What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

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Charles Joseph
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What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Charles Joseph »

This question is, of course, for those who would even consider an active fund.

Currently, Vanguard Wellesley Income Fund (VWIAX) makes up 40% of my total assets. Vanguard states that investors can consider it as a "core holding in their portfolio."

Those of you who hold or would hold active funds, would you consider 40% too much? Just right? Could I reasonably go higher? I'll be rolling over funds to my Traditional IRA and would love to keep it all in one place, but that would jack up the percentage even more.

Any thoughts are appreciated in advance.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by moneyman11 »

I think if you wanted an active fund, there is a whole universe of worse choices than Wellesley, so I think you are fine even if your entire portfolio was in it provided it matched your desired asset allocation.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by secondopinion »

Samuel Glover wrote: Tue May 17, 2022 2:52 pm This question is, of course, for those who would even consider an active fund.

Currently, Vanguard Wellesley Income Fund (VWIAX) makes up 40% of my total assets. Vanguard states that investors can consider it as a "core holding in their portfolio."

Those of you who hold or would hold active funds, would you consider 40% too much? Just right? Could I reasonably go higher? I'll be rolling over funds to my Traditional IRA and would love to keep it all in one place, but that would jack up the percentage even more.

Any thoughts are appreciated in advance.
If it is generally diversified and low fee like Wellesley or Wellington, I say to go no higher than 50%. I do think a passive base of at least 50% is strongly recommended. I would count also stock funds that majorly deviate from the index as active, even if the fund itself is passive; this because the investor is acting as the manager. Passive fixed-income funds are trickier to assess because the investor needs strongly determine the needed fund. But I would say that anything that considerably deviates from what is either nearly statistically unbiased (like total bond market) or "risk-free" (like duration matched bonds) to the investor's situation should be counted as active.
Last edited by secondopinion on Tue May 17, 2022 3:08 pm, edited 3 times in total.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by jebmke »

A very large portion of our fixed income is in active funds. VG Investment Grade and VG Intermediate Tax Exempt Bonds -- these alone are probably 40% of our entire portfolio.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Drew31 »

I have ~16% in American Funds Euro Pac (RERGX) in my 401k for my international exposure. Part of this was a mistake that I let it get so high but I didn't mind having some in there. Recent performance has not been very good.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Artsdoctor »

As much as I appreciate Wellington and Wellesley, and I own them both, I'm still a bit leery of holding actively managed funds in a brokerage account because management can change over time. I prefer holding them in tax-advantaged accounts for tax efficiency reasons and I can sell them if their management style becomes inconsistent with my goals. While 40% seems a bit on the high side, you could do far worse than holding Wellesley.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by vineviz »

Samuel Glover wrote: Tue May 17, 2022 2:52 pm This question is, of course, for those who would even consider an active fund.

Currently, Vanguard Wellesley Income Fund (VWIAX) makes up 40% of my total assets. Vanguard states that investors can consider it as a "core holding in their portfolio."

Those of you who hold or would hold active funds, would you consider 40% too much? Just right? Could I reasonably go higher? I'll be rolling over funds to my Traditional IRA and would love to keep it all in one place, but that would jack up the percentage even more.

Any thoughts are appreciated in advance.
The percentage you can safely allocate depends a lot on how "active" the fund actually is and, in the case of Wellesley Income, that is "not very". The managers don't - for better or worse -take significant bets that will carry them away from their benchmark. So as long as you're comfortable with that benchmark I don't see any reason to worry about how big of an allocation the fund gets in your portfolio.

Because the fund only buys high dividend US stocks, you might check your portfolio's international stock allocation. If it's low, there's always Vanguard Global Wellesley Income Fund (VGYAX).
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by retiredjg »

I don't think that 40% in either Wellington and Wellesley is alarming. They are low cost funds containing high quality stocks and bonds and have long histories of holding up well during the bad times. In these ways, they are different from many actively managed funds.

Vanguard does seem to be going off into more speculative arenas than they have in the past. If you think that W and W might go the same direction, maybe 40% is too much.

Vanguard also has some actively managed bond funds that I would be happy to use. They seem to be indexy even if they don't follow an index.

