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J. A. Saglimbeni
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I am a Blue-Collar worker that has been investing for over twenty years. I will invest across all types of investments: Tech, growth, dividends, bonds, & options. I believe that people can invest on their own and in due time can build a portfolio of stocks that will easily surpass many... More
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  • Vanguard Wellesley Income Fund (VWINX), A Fund For Everyone 15 comments
    Jan 3, 2013 10:36 PM | about stocks: JNJ, SPY

    Though I am known as recommending individual stocks as investments, I have been asked by my family, friends, and readers which mutual fund I would recommend for people who simply are too afraid to invest in individual securities and after studying plenty of different mutual funds, I think I have a good candidate. When I first began this journey, I had to get my "growth stock" way of thinking out of my mind, I mean I was trying to find an investment vehicle that even my sister (if you knew her you would understand) would not get nervous about. I also needed it to be highly rated by Morningstar, low in cost, and performance comparable to the S&P 500 over a long period of time. The fund that I have chosen is the Wellesley Income Fund (VWINX) from Vanguard.

    The Fund Profile

    According to Vanguard, The Wellesley Income fund has been around for 40 years and is considered a conservative balanced fund that typically invest in both stocks and investment-grade bonds. The fund is unique in its allocation: one-third to stocks and two-thirds to bonds. The fund is a no-load fund with a yield of around 2.3%. and an expense ratio of .25%. The Wellesley Income Fund also has a five-star rating from Morningstar.

    The Performance

    The Wellesley Income fund has had a total return of over 35% (dividends reinvested) over the last 5 years, this easily surpassed the total return of the S&P 500 of about 6% (dividends reinvested). The fund also managed to accomplish this with less volatility than the Index. I have also attached a chart showing the monthly percentage change over the last ten years (dividends reinvested) comparing The Wellesley Income Fund (VWINX) to both the S&P 500 (SPY) and the bellwether Johnson & Johnson (JNJ). The total return of The Wellesley Income Fund over the last ten years is around 96% with dividends reinvested which is slightly higher than the S&P 500 which returned about 93% and trumps the return of 70% for Johnson & Johnson. Statistics and descriptions form various sources including Yahoo!, MSN, Low-Risk Investing and Stock Rover.

    (click to enlarge)

    Chart Courtesy of Barchart


    It is rare to find mutual funds that can consistently beat the major market indexes, but to find a conservative balanced fund that can manage to do it is nothing short of a miracle in my opinion. The Wellesley Income Fund from Vanguard is the one fund that I can now recommend to long-term investors both new and old, with its low costs, market beating performance, and minimal volatility; it is truly a fund for everyone.

    Disclaimer: All articles are written as an opinion of the writer or writers. The contributors on this website are not professional investment advisors. These articles are written to share investing ideas that may be of interest to the reader. Always seek the advice of a professional investment advisor before investing.

    (click to enlarge)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: JNJ, SPY
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Comments (15)
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  • Vanguard Wellesley Income Fund (VWINX) is a great fund from what I have seen, it has a composition of about 35-40% stocks with better dividends and 60-65% in bonds. I believe it is great because, it does not deviate up/down way too much from it's steady path to rise in value. I believe that one can put money in it and sleep at night without worrying.
    There is also Vanguard's Wellington fund, that has a composition of about 60-70% stocks and 30-40% in bonds, it is also a very good fund. Both are core funds, with little expense ratios.


    Wellesley fund typically had a yield of around 4% in the long run, but recently it's yield has been around 2.5%, perhaps due to low interest rate climate. Retirees or income seeking investors with some growth can park in this fund and collect around 4% yield to live of (this is inline with 4% withdrawal rate from your portfolio that is advised by many to sustain retirement almost forever without exhausting balance).


    I hold both funds.


    Good find. J.A. Saglimbeni.
    27 Jan 2013, 03:05 PM Reply Like
  • Author’s reply » Anonymous, glad you enjoyed the article...I am really not a big time mutual fund buyer (except in my 401k), but I was asked by a friend of mine who was certainly not a individual stock investor to help her find something that she would not lose sleep...and this is what I recommended. I will say that if people are scared of individual securities (which I completely understand if they are) then they should look in diversifying among several funds or ETF's (low-cost)...maybe a growth fund, a balanced fund (VWINX), a bond fund, a resource or commodities type fund and a REIT fund....they should try to re-balance it every time each Asset increases to much...


    Thanks for the comment,
    27 Jan 2013, 06:07 PM Reply Like
  • Late to the party, but vwelx and vwinx ARE THE TWO MOST IMPORTANT FUNDS TO OWN. PERIOD.
    17 Mar 2013, 12:01 PM Reply Like
  • Author’s reply » Low Cost, efficiency, and one of the safest fund familes ever...for the investor who does not want to own individual securites...can't gree with you more. Thanks for the comment.


    18 Mar 2013, 11:43 AM Reply Like
  • While I agree and own them, how is the bond bubble collapse going to take effect on these great funds?
    18 Mar 2013, 06:03 PM Reply Like
  • Author’s reply » Well, they will probably get hit a bit, but I am sure there will be a slight asset allocation change within the funds, and don't forget there is always another recession every 7 or so years...meaning there will be jumps back into Honestly Anonymous, I would not worry about it if you are a long-term investor...Good luck.


