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Post by Mustang on Oct 14, 2021 20:15:00 GMT
When talking about funds "buy and hold" doesn't mean no trading. It just means investors are letting the fund managers, along with a team of analysts and sophisticated computer programs, do the stock and bond trading for them. Like Wellington did last year, the fund managers decide if the time is right for a higher proportion of growth stocks. Moving from Value to Blend really helped Wellington's total return. Yes, I am aware that people are now buying and selling funds as if they were stocks. For the gamblers it might be fun and they have the protection of owning dozens of companies instead of just one or two. But I don't want to play and I can see the potential for it to be counter productive. I might be selling a fund just as the fund's manager positions it to take off. Of course if you are playing in indexes that is unlikely to happen. Being held to the indexes limits flexibility.
PERCENTAGE RANK
YTD 1 yr 3 yr 5 yr 10 yr 15 yr VBIAX 56 63 13 13 14 11 VWENX 16 30 15 13 8 6
It seems to me that the managed fund is doing pretty good.
P.S. Another one of the 7 is Wellesley Income.
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hondo
Commander
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Post by hondo on Oct 14, 2021 21:17:38 GMT
Mustang, I think that in a tax-deferred account, VWENX will do better. In a taxable account, VBIAX does better. Just another point of view.
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Post by steelpony10 on Oct 14, 2021 23:18:36 GMT
Mustang , FD1000 , Chahta , bf22 , rhythmmethod , richardsok , Traders, spend down, whatever., how do you think 7-10% distributing CEF’s perform in all scenarios you mention? I’ve seen them outperformed in up markets probably by about 2% a year because of the lack of a growth element. That’s why we back our investment up with VTI and 2 growth indexes allowing our portfolio the possibility to grow overall. In the 3 of 10 down years we still get that 7-10% distribution and excess to DCA for future possible growth. As far as trading that always seemed like market timing to me, sorry. As a buy and holder it seems like more of a random event method sorta like poker without the ability to bluff favorable results to help fund what for most is a 15-20 year retirement. So overall this is 80% of our portfolio with 20% in munis and cash. I’d like someone to point out any long term flaws in this capital preservation strategy. Don't confuse trading, allocation, diversification, preservation, high distributions VS performance Suppose now you have 2 choices 1) Fund X pays zero distributions and will make 10%(this is TR) average annually in the next 10 years 2) Fund Y pays 7% distributions and will makes 8%(this is TR) average annually in the next 10 years. Which one is better? BTW, it doesn't matter if you take 2% or 6% withdrawal annually from the above choices. If volatility doesn't bother Pony, which looks like it doesn't, then performance matters more. Sure, when you have enough money, you will make it, regardless, but why high distribution give you more comfort? ============= I agree about trading, unless you have a proven record, in most cases don't do it. When I talk about trading, there is a big difference between, daily trading to weekly or monthly(or longer) trading. ============= Can you tell me what is wrong with buy and hold the SP500 for 40 years? I know a neighbor that sold his business for 20 million in early 90" and invested at 90/10 Munis/LC stocks. Of course, he will make it on $150K per year expenses, but he could do better. On the first question, besides the obvious, I don’t know the performance will be like that. With question #2. I planned for the worse case scenario, one spouse ends up in LTC and the other has to exist outside of that. Maybe the spouse that all of a sudden gets the whole world dumped on them. With my parents I got the world dumped on me after following someone else’s parameters. Along with a wife, bills, kids and a job it wasn’t a fun time. High income so far has given us a 60% portfolio value cushion and it’s growing. It’s breathing room, lots I hope. So I don’t feel using CEF income to supplement SS to excess is a big deal. Spending down based on the 3 unknowns or any planning based on the 3 unknowns is out. I’ll take the 7-10% bird in hand but I understand that greater treasure lies in TR so I have that also. I don’t know where it is or when I’ll find it that’s all. Index funds seem to be the top of that heap, not OEF’s, trading, gambling, juggling etc. All in on an S&P index is great for 40 years. Similar to what Buffet recommends. That’s what a majority should do, TR. Makes the most money, most volatile, no brainer, great to spend down etc. I wish I would have invested more in MSFT and AAPL in 1988. If I only knew… I’m working partially towards that with VTI and we have the muni and cash going now. The above paragraph tells you why I don’t do it like that totally. I have no trust in markets to provide for me in retirement, in my opinion a short time, like monthly automated cash flow 2 times my current needs.