I don't know of any other actively managed funds that I would be interested in using at any percentage. That may be because I'm just not familiar with them but in general, actively managed funds are high cost with no apparent benefit.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by stevewolfe »

T. Rowe Price Capital Appreciation (PRWCX) is just under 24% of our portfolio. We've owned this fund since the late 1990's.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by LMK5 »

Artsdoctor wrote: Tue May 17, 2022 3:45 pm As much as I appreciate Wellington and Wellesley, and I own them both, I'm still a bit leery of holding actively managed funds in a brokerage account because management can change over time. I prefer holding them in tax-advantaged accounts for tax efficiency reasons and I can sell them if their management style becomes inconsistent with my goals. While 40% seems a bit on the high side, you could do far worse than holding Wellesley.
This is an excellent point. Style drift can cause big problems that are hard to correct in a non-retirement account if you've held the fund for a long time. I ran into this issue with American Century (then 20th Century Funds), where they not only had significant style drift but were generating large capital gains in years that the fund had a negative return! I definitely learned my lesson.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Kenkat »

Vanguard Primecap is 14.7% of my portfolio; held since 1998. That’s close to what I would consider a good upper limit of 15-20%.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Charles Joseph »

moneyman11 wrote: Tue May 17, 2022 3:00 pm I think if you wanted an active fund, there is a whole universe of worse choices than Wellesley, so I think you are fine even if your entire portfolio was in it provided it matched your desired asset allocation.
Wellesley is pretty much exactly where I want to be (I'm at 40/60 overall so it's reasonably close). And I do agree with you on the universe of worse choices.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Taylor Larimore »

Bogleheads:

If I knew of an active fund with the low-cost and diversification of an index fund--I would be happy to consider it -- but I don't.

Best wishes
Taylor
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by 000 »

Probably 20%.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Charles Joseph »

Taylor Larimore wrote: Tue May 17, 2022 6:29 pm Bogleheads:

If I knew of an active fund with the low-cost and diversification of an index fund--I would be happy to consider it -- but I don't.

Best wishes
Taylor
Jack Bogle's Words of Wisdom(2005): "Of the 355 equity funds in 1970, fully 233 of those funds have gone out of business. Only 24 outpaced the market by more than 1% a year. These are terrible odds."
Thank you Taylor. I know you are correct (and I just finished your book). But what do you think of Mr. Bogle's advice for retirees to tilt somewhat toward Blue-Chip dividend paying stocks in retirement, so as not to rely as much on the market price and to rely more on regular dividend payments? I worry about retiring at the beginning of a bear market that could take more than a decade to recover from.

Mr. Bogle did warn that the further one strays from the market more risk they are taking.
"The big money is not in the buying and selling, but in the waiting." - Charles Munger
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by RubyTuesday »

Taylor Larimore wrote: Tue May 17, 2022 6:29 pm Bogleheads:

If I knew of an active fund with the low-cost and diversification of an index fund--I would be happy to consider it -- but I don't.

Best wishes
Taylor
Jack Bogle's Words of Wisdom(2005): "Of the 355 equity funds in 1970, fully 233 of those funds have gone out of business. Only 24 outpaced the market by more than 1% a year. These are terrible odds."
Taylor,

Many of Vanguard’s relatively low cost fixed income funds are actively managed, for example Vanguard Inflation-Protected Securities Fund Admiral Shares (VAIPX). It has an expense ratio if 0.10%.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Taylor Larimore »

Samuel Glover wrote: Tue May 17, 2022 7:01 pm
Thank you Taylor. I know you are correct (and I just finished your book). But what do you think of Mr. Bogle's advice for retirees to tilt somewhat toward Blue-Chip dividend paying stocks in retirement, so as not to rely as much on the market price and to rely more on regular dividend payments? I worry about retiring at the beginning of a bear market that could take more than a decade to recover from.

Mr. Bogle did warn that the further one strays from the market more risk they are taking.
Samuel Glover:

I retired in 1982 at the age of 58. I have been in several bear markets and we survived with a simple portfolio of stock and bonds index funds.

If you give me the exact Bogle quote and source, I will try to answer your question about Mr. Bogles advice "for retirees to tilt somewhat toward Blue-Chip dividend paying stocks in retirement--"

Best wishes.
Taylor
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by drumboy256 »

I have quite a few actively managed funds with Advantis. If i had to put a percentage on it, I'd say I'm probably roughly 50/50 right now maybe 40 active / 60 passive but I don't really think about it or let it bother me.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by darkhorse346 »

4o% American Balanced Fund in 401(k).
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Mike Scott »

My range for the Vanguard W/Ws is 10%-50% in tax advantaged accounts. I doubt that I will ever get to 50%.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by SantaClaraSurfer »

Putting Muni bond funds to one side, which are worth the very reasonable management fees, we still hold two small thematic fund ETF investments that we purchased before I discovered Bogleheads.