    19 Mar 2013, 10:10 AM Reply Like
  • Regarding bond bubble issues:


    Right now VWINX has a bond duration of about 6 years. A rule of thumb is that for every 1% increase in interest rates a bond fund will drop by the duration times 1%. That would be 6% for every 1% multiplied by about 60% for a net of -3.6 % for the first 1%. Meanwhile the fund has about a 3% yield and the stocks may rise at the same time if the economy is getting stronger.


    At this point in time most experts believe that we are in a somewhat sustained period of low interest rates. The six year duration is longer than I prefer but the VWINX management has a track record of making savvy decisions and will probably make timely decisions as interest rates change going forward.


    In my case I have about 15% of my IRA in VWINX along with PTTRX and other bond-holding funds in order attempt a stock/bond/cash ratio optimization. I also have individual stocks and other types of funds including ETF's.


    I generally agree with the author regarding this fund. This fund has been favored by the move to record low interest rates. Interest rate changes going forward could amount to strong headwinds for the fund. However, given the management track record, I feel comfortable with it being one of my big holdings.
    27 Mar 2013, 05:11 PM Reply Like
  • There are treasury bonds in the portfolio that go much longer than 6 years in duration, with very low yields. Few months ago bond prices were falling, and yields were rising, portfolio showed losses in principal, these were treasuries with real long duration.
    This fund has been managed very well, but they are required to carry around 40% bonds, how will they deal with that requirement, especially if there is a requirement to carry treasuries when rates are rising and treasuries are falling.
    27 Mar 2013, 06:48 PM Reply Like
  • That is correct. The 6 year duration is a weighted average that includes short and intermediate bonds and some in the 20 to more than 30 year range. The best way I know to model the fund in the short term is based on the weighted average but you are right in the sense that individual securities with the long durations are very interest rate sensitive. The longer term depends on an ability to optimize the tradeoff between yield and interest rate sensitivity for the portfolio as a whole. They have a good track record but Vanguard's choice in weighted average duration for an intermediate fund is 6 years which appears to be longer than PIMCO.
    28 Mar 2013, 12:34 PM Reply Like
  • Author’s reply » Continued thanks for all the replies, I will say this about interest rates, I think we are probably going to continue being in a relatively low interest rate cycle for some time and when the rates rise they will probably increase rather slowly, but again I think that this fund is a good addition to a conservative portfolio that may include S&P or Total Stock market index funds. Continued success!


    28 Mar 2013, 08:23 AM Reply Like
  • As an update regarding interest rates - there was an April 10 article which had this to say regarding Vanguard Wellsley bonds:


    "Keogh said his challenge would be to cut the fund’s sensitivity to interest rates when they begin to climb. He would do so mainly by adjusting the duration, a measure of how much a change in rates will impact prices, of the bonds that he holds, Keogh said. Based on its current holdings, the fund would fall 0.6 percent were rates to rise 25 basis points, according to an analysis of portfolio data compiled by Bloomberg."



    Interestingly, when rates do rise, Bill Gross seemed to think they would rise about 25 basis points in the first year or so (see below). Of course no one knows for certain.

    18 May 2013, 10:09 PM Reply Like
  • That's a good article about Wellesley fund. Since stocks have been rising, this fund is lagging, due to bond prices falling. When compared with Wellington, Wellesley (6.66%) has gained close to half as much as Wellington (12.01%).
    When rates rise, it will affect stocks too, may be not as much as bonds.


    If you look at long term returns on this fund, after a rare negative year(s), the following year it gains big.


    "Wiener, the newsletter editor, said in the next five years, Vanguard Wellington, with its greater allocation to stocks, is a better bet than Vanguard Wellesley."
    I wonder if either moving from Wellesley to Wellington or any new contributions to Wellington instead of Wellesley is a good idea.
    19 May 2013, 09:20 AM Reply Like
  • I personally have a 3:1 ratio of stocks to bonds in my IRA. This is by design because I think that asset prices (e.g., stocks) may keep appreciating during the days of QE and I follow the Benjamin Graham 75/25 rule which means I don't let one asset class exceed 75%. I am watching the situation unfold and may change allocations if things change.


    The Wellsley fund is factored into that overall ratio along with shorter duration bond funds.
    19 May 2013, 06:16 PM Reply Like
  • Author’s reply » Thanks for the comments guys, generally speaking I only own a couple of mutual funds (mostly in a 401K), so I could not tell you whether to switch from one or the other. I am sure that any advice that the reader receives is very helpful.
    20 May 2013, 09:51 AM Reply Like
  • Someone mentioned that this fund is "required to hold bonds" and then acted as if this meant they were "required to hold Treasuries", and decried the risk in long-term low-yield Treasuries. Note that Treasuries are NOT the whole bond market, far from it. The usual way to protect yourself from rising rates is to move to shorter-term bonds, especially lower-rated A or BBB corporates (since lower-rated corporates fall less if the economy is picking up steam). This covers the "required to hold bonds" part--it doesn't mean "required to hold Treasuries".
    16 Jun 2013, 03:20 PM Reply Like
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