VWIAX question

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Houdini563
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VWIAX question

Post by Houdini563 »

I’m trying to gauge how much VWIAX would lose is say prevailing interest rates increased to 4.00%. So as an example if one had $1,000,000 in VWIAX as of today and all that was seen was that interest rate increase over 2022 what would be the balance at years end?
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beyou
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Re: VWIAX question

Post by beyou »

As this fund is a balanced fund, no way to predict return of the fund.
The bond portion could be predicted but that is only 60% of the assets.
For that portion, the duration of 8% implies a loss of 8% in price for each 1% increase in rates.
That said, you are also earning some interest that offsets the loss a bit.
Longer term you start earning a higher rate and will eventually break even and start to show overall gains,
unless of course rates continue to rise.
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JoMoney
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Re: VWIAX question

Post by JoMoney »

Vanguard's Wellesley Income Fund is roughly 60% in bonds, and those bonds have an average duration of roughly 8 years and an average coupon roughly 3%.
If the interest coupons went from 3% to 4% (rising 1%) with a duration of 8 years, I would expect the portfolios market value to fall 8%. You can estimate a bond portfolios value change by +/- 1% for each year of portfolio "duration."
Since only 60% of the fund is in bonds, of $1mil that would = $600,000 * 8% = -$48,000
http://portfolios.morningstar.com/fund/ ... ture=en-US
There is some impreciseness to this, the "average coupon" in the portfolio doesn't reflect the effective interest rate they were purchased at... and there's no saying what the stock portfolio (40%) will do when interest rates rise, but I can easily imagine the funds bond portion losing $48,000 of market value if the effective interest rates suddenly rose 1%.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Houdini563
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Re: VWIAX question

Post by Houdini563 »

Very interesting and TY for your comments. It’s eased my mind a bit.

I read that the end of the year 2021 Capital gains distribution the fund will payout is 2.49/share.

I currently have $71,000 in this fund and will have another $730,000 ready to transfer by mid January. This fund has had such a long positive history through all sorts of economies the past 50 years I plan on making it my main retirement vehicle. In the end I will transfer $1.2 million into VWIAX and the plan is to take $50,000 annually in monthly “payments” from the fund into my checking account as soon as I decide to retire.

Add to this $31,000 from social security and the interest (only) from an IRA of $12,000 annually. So $91,000 annually in total at retirement. The SS and IRA interest are secure. My only concern is making the $1.2 million last at least 30 years paying out the desired $50,000 annually.
johnrbain
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Re: VWIAX question

Post by johnrbain »

My wife and I are going to about the same thing. We are currently putting the max into Wellesley via Roth and will in about three years be putting about 1M in either Wellesley or Wellington and taking a $50,000 payout once a year. Adding this to Social Security and a few other things we have should get us through 25-30 years of retirement.
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Houdini563
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Re: VWIAX question

Post by Houdini563 »

The question is whether VWIAX will support this type withdrawal over the 30 year period? As per every Monte Carlo calculator I can find at least one using VWIAX historic returns specifically it should be no issue unless longer term returns fall short.
tibbitts
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Re: VWIAX question

Post by tibbitts »

Houdini563 wrote: Sun Nov 28, 2021 10:28 am Very interesting and TY for your comments. It’s eased my mind a bit.

I read that the end of the year 2021 Capital gains distribution the fund will payout is 2.49/share.

I currently have $71,000 in this fund and will have another $730,000 ready to transfer by mid January. This fund has had such a long positive history through all sorts of economies the past 50 years I plan on making it my main retirement vehicle. In the end I will transfer $1.2 million into VWIAX and the plan is to take $50,000 annually in monthly “payments” from the fund into my checking account as soon as I decide to retire.

Add to this $31,000 from social security and the interest (only) from an IRA of $12,000 annually. So $91,000 annually in total at retirement. The SS and IRA interest are secure. My only concern is making the $1.2 million last at least 30 years paying out the desired $50,000 annually.
I'd never commit so high a percentage of investments to a single active mutual fund. I own active funds and don't object to active funds if you prefer that. Whether five is enough or ten is enough or whatever number you can debate, but it's not debatable that one is enough.
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Houdini563
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Re: VWIAX question

Post by Houdini563 »

I’ve read that critique but when I look at the funds 50 year history I see nothing to suggest it can’t continue it’s winning ways long term.
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SquawkIdent
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Re: VWIAX question

Post by SquawkIdent »

Houdini563 wrote: Sun Nov 28, 2021 12:48 pm I’ve read that critique but when I look at the funds 50 year history I see nothing to suggest it can’t continue it’s winning ways long term.
+1
dukeblue219
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Re: VWIAX question

Post by dukeblue219 »

Houdini563 wrote: Sun Nov 28, 2021 12:48 pm I’ve read that critique but when I look at the funds 50 year history I see nothing to suggest it can’t continue it’s winning ways long term.
History is not the future, especially when the past 50 years has been incredibly bond friendly.
Topic Author
Houdini563
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Re: VWIAX question

Post by Houdini563 »

I don’t disagree with you and it’s a concern. However VWIAX has gone through inflationary periods over its 50 year history and has done very well regardless.
cegibbs
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Re: VWIAX question

Post by cegibbs »

Houdini563 wrote: Sun Nov 28, 2021 1:16 pm I don’t disagree with you and it’s a concern. However VWIAX has gone through inflationary periods over its 50 year history and has done very well regardless.
+1
Topic Author
Houdini563
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Re: VWIAX question

Post by Houdini563 »

Another question comes to mind:

So I’ll have an additional $730,000 by mid January to invest in VWIAX.

I transferred over $70,000 several months ago and was lucky to catch this fund in a bit of a slump so that $70,000 grew quickly to $72,000 and now sits at $71,000.

I’d like to transfer the $730,000 into vwiax during a less than high period and potentially see similar results.

So the question is how should I best put this $730,000 into VWIAX? Just hold it in a money market until a dip then transfer it over?
FactualFran
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Re: VWIAX question

Post by FactualFran »

Houdini563 wrote: Sun Nov 28, 2021 11:50 am The question is whether VWIAX will support this type withdrawal over the 30 year period? As per every Monte Carlo calculator I can find at least one using VWIAX historic returns specifically it should be no issue unless longer term returns fall short.
4.8% was the lowest initial annual withdrawal rate, with later end of month withdrawals adjusted for inflation, that an account in the investor shares of the fund would have supported for at least 360 months of withdrawals. The lowest was for Nov. 1972 as the starting month. The fund did not have a consistently positive cumulative inflation-adjusted return from Nov. 1972 until early 1983.
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