Note: This post should not be considered financial advice. This is post is written purely for entertainment purposes only. Talk to a financial advisor if you have financial questions!
The Vanguard Wellington Fund is the oldest balanced fund in the US with a 75% allocation in blue chip, dividend paying stocks and 25% allocation in Bonds.
Wellington has outlived both the Great Depression and the 2008 Financial Crisis. It’s longevity is impressive–there’s no denying that.
Over the last 10 years, however, the Wellington Fund has underperformed the broader Dow Jones Industrial Average–although this isn’t too surprising since bonds have struggled with low interest rates and a killer bull market.
When times are bad, the Wellington Fund has tended to weather the storms a bit better than the broader stock market–so it’s a safer bet when volatility comes (although when volatility comes, you shouldn’t be drawing any money out any way).
Vanguard Wellington Expenses
Like most Vanguard funds, Wellington has a low expense ratio when compared to competitors.
If you own Admiral Shares of Wellington, you’ll pay an expense ration of 0.17% on a minimum investment of $50,000
If you own the Investor Shares of Wellington, you’ll pay 0.25% on minimum investment of $3,000.
This is far below what you’d expect to pay for other actively managed funds–which can stretch all the way up to 1% and beyond.
Low expenses and a steady approach to management have lead Wellington to outperform it’s benchmark (65% S&P 500 Index and 35% Bond Index).
Vanguard Wellington Composite Index
The Vanguard Wellington Composite Index is used as a benchmark to compare the funds performance against what would be consider standard market returns for a similar portfolio allocation.
For Wellington, this is currently 65% S&P 500 and 35% Barclays US Credit A or Better Bond Index.
Wellington has outperformed it’s benchmark since 2001. In the last 10 years, the fund has failed to outperform its benchmark
It’s concerning that the fund hasn’t been able to keep pace with the market during the greatest bull market in history.
Wellington Fund Tax Efficiency
Balanced funds tend to not be the most tax efficient means of investing. Wellington Fund holds approximately 40% taxable bonds–which means a large portion of the gains will be taxable.
From my research, it appears that funds like VTSAX or other total stock market index funds would be more tax efficient if you’ve got cash locked up in taxable accounts.
Wellington Dividend History
I’m not hugely aware on how to scienficially calculate dividend payouts just yet, but from what I can gather, Wellington has historically returned around 2% per year as a dividend payout annually.
They do appear to pay out around 3-4 times per year–with the total ending up somewhere around 2% of the capital you have invested in the fund.
Vanguard Wellesley Fund Overview
The Vanguard Wellesley Fund has been around for over 40 years and is considered a conservatively allocated income fund.
The fund is focused on giving investors broad diversification in high dividend paying stocks and investment grade bonds.
The Wellesley fund is even more conservative than the Wellington Fund, as growth stocks that don’t pay a dividend aren’t likely to end up in this allocation.
Wellesley also has an allocation of 2/3rds investment grade corporate bonds, Treasury and gov. agency bonds, and mortgage backed securities (we all know how these can turn out) and 1/3rd stocks.
The stocks in Wellesley’s portfolio are focused on income producing blue chips with an above average dividend history–or with expectations of a rising dividend in the near future.
During the latest mega dip in the economy (spring 2020) the Wellesley fund only shed about 15%–when the broader market shed closer to 40% at it’s worst point.
You’re getting what you expect with Wellesley, which is less growth and less volatility while still protecting your net worth from inflation and getting decent enough growth to outperform a bond-only portfolio.
Conservative income-focused investors with a short time horizon (think 50 years old or older) will appreciate Wellesley’s stability.
The income is kind of lacking, in my opinion though. Coming in at less than 3% annually, I’d rather put my money to work in real estate if I needed to get steady, consistent income over a long period of time.
The appeal here with Wellesley is that it’s got a low expense ratio, is completely passive for investors, is well-managed with a long track record, and is extremely conservative.
I’ll make an argument later on for why this level of conservatism makes no sense as an investment philosophy–but we’ll get to that later.
Vanguard Wellesley Expenses
Investor Shares in Wellesley have slightly lower expenses than Wellington at 0.23% with a $3,000 minimum.
Admiral Shares require a $50,000 minimum but give you an expense ratio of 0.16%–ultra-low compared to other funds that can charge upwards of 1% or more for active management.
Investors that will prefer Wellesley Fund
Investors that want income and a large buffer from volatility with low risk tolerance will love the Wellesley Fund.
During crazy times, you’re not going to fell as much of a hit with Wellesley and you’ll have steady income rolling in from the investment.
Wellesley is perfect for someone actively in retirement and actively living off of the income from investments,
Investors that will prefer Wellington Fund
Investors with a longer time horizon and not currently in retirement will prefer Wellington Fund.
If you want some exposure to growth stocks, with a 1/3rd anchor to bonds as a hedge against downturns–you’ll prefer this fund.
Both funds are excellent investments if you want a balanced fund with some bonds and don’t want to deal with the volatility of a 100% stock portfolio.