Vanguard Balanced Funds

[swampthing]

since i'm starting off with not much probably would be 50/50 until i get some significant funds in there.

[Broken Arrow]

A 50/50 split between Wellesley and STAR would yield:

10% International stocks
37% US stocks
47% Bonds
5% Cash

[swampthing]

is that bad? good? safe? risky?

[Broken Arrow]

Sorry, I'm at work, so I can't always post at length....

Basically, Wellesley is 40/60, whereas STAR is 60/40, and putting the two together is giving you a 50/50 allocation. If that's what you're looking for, then yes, it's a good thing.

On the other hand, if you prefer 40/60, I would just put it all in Wellesley for now. Otherwise, if you prefer 60/40, then I would put it all in STAR (or Vanguard Balanced Index).

Being in your mid-thirties, but not knowing your risk tolerance, I would have to say any of those funds are fairly conservative. The question you asked (and I don't know if I am interpreting it correctly) is, "How Conservative?" And that's something you will have to decide for yourself.

If you're just looking for the cheaper, safer route between the two, I would have to say Wellesley. It has a lower beta, lower standard deviation, lower R-squared, and lower expense ratio on top of that.

However, the technical stats only goes up to ten years, and the past ten years has not been kind to anything with higher stock market exposure. Contrast that to the 10 years before, and it would have been a different story with a different conclusion.

Sorry for being kind of long-winded, but the bottom line is, really, how much do you want to set aside for long term growth, and how much do you want to set aside to preserve your capital?

[swampthing]

well, it sounds like they are both relatively safe funds so i guess i'll just look into opening up a separate wellsley roth and see for myself. it's not like i can't roll things over in a couple years.

[swampthing]

still hemming and hawing here folks... can someone explain vanguard admiral shares to me?

[Broken Arrow]

I'm glad you asked because it appears that Vanguard has changed the rules on Admiral shares.

Basically, they're special Vanguard funds with lower expense ratios, but higher entry requirements. I believe the Admiral shares were created to reward loyalty and retain their customer base.

It used to take something like 10 years of investing with Vanguard, or $100,000 minimum balance to qualify for Admiral share, but now it's down to $10k for most index funds, and $50k for actively managed funds.

Finally, not all of Vanguard funds have an Admiral share equivalent. Here is a list of current Admiral share funds.

[swampthing]

thanks for all your help broken arrow. hmmmm, so basically admiral shares just mean they take a smaller percentage? both wellsely and wellington offer admiral shares, i'm now wondering if i should stick with star until i've deposited a more substantial amount into it but skip the wellsely and just jump into wellington. i wish this wasn't so hard. not sure how anybody makes decisions as i feel very indecisive. Wellington + Star would definitely give me an allocation more appropriate for my age (right? am i learning? 60/40? more agressive? less conservative?) I guess in the back of my head I'm wondering how this Bond stuff is going to play out over the next few years. Also, what about this guys comment from some other board....

According to Jack Bogle the "fatality rate" of equity oriented balanced funds (such as Wellington) has been more than 40% from 1972 to 1992. They did not need to collapse to zero to be gone. IMO, opinion the fact that you see Wellington still around since 1929 is almost an oddity. Therefore, I suggest to diversify between balanced funds providers.

[Broken Arrow]

Well, I wouldn't feel bad when it comes to the minutiae in investing. I don't think it's all that intuitive.

Jack Bogle goes by the 100 year rule, which is essentially, whatever your age is, that is how much you should have in bond allocation versus stocks. In other words:

100 - Age = Stock %

For example, if you are 35 years old, then it's recommended that you have 100 - 35 = 65% stocks, and therefore, 35% bonds.

Some in the industry have criticized that as being too conservative, and instead, prefer something more like the 120 year rule. That is:

120 - Age = Stock %

In which case, 120 - 35 = 85% stocks, and therefore, 15% bonds.

As you can see then, even a 60% stocks / 40% bonds portfolio is generally considered as quite conservative. In fact, according to Vanguard, such an allocation is akin to someone who is more like 60 years old and is about to retire in five years (VTXVX).

But, if that is your true risk tolerance, and if that helps you sleep at night, then that is what you should do with your money.

As for the Admiral share, I would definitely go for that whenever they are available. If you qualify, why wouldn't you want to save more money?

[Broken Arrow]

As for the future performance in bonds, it is completely irrelevant in terms of passive asset allocation. I believe that, within the context of this discussion, this is the approach to take.

However, if you do want to stop and think about it, consider that the Federal Reserve rate is essentially at 0% right now, and that any increase is probably going to negatively affect most bond funds that you hold.