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Post by richardsok on Oct 15, 2021 1:11:52 GMT
Assume medium-level bad luck. Your rich neighbor takes his $20million; invests $2 million in stocks and has terrible luck. He's averaging only 5%/year TR during the greatest bull market in history. That's $100,000 per year. He puts the rest, $18,000,000, into munis back in 1990. Being very conservative, say he's getting 4% per year. That's an added $720,000 per year, minimally taxed. He's living on a total of $820,000/yr -- not $150k.
We might argue all day about what other tactics he might have followed, but the guy is already a grand slam winner. He might logically conclude there's no incentive for him to take ANY chances... not even relatively prudent ones.
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bf22
Commander
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Post by bf22 on Oct 15, 2021 5:26:26 GMT
As they say back home (CH), "the first $20M are the hardest".
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Post by Mustang on Oct 15, 2021 16:19:15 GMT
Assume medium-level bad luck. Your rich neighbor takes his $20million; invests $2 million in stocks and has terrible luck. He's averaging only 5%/year TR during the greatest bull market in history. That's $100,000 per year. He puts the rest, $18,000,000, into munis back in 1990. Being very conservative, say he's getting 4% per year. That's an added $720,000 per year, minimally taxed. He's living on a total of $820,000/yr -- not $150k. We might argue all day about what other tactics he might have followed, but the guy is already a grand slam winner. He might logically conclude there's no incentive for him to take ANY chances... not even relatively prudent ones.
If you bring it back a little closer to my level $1.8M will get you $20,700 per year. A little risk is necessary. There are little things that can be done that make a big difference. Bengen discovered that market crashes were not the biggest risk to a retirement portfolio. Inflation was. One of the worst times in history to retire was 1968. (1966 was the worst.) I used Bengen's 4% rule for a 30 year retirement starting in 1968 having only one fund, Wellington. It ran out of money after 25 years. Retirees tend to spend less as they grow older. Research says is 1% less per year in their 60s, 2% less per year in their 70s, and 1% less per year in their 80s.
A lot of financial advisors say that 4% is too high because of today's low yields. A better initial withdrawal is 3% or even 2%. Unless the retiree was able to save a lot of money that might be a starvation income.
But reducing the initial withdrawal isn't the only way to mitigate the risk of running out of money. Reducing the annual inflation adjustment is another. Reducing the annual increase to one point below inflation (11% instead of 12% during the double digit inflation years) not only made Wellington last five more years but it had an ending balance of almost $300,000 (starting with $500,000 in 1968). This is one of the worst case scenarios.
Other ways is a two fund approach such as Wellington and Wellesley in equal proportions and withdrawing from the one that has the highest EOY balance and/or having a cash reserve and withdrawing from it if both funds suffer losses. The only time that has happened two years in a row was 1973 and 1974. Wellington lost 11,8% and 17.7%. Wellesley lost 3.5% and 6.5%. Even without the cash reserve just taking withdrawals from Wellesley allowed Wellington to recover in three years thanks to a very strong recovery in 1975 and 1976. In 2008 Wellington lost 22.3%, Wellesley 9.8%. Taking from Wellesley instead of Wellington allowed it to recover by 2010 with the 2011 withdrawal coming from it.
I don't see the sense in being afraid of risk. Use some simple tools to manage it.
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Post by saratoga on Oct 15, 2021 17:03:08 GMT
I plan to use rmd from my TIAA account as a stable source of supplementary income. With TREA 50%, TRAD 30%, stock funds 20%, its account value should remain fairly stable or grow modestly nominally. RMD from this source together with pension and SS should be enough to finance my first 10 years of retirement. Meanwhile, I will continue to be invested aggressively in my other investment accounts (75%-85% equity).
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Post by chang on Oct 16, 2021 2:06:33 GMT
What's the over-riding reason you don't go to your stated minimum (20% equity) tomorrow.....considering that 100% ST bonds would allow you to sleep plenty easily and you've already won the game? You'd sleep plenty easily, but only if it were in the rear-view mirror and done, rather than something you had to convince yourself to do tomorrow? Missing the non-monetary aspects of a game you've won....the casino aspect, excitement? Not really sure you've won? I assume if your net worth was double what it is, it wouldn't make any difference, since you've already won. Just trying to understand your apparent reluctance. Why I don't go from 55% to 20% tomorrow? 1. Big CG hit, I don't want to take. I would rather spread that out. 2. Burkean tendencies - I prefer to do things gently and watch what happens. 3. I never said I planned to go to 20%; I said it's unlikely I would ever go below that. In fact, 40% is looking like a sweetish-spot to settle into, and then I can maneuver a little from there. Fortunately I held pat this week, and it was a good week. In fact, October-January is probably not — historically speaking — the right time to shed equity. So I may wait until next year, especially if it means booking some gains.