Between the initial outlay, and some shares I added for kicks in March of 2020, our average price per share is slightly more than the all time low for each fund. But we're never adding any more shares to that tally. Those lots will be enshrined in our 5% account, and frozen for all time. (Or until there's something worth liquidating them for.)

They represent about .002% of our overall holdings. Hopefully that number will only decrease further and further!

If you want to see why it's a hard no for us for that flavor of ETF, beyond the .65%+ ER, watch the video from Rational Reminder at the link above.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Random Musings »

Ignoring Vanguard ST Tips, Primecap at 7.5%. At this point, everything else in equities are all index/passive except for about 1% in a low cost intl fund in my 401k.

If you consider I-Bonds, individual TIPs and GIF to be as active choices as well, my bond portion is far more "active" these days vs. my equity side.

RM
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by ROIGuy »

I own PRWCX T.Rowe Price Capital Appreciation fund. It makes up 9% of my portfolio. And Wellesley which makes up 8% of the portfolio.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by KlangFool »

OP,

40% of my portfolio is in the Wellington Fund.

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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by HanSolo »

SantaClaraSurfer wrote: Tue May 17, 2022 8:27 pm They represent about .002% of our overall holdings. Hopefully that number will only decrease further and further!
Twenty dollars out of every million isn't a whole lot. Decreasing from there may render it invisible.

Regarding the original question, I'm not sure there's any maximum as long as you're know what the fund does and what it costs, and you're sure you want that, while also being aware of the alternatives and their relative pros and cons. Personally, I might do 50/50 active vs. passive, not because of a policy, but because of what fund choices I happen to make. I might be concerned about 100% in Wellesley, not because it's active, but because it has only 64 stocks in it.
Last edited by HanSolo on Tue May 17, 2022 9:56 pm, edited 1 time in total.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by student »

Leftover from purchases that I had done years ago.
1) T. Rowe Price Capital Appreciation Fund 1.8%
2) Vanguard Star Fund 0.4%
3) FAM Value Fund 0.5%
4) Artisan International 0.5%

Edit: I still remember Star Fund was the only fund at Vanguard that I could qualified for with $500 minimum as a 32-year old.
Last edited by student on Tue May 17, 2022 10:10 pm, edited 2 times in total.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by MnD »

Have been maintaining roughly 20% in Dodge and Cox for decades. (Stock, International Stock, Income and Global Bond).
The other 80% is stock index funds and TSP G fund.
0% bond index funds.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Mr. Buzzkill »

None. I can get all the total portfolio returns that I seek at the portfolio volatility that I’m willing to tolerate, based on historical data, with a passive portfolio of rock-bottom expense ratio index funds.

I compared my parents paid advisor-managed portfolio weighting of actively managed equity vs. fixed income (including the holdings in their DODBX and VWINX, which are not bad among actively managed funds) using historical data, to my own recommendation for them. I can get them the same portfolio returns with less volatility and drawdown or greater returns for the same volatility and drawdown with fewer funds of same or similar asset classes, less expense, more tax efficiency, no advisor fees, no style drift, and no manager risk.

Will I always be able to do that? Or will my parents actively managed strategy and funds be better for any year or longer period? Nobody knows but I’m guaranteed to have my funds perform, net expenses and taxes, closer to their own benchmark indexes than will my folks funds, over the long term.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by mikep »

Whatever my TIPS allocation is I would be ok with the Vanguard fund. Even that I'd rather hold the Fidelity index than the Vanguard active fund.

Otherwise none.
Last edited by mikep on Wed May 18, 2022 8:52 am, edited 1 time in total.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Taylor Larimore »

student wrote: Tue May 17, 2022 9:56 pm Leftover from purchases that I had done years ago.
1) T. Rowe Price Capital Appreciation Fund 1.8%
2) Vanguard Star Fund 0.4%
3) FAM Value Fund 0.5%
4) Artisan International 0.5%

Edit: I still remember Star Fund was the only fund at Vanguard that I could qualified for with $500 minimum as a 32-year old.
student:

May I suggest you sell all four of these funds which could be more trouble than they are worth. Put the proceeds into your larger index funds. The current stock decline is a good time to sell unneeded taxable funds.