In other words, every asset class has its strengths and weaknesses, and it is important that we don't over-weigh or under-weigh certain asset classes unless we have a good reason to do so.

Target Date funds, by the way, are also called Fund of Funds (FoFs), because they pre-mix several different mutual funds for you, rather than you having to do it yourself. Right now, you are mulling over the decision to mix two funds, whereas VFORX (Target Retirement 2040) pre-mixes five separate funds. On top of that, they will automatically rebalance all those funds for you every five years I believe.

My passive retirement money is 100% in a target date fund, and I don't see why more people don't use it.

[swampthing]

i see, well i'm 33 so that means more like 85/35... what would be some riskier Vanguard balanced funds I could explore perhaps after I get into a few of the safer ones? VFORX, VTIVX, VSCGX, VASGX, VSMGX? Maybe one of those Target Retirement ones is the way to go. I'm not clear on the Vanguard site where it shows the allocation... I can only presume the riskier ones are heavier in stock.

[Aleta]

]BROKEN ARROW: That was some great advice. I didn't know about the new information about the admiral shares. Thanks for sharing the information. I also have to make some decisions about my funds. Like you said my IRA is 100% in a Target Date Fund and I really do like the simplicity of it because it contains many US and international funds.

[swampthing]

sometimes i wonder if i'd be better off if i never went to college and took all the money for tuition and dumped it in an ira... that would have been a lot of money and been sitting around compounding for 10 years.

[Broken Arrow]

i see, well i'm 33 so that means more like 85/35... what would be some riskier Vanguard balanced funds I could explore perhaps after I get into a few of the safer ones? VFORX, VTIVX, VSCGX, VASGX, VSMGX? Maybe one of those Target Retirement ones is the way to go. I'm not clear on the Vanguard site where it shows the allocation... I can only presume the riskier ones are heavier in stock.

Well, a few things.

As you buy more and more funds, you have to analyze them all together to see what your true asset allocation is like.

Also, if you do want to manually change your asset allocation as you go along, then perhaps you're better off slicing and dicing your own. That means buying your own cap funds and setting your own percentages. For example, this year, perhaps you decide to put 20% into an international fund, 40% into a bond fund, and 40% into a large cap fund. And perhaps later in the future, you change your mind and want something more aggressive. If so, then it's just a matter of changing the percentages, such as 30% international, 30% bond fund, and 40% large cap. Or whatever you decide on.

The point here is that you can invest completely passively, or you can invest manually, on your own. If you decide that you prefer the passive route, I maintain that the easiest thing to do is to throw all of your retirement investment into a Target Date fund and call it a day. However, if you prefer manual controls or believe you may change your mind later, I would buy your own cap funds and set your own asset allocation.

What I would recommend not doing is to simply buy a "brand name" because it's a brand name. For example, the Wellesley is a good fund. Yes. However, an investor should not buy this fund simply because it is The Wellesley (tm). Rather, I hope it will be because they've looked into the prospectus and fund allocations, and based on that information, have decided that this is a product that best suits their investment needs.

Finally, if you type the tickers into the search box in vanguard.com, and scroll down to the Portfolio Composition section, you should see the fund's basic asset allocation. Generally speaking, it is true that the higher % in stock allocation, the more aggressive it is.

I didn't know about the new information about the admiral shares. Thanks for sharing the information.

You're welcome, Aleta. Nice to see you online again. Yeah, I didn't know about the changes to the admiral shares requirement either. Apparently, the change was fairly recent.

sometimes i wonder if i'd be better off if i never went to college and took all the money for tuition and dumped it in an ira... that would have been a lot of money and been sitting around compounding for 10 years.

Haha, you and me both!

[swampthing]

I hear what your saying, and VTIVX seems like it would make the most sense for me, then I don't have to deal with Star, Wellington, or Wellesley my concern is that since I'm new to this I think I'll lose my marbles if I dump a bunch of savings into these things and have to sit back and watch things plummet but that maybe if I got more comfortable with some of the safer geezer funds I could then switch over to the target retirement. Is this stupid? I feel like I'm never gonna just pull the trigger and do something I don't know what my problem is. Maybe it's because I'm putting my entire financial strategy rested solely on this Roth IRA thing for Retirement and aside from an Emergency Fund and crummy savings/checking accounts that's all I got. I'd do some more short term stuff like CDs but the rates are pitiful... shoulda locked in some 5 year CDs years ago when they were close to 6%. My old school series ee bonds are still plugging along nicely but these days the ee and i bonds stink. now i'm depressed. this is too hard i feel like i'm in elementary school trying to learn how to read or something. guess i'll sleep on things and approach it with fresh eyes in the morning.