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Post by jongaltiii on Oct 16, 2021 2:17:59 GMT
I found this Twitter thread to be a worthwhile read. It's on Return Stacking. Adding Risk in the Search for Return.
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Post by Mustang on Oct 16, 2021 3:04:08 GMT
I don't have 2015 at my finger tips but in 2016 Wellesley made 8.1% and Wellington made 11.1%. Actually over the last 5 years Wellesley averaged 7.8% and Wellington 12.3%. Going back 15 years Wellesley averaged 7.2% and Wellington 8.7%. Yes, a balanced fund has more risk than a 100% bond portfolio when looking at a single year but retirement isn't a single year. Historical research (1926-2017)by Wade Pfau when updating the Trinity study showed that a 100% bond portfolio has only a 44% probability of lasting 30 years and only a 28% probability of lasting 35 years with a 4% initial withdrawal increased for inflation.
Returns are not the only variable in the equation. Inflation actually plays a bigger role than returns. In his original paper, Bengen pointed out that the worst time to retire wasn't 1929. It was 1966. The 1998 Trinity study pointed out that with a 5% initial withdrawal 17 or the 18 portfolio failures occurred during the high inflation years. Bengen in an interview a couple of years ago said with low inflation rates the initial withdrawal could be 5.25 to 5.5%. Unfortunately, I don't see inflation staying low.
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Post by chang on Oct 16, 2021 3:27:01 GMT
I don't see inflation staying low either. And I don't really know of any liquid investment that will help to manage the ravages of inflation other than stock. (I have a hard time believing in commodities and PMs. My recent foray into gold was a short-lived failure.)
There's a lot to be said for Wellesley and Wellington, although with sufficiently large amounts to invest I have always found better separate stock and bond funds. Nevertheless I do own some Wellesley in my VG IRA.
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Post by Mustang on Oct 16, 2021 10:55:58 GMT
I don't see inflation staying low either. And I don't really know of any liquid investment that will help to manage the ravages of inflation other than stock. (I have a hard time believing in commodities and PMs. My recent foray into gold was a short-lived failure.) There's a lot to be said for Wellesley and Wellington, although with sufficiently large amounts to invest I have always found better separate stock and bond funds. Nevertheless I do own some Wellesley in my VG IRA. I agree and I'm not trying to sell Wellington or Wellesley. There are better performing funds out there. Its just that I've owned them a very long time and they are good enough that its not worth changing to the latest hot performer (Wellington is in the top 6% of moderate-allocations funds last 15 years and Wellesley is in the top 4% of conservative-allocation funds over same period.) That is pretty good long term performance. But their heavy value orientation (especially Wellesley's) has held them back recently. 3-year performance put them in the 15 and 32 percentiles. They are two of the three funds I intend to carry into retirement. I am greatly simplifying things so that my wife can manage them later.
Still all of the studies I've read had separate equity and bond sleeves and I believe you can get better performance if bond yields were higher. In Bengen's 1994 study both the 75% equity test and 50% equity test successfully made a 30-year payout when starting in 1968. My test of Wellington (roughly 60% equity) ended at 25 years. Wellington was very successful when the retirement started in 1971. Wellesley even more so. Starting with the same beginning balance and taking the same withdrawals Wellesley had a little more than twice the ending balance of Wellington in 2000.
The results were reversed starting retirement in 1990 and ending it in 2019. Wellington's ending balance was 44% higher.
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Post by Chahta on Oct 16, 2021 11:25:08 GMT
chang : "I don't see inflation staying low either." I don't either. That seems to make the case for the Fed raising rates. More bond blood bath.