Best wishes.
Taylor
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by student »

Taylor Larimore wrote: Wed May 18, 2022 8:48 am
student wrote: Tue May 17, 2022 9:56 pm Leftover from purchases that I had done years ago.
1) T. Rowe Price Capital Appreciation Fund 1.8%
2) Vanguard Star Fund 0.4%
3) FAM Value Fund 0.5%
4) Artisan International 0.5%

Edit: I still remember Star Fund was the only fund at Vanguard that I could qualified for with $500 minimum as a 32-year old.
student:

May I suggest you sell all four of these funds which could be more trouble than they are worth. Put the proceeds into your larger index funds. The current stock decline is a good time to sell unneeded taxable funds.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom:Jack Bogle: "Simplicity is the master key to financial success. -- We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity."
Hi Taylor,

Thanks for replying. I have a plan of divesting out of 3) and 4).
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by LMK5 »

I don't have any more actively managed funds, but I held Vanguard Wellington for many years. I've always told myself that if you wanted to hold a single investment that Wellington may very well be the best choice.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Beensabu »

A fund? 20%

Overall? 2/3

But only because that's apparently what I've ended up doing.

Still low cost funds, though. Low enough for my small dollars, anyway.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Harry Livermore »

Reading this thread piqued my curiosity, so I looked at my spreadsheet.
We hold Wellesley in 4 different retirement accounts, totaling about 33% of our investments. I also own Short Term Treasury (VFIRX), an actively managed fund, in my small company plan, for an additional 15%.
My single-company stocks amount to another 4%.
The rest are in VTSAX, VTI, or VFIAX.
So 52% active, 48% passive.
Having thought about this, I now shrug. My "active" choices are not overwhelmingly active, and are reasonably inexpensive choices.
Cheers
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Charles Joseph »

Taylor Larimore wrote: Tue May 17, 2022 7:53 pm
Samuel Glover wrote: Tue May 17, 2022 7:01 pm
Thank you Taylor. I know you are correct (and I just finished your book). But what do you think of Mr. Bogle's advice for retirees to tilt somewhat toward Blue-Chip dividend paying stocks in retirement, so as not to rely as much on the market price and to rely more on regular dividend payments? I worry about retiring at the beginning of a bear market that could take more than a decade to recover from.

Mr. Bogle did warn that the further one strays from the market more risk they are taking.
Samuel Glover:

I retired in 1982 at the age of 58. I have been in several bear markets and we survived with a simple portfolio of stock and bonds index funds.

If you give me the exact Bogle quote and source, I will try to answer your question about Mr. Bogles advice "for retirees to tilt somewhat toward Blue-Chip dividend paying stocks in retirement--"

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Buy and hold the total stock market, or the S&P 500, or the total bond market; buy and hold forever, and that is the secret of investment success."
Hi Taylor,

I have a secondary source from etf.com, quoting Morningstar, which I don't feel is good enough to give you (I've kept it for several years). I'm going to keep looking for the primary source from Morningstar and hopefully share it with you.

PS The Bogleheads Guide Investing was fabulous and eye opening.
"The big money is not in the buying and selling, but in the waiting." - Charles Munger
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by SantaClaraSurfer »

HanSolo wrote: Tue May 17, 2022 9:51 pm
SantaClaraSurfer wrote: Tue May 17, 2022 8:27 pm They represent about .26% of our overall holdings. Hopefully that number will only decrease further and further!
Fixed it! Thanks!
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Charles Joseph »

Taylor Larimore wrote: Tue May 17, 2022 7:53 pm
Samuel Glover wrote: Tue May 17, 2022 7:01 pm
Thank you Taylor. I know you are correct (and I just finished your book). But what do you think of Mr. Bogle's advice for retirees to tilt somewhat toward Blue-Chip dividend paying stocks in retirement, so as not to rely as much on the market price and to rely more on regular dividend payments? I worry about retiring at the beginning of a bear market that could take more than a decade to recover from.

Mr. Bogle did warn that the further one strays from the market more risk they are taking.
Samuel Glover:

I retired in 1982 at the age of 58. I have been in several bear markets and we survived with a simple portfolio of stock and bonds index funds.

