,676 to $459,750 15% $10,275 to $41,775 12%
$41,775 to $89,075 22%
$89,076 to $170,050 24%
If all goes well her income will not go down when I am gone. If her taxable income is $100,000 of ordinary income then her taxes would be $17,836. If it is all LT capital gains then it would be $8,749.
LT capital gain taxes are significantly lower than dividends or ST capital gains and pushing taxes into the future just means overall taxes increase. This is a simple example and with pensions, social security, deduction, and credits taxes are more complicated than this but pushing taxes into the future does not always lower overall taxes. It can increase them because all of the income from our traditional IRAs are taxed at ordinary income and most of the income from Wellington and Wellesley in our taxable investments will be taxed as LT capital gains.
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Post by mozart522 on Jul 19, 2022 20:20:31 GMT
Mustang , "And, I don't understand the dislike for taxable accounts." Four reasons: 1.) The fund decides your distributions, not you. Sometimes you may want all that income from distributions and sometimes you may not. But you get taxed on it anyway. And if you don't want it all and reinvest it, you will eventually get taxed on the distributions from the reinvestment and its earnings. 2.) What you didn't point out in your tax comments above is that almost all the dividends distributed are ordinary income, not qualified. That does make it tax inefficient compared to a fund where one can primarily take capital gains. 3.) A fund like Wellesley that in a normal interest rate environment might be expected to have a 4-5% yield is best suited in a Roth IRA that can be used to mitigate current taxes or a TIRA that one plans to pass to others after death. 4.) you forgot state income and dividend taxes.
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Post by Mustang on Jul 19, 2022 21:29:31 GMT
1. You are correct it is possible to have distributions that you don't need. At this time I'm reinvesting my RMD, all distributions and adding a little on top. The reinvestment increases the number of shares owned. To me that is a good thing because an investment portfolio is not a savings account. It is made up of shares. There are no dollars until the investor sells. And there is no double taxation. The only thing that is taxed later is the difference between the purchase price of the new shares and its sales price.
2. Yes, almost all dividends are ordinary dividends that are taxed as ordinary income. I did mention "other ordinary income" but I didn't specifically mention ordinary dividends. Thanks for pointing that out. Someone may have misunderstood.
3. Could you please explain why its best suited in a Roth IRA. Deposits to a Roth are not tax deductible that is why distributions are not taxed. How can contributions or distributions mitigate current taxes?
4. Didn't forget state taxes. With 50 different states it's a bit beyond this discussion.
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Post by mozart522 on Jul 19, 2022 22:24:33 GMT
1. You are correct it is possible to have distributions that you don't need. At this time I'm reinvesting my RMD, all distributions and adding a little on top. The reinvestment increases the number of shares owned. To me that is a good thing because an investment portfolio is not a savings account. It is made up of shares. There are no dollars until the investor sells. And there is no double taxation. The only thing that is taxed later is the difference between the purchase price of the new shares and its sales price.
And all the distributions of both purchased shares and more new shares those distibutions may produce.2. Yes, almost all dividends are ordinary dividends that are taxed as ordinary income. I did mention "other ordinary income" but I didn't specifically mention ordinary dividends. Thanks for pointing that out. Someone may have misunderstood. 3. Could you please explain why its best suited in a Roth IRA. Deposits to a Roth are not tax deductible that is why distributions are not taxed. How can contributions or distributions mitigate current taxes? We were discussing those holding this in retirement. If someone had a Roth that would be an ideal place to hold Wellesley because it never gets taxed at any rate. I didn't specifically say the distributions, but if your withdrawals and distributions from other sources would put you into a higher tax bracket, one can substitute roth distribution to keep you below. There is a pretty big jump from 12% to 22%. Roths may also be better for heirs also as even though it must be drained in 10 years, it won't push the heir into a higher bracket. I continue to convert each year up to my next bracket and it also lowers my RMDs. 4. Didn't forget state taxes. With 50 different states it's a bit beyond this discussion. True, but still a thing.
I do believe both Wellesley and Wellington are fine funds and I have held both in the past. You are in good shape holding both and DCAing into them now is also smart. You seem to have a well thought out plan that is woirking well for you. I'm not knocking that. I left when my income fund stopped producing enough income. Now, I'd probably use different funds to make a balanced fund like SCHD and PIMIX |
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Post by johntaylor on Aug 15, 2022 12:28:59 GMT
TR Cap Apprec down 4 percent YTD
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