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Post by uncleharley on Oct 16, 2021 12:21:50 GMT
chang : "I don't see inflation staying low either." I don't either. That seems to make the case for the Fed raising rates. More bond blood bath. That makes 3 or more. EDIT: If we reach a consensus, should I change my mind??? lol
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Post by richardsok on Oct 16, 2021 16:27:21 GMT
richardsok , You can reduce the size of url's by going to tiny url.com [which has been very helpful to many of us IMHO].... Live Long and Prosper.... Noted. Taped url.com on edge of my monitor. See if I can remember it when needed. TY.
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Post by steelpony10 on Oct 16, 2021 19:55:20 GMT
I don't see inflation staying low either. And I don't really know of any liquid investment that will help to manage the ravages of inflation other than stock. (I have a hard time believing in commodities and PMs. My recent foray into gold was a short-lived failure.) There's a lot to be said for Wellesley and Wellington, although with sufficiently large amounts to invest I have always found better separate stock and bond funds. Nevertheless I do own some Wellesley in my VG IRA. Mustang , hondo , steelpony10 , richardsok , bf22 , saratoga , chang , jongaltiii , Chahta , uncleharley , Ha. Ha. So you’re all stuck between a rock and a hard place. Wait until you see what actually unfolds and be more flexible. There’s an easy answer everyone ignores when equities and traditional bonds fail.
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Post by Chahta on Oct 16, 2021 20:04:49 GMT
I don't see inflation staying low either. And I don't really know of any liquid investment that will help to manage the ravages of inflation other than stock. (I have a hard time believing in commodities and PMs. My recent foray into gold was a short-lived failure.) There's a lot to be said for Wellesley and Wellington, although with sufficiently large amounts to invest I have always found better separate stock and bond funds. Nevertheless I do own some Wellesley in my VG IRA. Mustang , hondo , steelpony10 , richardsok , bf22 , saratoga , chang , jongaltiii , Chahta , uncleharley , Ha. Ha. So you’re all stuck between a rock and a hard place. Wait until you see what actually unfolds and be more flexible. There’s an easy answer everyone ignores when equities and traditional bonds fail. Is there any time CEFs fail? 😊
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Post by steelpony10 on Oct 16, 2021 20:40:52 GMT
Mustang , hondo , steelpony10 , richardsok , bf22 , saratoga , chang , jongaltiii , Chahta , uncleharley , Ha. Ha. So you’re all stuck between a rock and a hard place. Wait until you see what actually unfolds and be more flexible. There’s an easy answer everyone ignores when equities and traditional bonds fail. Is there any time CEFs fail? 😊 You picking on me? Lol. Tell everyone their missing a part for an all weather portfolio. At least a big reserve, oops they’re all in all the time. You’re talking to a guy who doesn’t know what risk means but trapped probably would be part of it. This is where diversifying, allocation and inflexibility gets amateurs. I had to bite the bullet when my parents were in their 80’s and thank God I did. I found the key to the realm. I’ve invested in them for my parents since the late 90’s. You see the pattern since 1968? How would you even attempt to cover 1968-1982, 1999-2010? We may be due for one of those because 1982-1999, and 2010-? are long periods in between. Look even farther back and you’ll find the same pattern. So as far as failure that income carried them from 1999- 2010 and growth stocks and a muni did the rest during good times.So if you mean failure to provide sure income in excess to their needs when the trap sprung the answer is no. If you’re a spend down investor you’re screwed or living on Ramen and Tang during your Golden Years. I never found another way out.
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Post by chang on Oct 16, 2021 21:02:01 GMT
Mustang , hondo , steelpony10 , richardsok , bf22 , saratoga , chang , jongaltiii , Chahta , uncleharley , Ha. Ha. So you’re all stuck between a rock and a hard place. Wait until you see what actually unfolds and be more flexible. There’s an easy answer everyone ignores when equities and traditional bonds fail. Is there any time CEFs fail? 😊 There was a Dreman-Claymore dividend income CEF … can’t recall the ticker … went to zero in 2008. Failed.