If you give me the exact Bogle quote and source, I will try to answer your question about Mr. Bogles advice "for retirees to tilt somewhat toward Blue-Chip dividend paying stocks in retirement--"

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Buy and hold the total stock market, or the S&P 500, or the total bond market; buy and hold forever, and that is the secret of investment success."
Hi Taylor,

I found a different Morningstar interview with Christine Benz from 2013 with Jack addressing the same issue of tilting toward high dividend-paying stocks:

Benz: So, your overall comment for people attempting to navigate the current environment for income producers is, don't get too fancy with the bond piece. Do own dividend payers, perhaps in lieu of a small part of your bond stake, and keep the costs overall really quite low.

Bogle: And let me make a distinction with those two. You have it exactly right. But I'd say, all these years of experience, six decades of experience, tells me reaching for yield on the safe side of your portfolio is simply not a good idea. It's going too far out the limb.

On the equity side, I don't have that same reservation, and I wouldn't necessarily recommend this strategy, but I would not be troubled by it: If you mixed a total bond market index fund with 30% or 40% or even 50% in high-yielding or a dividend growth kind of a mutual fund or even an ETF if we're going to hold it and not trade it, that's not a ridiculous thing to do. Because it's going to have a high correlation with the market as a whole, probably 90%-94% correlation--very high. So it's not as if you're moving away from X and into Y. You're modifying X into X3 or something like that.

Benz: Jack, it's always terrific to get your excellent advice. We really appreciate you taking the time to be here.
"The big money is not in the buying and selling, but in the waiting." - Charles Munger
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by secondopinion »

Samuel Glover wrote: Wed May 18, 2022 4:27 pm
Taylor Larimore wrote: Tue May 17, 2022 7:53 pm
Samuel Glover wrote: Tue May 17, 2022 7:01 pm
Thank you Taylor. I know you are correct (and I just finished your book). But what do you think of Mr. Bogle's advice for retirees to tilt somewhat toward Blue-Chip dividend paying stocks in retirement, so as not to rely as much on the market price and to rely more on regular dividend payments? I worry about retiring at the beginning of a bear market that could take more than a decade to recover from.

Mr. Bogle did warn that the further one strays from the market more risk they are taking.
Samuel Glover:

I retired in 1982 at the age of 58. I have been in several bear markets and we survived with a simple portfolio of stock and bonds index funds.

If you give me the exact Bogle quote and source, I will try to answer your question about Mr. Bogles advice "for retirees to tilt somewhat toward Blue-Chip dividend paying stocks in retirement--"

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Buy and hold the total stock market, or the S&P 500, or the total bond market; buy and hold forever, and that is the secret of investment success."
Hi Taylor,

I found a different Morningstar interview with Christine Benz from 2013 with Jack addressing the same issue of tilting toward high dividend-paying stocks:

Benz: So, your overall comment for people attempting to navigate the current environment for income producers is, don't get too fancy with the bond piece. Do own dividend payers, perhaps in lieu of a small part of your bond stake, and keep the costs overall really quite low.

Bogle: And let me make a distinction with those two. You have it exactly right. But I'd say, all these years of experience, six decades of experience, tells me reaching for yield on the safe side of your portfolio is simply not a good idea. It's going too far out the limb.

On the equity side, I don't have that same reservation, and I wouldn't necessarily recommend this strategy, but I would not be troubled by it: If you mixed a total bond market index fund with 30% or 40% or even 50% in high-yielding or a dividend growth kind of a mutual fund or even an ETF if we're going to hold it and not trade it, that's not a ridiculous thing to do. Because it's going to have a high correlation with the market as a whole, probably 90%-94% correlation--very high. So it's not as if you're moving away from X and into Y. You're modifying X into X3 or something like that.

Benz: Jack, it's always terrific to get your excellent advice. We really appreciate you taking the time to be here.
Note that he did not exactly recommended it, but it was seen as better than yield seeking in the bonds.

Myself, I never oppose corporate bonds if used in sensible amounts (maybe surpassing the total bond market ratio by a little bit); nor did Bogle if I remember right. Reaching for yield in bonds more refers to replacing a large portion for long-term bonds if the investment timeframe is too short, or having too much in low-quality bonds in general.

In general, I think that taxes are more of my concern here with dividend stocks than total returns.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Charles Joseph »

secondopinion wrote: Wed May 18, 2022 5:01 pm
Samuel Glover wrote: Wed May 18, 2022 4:27 pm
Taylor Larimore wrote: Tue May 17, 2022 7:53 pm
Samuel Glover wrote: Tue May 17, 2022 7:01 pm
Thank you Taylor. I know you are correct (and I just finished your book). But what do you think of Mr. Bogle's advice for retirees to tilt somewhat toward Blue-Chip dividend paying stocks in retirement, so as not to rely as much on the market price and to rely more on regular dividend payments? I worry about retiring at the beginning of a bear market that could take more than a decade to recover from.

