I'm recently retired and currently in Vanguard Wellesley and Wellington at 50stk/50bds. I’m concerned with the potential of increasing rates to negatively impact my portfolio. The PF is small, and is used mainly for the extras. My SS & pensions cover daily expenses except travel and yearly expenses like auto insurance ect. I’d like some feedback on this portfolio vs. W/W.
Wellesley: vwiax 25%
Wellington: vwelx 38%
Intermediate Bond Index: vbiix OR Dodge Income dodix 15%
Equity & Income: veipx 8%
High Dividend Yield: vhdyx 8%
Should I stick with W/W or make the shift to this new portfolio?
Comments
http://www.forbes.com/sites/schifrin...dlach-king-me/
Here is the new bond king’s view of the world today:
The Fed may raise the federal funds rate for the wrong reasons.
“They don’t really need the rates to be higher, but they seem to want to reload the gun so they aren’t stuck at zero without any tools.”
Deflationary forces will accelerate if the Fed raises rates.
“With a tightening, the dollar is going to not just be strong, but it will run up like a scalded dog. If that happens, then commodity prices are going down, we will import deflation and you will see an episode of deflationary scare.”
The long end of the Treasury curve will stay put and possibly go down further.
“There’s a 30% chance that importing deflation creates a panic into Treasurys creating a ‘melt-up,’ moving rates to German Bund levels today of around 1%.
It’s not okay to own risk assets when the Fed starts hiking rates.
“What is fascinating is, if you sell junk bonds and buy Treasurys, the minute the Fed hikes the first time, going back to 1980, in every case you did well.”
Don’t be surprised to see the yield curve flatten and possibly invert.
“Long rates have done nothing but fall. That tells me the market is saying to the Fed, ‘Go ahead, make my day.’ The curve is going to invert when and if fed funds hit 2.5 to 3%.”
Be long the dollar, especially in emerging market bonds.
“We have been all dollar [denominated in our foreign bond holdings] since 2011. For a while it didn’t really matter, but now it matters a lot. If you are nondollar you are really in trouble.”
Stay away from homebuilders, TIPs and mortgage REITs, and oil will fall further.
“I am convinced the Saudis want the price of a barrel of oil to go to $70. They don’t care if they run a short-term deficit if it slows down U.S. fracking and turns the screws on countries in their region that mean them harm.”
As we get closer to 2020 interest rates and inflation (and taxes) could really start rising.
“We are in the calm right now before the hurricane. I’m talking about the aging of the great powers, which is undeniable and can’t be quickly reversed. The retiree-to-worker ratios, the size of labor forces globally. China will have no one in the labor force. Italy’s losing 39% of labor force in the next generation and a half. Japan has an implosion of working population and no immigration. Russia is facing one of the greatest demographic crisis in the history of the world, absent famine, war and disease. It’s pretty bad. Italy has no hope,” says Gundlach matter-of-factly.
“The Federal Reserve bought the bonds from the deficits of 2011, 2012 and 2013, and those will roll off increasingly over time. Come 2020 you are not just financing massive entitlements like Social Security and Medicare but also old debt. No one talks about that. It’s a big deal. China doesn’t have the demographics to buy that debt. Who’s going to buy it?”
The coming debt storm–which Gundlach says is too early to worry about tactically–will hit financial markets just as DoubleLine approaches its tenth anniversary in business.
Giant pension funds and endowments are typically plodding in the redeployment of assets because it often requires coordinating board meetings, soliciting bids from new firms, listening to presentations and gathering votes. But with tens of billions likely to shift out of PIMCO over the next few months, DoubleLine is buzzing with activity. The task at hand is proving to existing clients and to new ones that the drama days are over and DoubleLine is all grown up.
I say that because over the years, when I've posted articles & links dealing with evolving world financial & political situations, as opposed to articles directly involving right-this very-minute investing, there has been almost no interest at all. It seems to me that some of our most successful investors, such as Ted just to name one, pay absolutely no attention to this type of "background info", and sometimes run circles around me, maybe because I get too cautious. Drives me nuts, to tell you the truth.
Commentaries like this make you look again at your portfolio and your plans to make sure you are on track.
A couple of sentences stood out at me. "Be long the dollar, especially in emerging market bonds." MAINX has been known to short dollar instruments lately. Wonder what that might do to the fund if Gundlach is correct?
"Stay away from homebuilders, TIPs and mortgage REITs, and oil will fall further." I had just took some money off the table with ARYVX. It has had a good run. I'm going to keep an eye on that fund.
Thanks @dex for that comment.
Think football: Some running backs spend way too much time and energy juking, and move the ball in the east-west direction rather than the preferred north-south. The managers at Wellington have a very long track record of moving their investments in the north-south direction with extremely low costs to investors. I would definitely prefer your current mix of VWELX and VWIAX. As for VWELX, I would prefer the lower cost class, VWENX, which continues to be available to new investors at Vanguard.
Kevin
The below two links are nice compostion views of the two funds you currently hold; and you may click on other header tabs for more information.