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Post by Mustang on Oct 16, 2021 21:34:08 GMT
Is there any time CEFs fail? 😊 You picking on me? Lol. Tell everyone their missing a part for an all weather portfolio. At least a big reserve, oops they’re all in all the time. You’re talking to a guy who doesn’t know what risk means but trapped probably would be part of it. This is where diversifying, allocation and inflexibility gets amateurs. I had to bite the bullet when my parents were in their 80’s and thank God I did. I found the key to the realm. I’ve invested in them for my parents since the late 90’s. You see the pattern since 1968? How would you even attempt to cover 1968-1982, 1999-2010? We may be due for one of those because 1982-1999, and 2010-? are long periods in between. Look even farther back and you’ll find the same pattern. So as far as failure that income carried them from 1999- 2010 and growth stocks and a muni did the rest during good times. So if you mean failure to provide sure income in excess to their needs when the trap sprung the answer is no. If you’re a spend down investor you’re screwed or living on Ramen and Tang during your Golden Years. I never found another way out. I'm very glad you have been successful since the late 90's. I wish everyone could be successful. But my opinion of the last 20 years or so is if someone didn't make money they were wearing a blindfold with their hands tied behind their back.
I agree that a correction is coming. That is why I'm setting up distributions anticipating the worst case scenario. I also have a mechanism for checking performance and raising withdrawals should the worst case scenario not materialize. But there is always a chance of something not seen before. That is why we have annuities and reverse mortgages.
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Post by Chahta on Oct 16, 2021 21:44:13 GMT
steelpony10, I was asking seriously. When rates rise do MS CEFs drop in NAV like OEFs and thus the premium drops too? I would guess that maybe the leverage could buy new bonds that pay the higher rates.
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Post by yogibearbull on Oct 16, 2021 22:22:19 GMT
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Post by chang on Oct 16, 2021 23:16:20 GMT
DCS - that was it. Unfortunately bought up by some yield-hungry CEF investors on M* in the lead up to the 2008 crash.
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Post by Chahta on Oct 17, 2021 0:19:01 GMT
DCS was definitely not a capital preservation fund. I would hope a more “respected” bond fund company like PIMCO would manage a little more carefully.
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Post by chang on Oct 17, 2021 0:36:23 GMT
DCS was definitely not a capital preservation fund. I would hope a more “respected” bond fund company like PIMCO would manage a little more carefully. "Everybody has a plan, until they get punched in the face." ~ Mike Tyson
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Post by rhythmmethod on Oct 17, 2021 1:08:55 GMT
DCS was definitely not a capital preservation fund. I would hope a more “respected” bond fund company like PIMCO would manage a little more carefully. "Everybody has a plan, until they get punched in the face." ~ Mike Tyson That was me in March 2020! All my gigs for a year were cancelled. My PF dropped 25%. I panicked. I did a pretty decent, if inelegant, job of getting back on track. Now I've got a NEW plan... 😱
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Post by yogibearbull on Oct 17, 2021 1:28:46 GMT
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Post by steelpony10 on Oct 17, 2021 2:23:01 GMT
Mustang, Well you have plenty of backup then. Too many seem to think the investing world consists of equities, standard bonds and that diversification and allocation somehow will save them. We started in 1978 and everything was dreamy walking into the internet age until 1999 and the series of calamities that followed. We started looking elsewhere for more income streams.
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Post by rhythmmethod on Oct 17, 2021 3:00:56 GMT
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Post by steelpony10 on Oct 17, 2021 3:01:49 GMT
steelpony10 , I was asking seriously. When rates rise do MS CEFs drop in NAV like OEFs and thus the premium drops too? I would guess that maybe the leverage could buy new bonds that pay the higher rates. Chahta , Relax not everyone is prickly. Back in 1999 I was breathing into a paper bag dealing with my first big dilemma managing 3 portfolios. Everything drops, premium, NAV, just like you might have seen in 2020. For example PTY may have dropped in value but the distribution rate might be 14% because of that. A sale of cheap high income with good management like buying a single stock. So the choice might be 20k of JNJ that I bought in 1978 now appreciated and paying out 5-$600 a year or 20k invested into PTY where I could pick up distributions of around $2800 a year (in reverse $4500 gets over $600 a year). So I dumped all dividend stocks during the bank crisis and started auto investing the excess to needs income into growth. You have no protection from drops like any other investment. My experience is CEF’s will drop farther then standard bond and equity funds maybe because of leverage. Some will lower their distributions as part of managements’ reaction to market conditions. This is standard stuff. I think of premiums as high PE’s, you pay for quality income. Since I’ll never sell except for LTC values don’t matter to me. As in all investments if you look hard enough flaws are there leading to indecision over and over. So 500k distributing 40k (8%) now or 15-20k (3-4%) that grows and doubles maybe by age 80+? If equities crash and standard bond rates are low or inflation rises and you’re a spend down investor what’s the plan for capital preservation?
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