Mr. Bogle did warn that the further one strays from the market more risk they are taking.
Samuel Glover:

I retired in 1982 at the age of 58. I have been in several bear markets and we survived with a simple portfolio of stock and bonds index funds.

If you give me the exact Bogle quote and source, I will try to answer your question about Mr. Bogles advice "for retirees to tilt somewhat toward Blue-Chip dividend paying stocks in retirement--"

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Buy and hold the total stock market, or the S&P 500, or the total bond market; buy and hold forever, and that is the secret of investment success."
Hi Taylor,

I found a different Morningstar interview with Christine Benz from 2013 with Jack addressing the same issue of tilting toward high dividend-paying stocks:

Benz: So, your overall comment for people attempting to navigate the current environment for income producers is, don't get too fancy with the bond piece. Do own dividend payers, perhaps in lieu of a small part of your bond stake, and keep the costs overall really quite low.

Bogle: And let me make a distinction with those two. You have it exactly right. But I'd say, all these years of experience, six decades of experience, tells me reaching for yield on the safe side of your portfolio is simply not a good idea. It's going too far out the limb.

On the equity side, I don't have that same reservation, and I wouldn't necessarily recommend this strategy, but I would not be troubled by it: If you mixed a total bond market index fund with 30% or 40% or even 50% in high-yielding or a dividend growth kind of a mutual fund or even an ETF if we're going to hold it and not trade it, that's not a ridiculous thing to do. Because it's going to have a high correlation with the market as a whole, probably 90%-94% correlation--very high. So it's not as if you're moving away from X and into Y. You're modifying X into X3 or something like that.

Benz: Jack, it's always terrific to get your excellent advice. We really appreciate you taking the time to be here.
Note that he did not exactly recommended it, but it was seen as better than yield seeking in the bonds.

Myself, I never oppose corporate bonds if used in sensible amounts (maybe surpassing the total bond market ratio by a little bit); nor did Bogle if I remember right. Reaching for yield in bonds more refers to replacing a large portion for long-term bonds if the investment timeframe is too short, or having too much in low-quality bonds in general.

In general, I think that taxes are more of my concern here with dividend stocks than total returns.
Yes, definitely noted re: not a ringing endorsement from Mr. Bogle.

And agreed on corporate bonds, which is one of the reasons I stick with Wellesley. It's about 20% treasuries (at last look), a tiny bit of government-back mortgages, and the rest in A or better corporates (again, at last look). I prefer more of my fixed income in high-quality corporates than total bond holds.
"The big money is not in the buying and selling, but in the waiting." - Charles Munger
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by secondopinion »

Samuel Glover wrote: Wed May 18, 2022 5:09 pm
secondopinion wrote: Wed May 18, 2022 5:01 pm
Samuel Glover wrote: Wed May 18, 2022 4:27 pm
Taylor Larimore wrote: Tue May 17, 2022 7:53 pm
Samuel Glover wrote: Tue May 17, 2022 7:01 pm
Thank you Taylor. I know you are correct (and I just finished your book). But what do you think of Mr. Bogle's advice for retirees to tilt somewhat toward Blue-Chip dividend paying stocks in retirement, so as not to rely as much on the market price and to rely more on regular dividend payments? I worry about retiring at the beginning of a bear market that could take more than a decade to recover from.

Mr. Bogle did warn that the further one strays from the market more risk they are taking.
Samuel Glover:

I retired in 1982 at the age of 58. I have been in several bear markets and we survived with a simple portfolio of stock and bonds index funds.

If you give me the exact Bogle quote and source, I will try to answer your question about Mr. Bogles advice "for retirees to tilt somewhat toward Blue-Chip dividend paying stocks in retirement--"

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Buy and hold the total stock market, or the S&P 500, or the total bond market; buy and hold forever, and that is the secret of investment success."
Hi Taylor,

I found a different Morningstar interview with Christine Benz from 2013 with Jack addressing the same issue of tilting toward high dividend-paying stocks:

Benz: So, your overall comment for people attempting to navigate the current environment for income producers is, don't get too fancy with the bond piece. Do own dividend payers, perhaps in lieu of a small part of your bond stake, and keep the costs overall really quite low.