Both fund's equity holdings are towards the large cap area and the bond sectors are investment grade with varying percentage mixes between gov't and corp. Both funds are U.S. centric focused; with a touch of foreign equity and bonds.
--- VWIAX / VWINX is about 35/65 split of equity/bond with a 2.9% yield
--- VWELX is about 65/35 split of equity/bond with a 2.3% yield
I don't find added value/performance/risk protection from the other 3 funds you noted; versus your two current holdings. The yields of these 3 range from 2.4-2.8%, the equity portions are large cap and the bond sectors are also investment grade.
IMO, you would only be swapping around equity and bond holdings that are very similar in type among other funds, versus what you now have.
The combination of your funds, VWIAX and VWELX ,is basically a 50/50 U.S. centered equity/bond holding with low expenses, proven management and decent total returns over a long period of time.
I agree with @kevindow to maintain the current funds; which give you a moderate allocation and IMO is fine for your age bracket, of which I am a part, too.
And yes, anything could affect these funds; including rising interest rates. I would be confident that management will "adjust" holdings as needed.
I'm sure you are aware of the above; so I am mostly writing outloud from my quick look regarding your question. There is always something to learn. I/we don't hold either of these funds.
VWELX composition
VWIAX/VWINX composition
Take care,
Catch
As an aside, the Saudis real goal is to destroy the economies of Iran and Russia, two countries that would love to see the Saudis gone. And that is a much bigger goal than to hurt the U.S. energy renaissance.
As for owning risk assets, historically these have done pretty well during periods of rising interest rates. The problem for the so-called gurus is that most of them were in grade school the last time we saw rising rates and real inflation.
If interest rates rise there will be external pressure for the USA to institute a VAT, slowing economic growth and lowering inflation - look at Europe and Japan.
Longer term --- the world population is going from 7B in 2000 to 10B in 2050 - that is a 42.8% increase. The world went from 1B in 1800 to 10B in 250 years. USA, China, Japan, Europe populations are ageing during this time while the growth in population is in 3rd world countries. The effects are wide ranging - research it.
I know I'm going against the trend but I would be more concerned about deflation.
The analogy made a lot of sense and cleared up my thinking.
On the other topic, it is interesting that Gundlach is thinking so much about demographics (and for what it's worth, which is nothing, I have to say that I pretty much agree with him), but until it becomes tactically relevant it doesn't have much to do with investing. Not in liquid markets, anyway. And if you can analyze exactly when it becomes tactically relevant, then you can become a Bond King, too!
Thank you all for your perceptive contributions. BobC, you helped focus my attention and I agree with many of your keen and penetrating insights. You are spot on-target.
Jeffrey Gundlach has certainly prospered from a long and controversial career that included his heated and forced departure from TCW. His continued success story in the bond market is undeniable. He is definitely a serious forecaster who deserves respect.
Here is a Link that provides viewgraphs from his 2014 forward looking expectations:
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/01/Gundlah Year of the Horse.pdf
According to Advisor Perspectives, his 2013 projections were not all that solid. Nobody has a perfect record in the investment business. Even some of his 2014 predictions seem to be heading, perhaps momentarily, in the wrong direction. According to some folks in the industry, Gundlach is an arrogant, overly confident guru; that’s a necessary characteristic. It’s very acceptable given his superior track performance, but buyer beware.
Here is a Link to Advisor Perspectives’ interpretation of Gundlach’s 2014 projections:
http://www.advisorperspectives.com/newsletters14/Gundlachs_Forecast_for_2014.php
Regardless of his many successes and a few failures, I remain hugely suspicious of any long-term economic forecasts, especially from the macroeconomic community. These have a sad historical accuracy record. The odds deteriorate with time.
All of professor Phil Tetlock’s numerous forecaster accuracy studies consistently demonstrate the futility of these exercises. It is a daunting challenge to forecast even the next quarter’s outcome, and a near impossibility to look 10 years into the future. Accuracy degrades rapidly over time, especially among the economists cohort who seem to be very fragile in the forecasting arena. According to studies that date back into the 1930s, forecasters can’t forecast.
Like Catch22, I too like MFO poster bflotomny’s original balanced mutual fund portfolio. Both the Vanguard Wellington and Wellesley funds have proven performance records. I have held both these Vanguard products in my portfolio for over 20 years. I also have held a third Balance fund, Dodge and Cox Balance mutual fund, for over 2 decades. This formidable triad gives me geographic management thinking diversification.
Thanks again for an excellent set of submittals. This includes everyone. I concur that no immediate action is necessary.
Best Regards.
Osterweis Strategic Income Fund - OSTIX
TCW Total Return Bond Fund Class N - TGMNX
Metropolitan West Unconstrained Bond - MWCRX
DoubleLine Total Return Bond - DLTNX
PIMCO Income Fund Class D - PONDX
Loomis Sayles Bond Fund - LSBRX
(I get sick every time I read Gundlach. He just looks and sounds so smug.)
I would trust him over Gross though.