Bogle: And let me make a distinction with those two. You have it exactly right. But I'd say, all these years of experience, six decades of experience, tells me reaching for yield on the safe side of your portfolio is simply not a good idea. It's going too far out the limb.

On the equity side, I don't have that same reservation, and I wouldn't necessarily recommend this strategy, but I would not be troubled by it: If you mixed a total bond market index fund with 30% or 40% or even 50% in high-yielding or a dividend growth kind of a mutual fund or even an ETF if we're going to hold it and not trade it, that's not a ridiculous thing to do. Because it's going to have a high correlation with the market as a whole, probably 90%-94% correlation--very high. So it's not as if you're moving away from X and into Y. You're modifying X into X3 or something like that.

Benz: Jack, it's always terrific to get your excellent advice. We really appreciate you taking the time to be here.
Note that he did not exactly recommended it, but it was seen as better than yield seeking in the bonds.

Myself, I never oppose corporate bonds if used in sensible amounts (maybe surpassing the total bond market ratio by a little bit); nor did Bogle if I remember right. Reaching for yield in bonds more refers to replacing a large portion for long-term bonds if the investment timeframe is too short, or having too much in low-quality bonds in general.

In general, I think that taxes are more of my concern here with dividend stocks than total returns.
Yes, definitely noted re: not a ringing endorsement from Mr. Bogle.

And agreed on corporate bonds, which is one of the reasons I stick with Wellesley. It's about 20% treasuries (at last look), a tiny bit of government-back mortgages, and the rest in A or better corporates (again, at last look). I prefer more of my fixed income in high-quality corporates than total bond holds.
It has about 55% in A3 or better corporates. It still has a good number of Baa bonds, but they focus on the higher side. Yes, it better than the typical corporate bond mix.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

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Samuel Glover:

Bonds should be primarily for safety in a portfolio. Any bond fund that is low cost, diversified, and holding investment grade securities should do the job. Investors should increase their stock allocation for higher return (and more risk of loss).

I am not enthusiastic about "Blue-Chip dividend stocks for safety in a bear market. Below are Vanguard fund returns in the 2008 bear market for stocks:

-39.5% Diversified Equity
-26.6% Dividend Appreciation
+4.9% Total Bond Market

-37.0% S&P 500 Index Fund

Past performance does not guarantee future performance.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Deep down, I remain absolutely confident that the vast majority of American families would be well served by owning their equity holding in a Standard & Poor's 500 Index fund (or a total stock makret index fund) and holding their bonds in a total bond market index fund."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Charles Joseph »

secondopinion wrote: Wed May 18, 2022 5:22 pm
Samuel Glover wrote: Wed May 18, 2022 5:09 pm
secondopinion wrote: Wed May 18, 2022 5:01 pm
Samuel Glover wrote: Wed May 18, 2022 4:27 pm
Taylor Larimore wrote: Tue May 17, 2022 7:53 pm
Samuel Glover:

I retired in 1982 at the age of 58. I have been in several bear markets and we survived with a simple portfolio of stock and bonds index funds.

If you give me the exact Bogle quote and source, I will try to answer your question about Mr. Bogles advice "for retirees to tilt somewhat toward Blue-Chip dividend paying stocks in retirement--"

Best wishes.
Taylor
Hi Taylor,

I found a different Morningstar interview with Christine Benz from 2013 with Jack addressing the same issue of tilting toward high dividend-paying stocks:

Benz: So, your overall comment for people attempting to navigate the current environment for income producers is, don't get too fancy with the bond piece. Do own dividend payers, perhaps in lieu of a small part of your bond stake, and keep the costs overall really quite low.

Bogle: And let me make a distinction with those two. You have it exactly right. But I'd say, all these years of experience, six decades of experience, tells me reaching for yield on the safe side of your portfolio is simply not a good idea. It's going too far out the limb.

On the equity side, I don't have that same reservation, and I wouldn't necessarily recommend this strategy, but I would not be troubled by it: If you mixed a total bond market index fund with 30% or 40% or even 50% in high-yielding or a dividend growth kind of a mutual fund or even an ETF if we're going to hold it and not trade it, that's not a ridiculous thing to do. Because it's going to have a high correlation with the market as a whole, probably 90%-94% correlation--very high. So it's not as if you're moving away from X and into Y. You're modifying X into X3 or something like that.

Benz: Jack, it's always terrific to get your excellent advice. We really appreciate you taking the time to be here.
Note that he did not exactly recommended it, but it was seen as better than yield seeking in the bonds.

Myself, I never oppose corporate bonds if used in sensible amounts (maybe surpassing the total bond market ratio by a little bit); nor did Bogle if I remember right. Reaching for yield in bonds more refers to replacing a large portion for long-term bonds if the investment timeframe is too short, or having too much in low-quality bonds in general.

In general, I think that taxes are more of my concern here with dividend stocks than total returns.
Yes, definitely noted re: not a ringing endorsement from Mr. Bogle.

And agreed on corporate bonds, which is one of the reasons I stick with Wellesley. It's about 20% treasuries (at last look), a tiny bit of government-back mortgages, and the rest in A or better corporates (again, at last look). I prefer more of my fixed income in high-quality corporates than total bond holds.
It has about 55% in A3 or better corporates. It still has a good number of Baa bonds, but they focus on the higher side. Yes, it better than the typical corporate bond mix.
Interesting. They've moved down the credit scale a bit. Their fixed income benchmark is the Bloomberg US Credit A or Better Index, and they used to keep very close to it credit-wise. I have to pay attention more. I have faith in Loren Moran on the bond side but it's always a good idea to keep an eye on things just to know what's under the hood. (FYI Michael Reckmeyer is retiring, in September I think, leaving Matthew Hand at the helm on the equity side).
"The big money is not in the buying and selling, but in the waiting." - Charles Munger
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

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Samuel Glover wrote: Fri May 20, 2022 5:49 pm Interesting. They've moved down the credit scale a bit. ...
I called this "bond quality drift" in another thread (here). This is another reason one has to keep an eye on what their active funds are doing. I haven't kept track, but I'd guess that Wellington Management hasn't drifted as much as certain funds managed by Vanguard Fixed Income Group. I like Wellesley Income and held it for many years in my IRA, but swapped it out for Vanguard Equity Income and some Treasury funds (partly to reduce corporates, and partly so I can control the balance myself).
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by celia »

Samuel Glover wrote: Tue May 17, 2022 2:52 pm Could I reasonably go higher? I'll be rolling over funds to my Traditional IRA and would love to keep it all in one place, but that would jack up the percentage even more.
OP, what does this mean? It doesn’t make sense to me. It’s like saying “I would rollover but my Asset Allocation would change.”

You have the same asset allocation or percentage of managed funds in your portfolio regardless if they sit in 1 or 2 or 3 or “n” accounts or at multiple custodians.

Maybe you meant something else?
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by cinghiale »

Interesting to not how many replies (thus far) reference Wellesley Income or Wellington.

Wellesley is the cornerstone of my retirement holdings… around 20% of total financial assets (not including real estate values) and 33% of retirement assets. Agree with other posters that Wellesley works much better in a tax protected space.

As I’ve mentioned many time in past threads, Wellesley keeps me honest. It’s not an ideal fund, or the ideal fund, but it allows me to ignore the “dividend strategy noise” and bypass the temptation to buy dividend stocks or ETFs. And, it’s a splendid “sleep at night” fund. It’s down 8.58% so far this year, which is a bit of an “ouch!”, but not nearly as “ouchy” as total stock’s -18.87% or total bond’s -9.27% YTD performance.

Morgan Housel’s excellent The Psychology of Money discusses the difference between being reasonable versus rational when making (and sticking to) investment decisions and plans. He states, “Do not aim to be coldly rational when making investment decisions. Aim to just be pretty reasonable. Reasonable is more realistic and you have a better chance of sticking with it over the long run, which is what matters most when managing money.”

As a number have posters have mentioned in this thread, a managed choice such as Wellesley or Wellington isn’t an awful choice. I would add that it might be a fine choice it it helps one avoid panic, fear, overreaction, and impulse-driven responses to market shocks.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by secondopinion »

cinghiale wrote: Sat May 21, 2022 1:54 am Interesting to not how many replies (thus far) reference Wellesley Income or Wellington.

Wellesley is the cornerstone of my retirement holdings… around 20% of total financial assets (not including real estate values) and 33% of retirement assets. Agree with other posters that Wellesley works much better in a tax protected space.

As I’ve mentioned many time in past threads, Wellesley keeps me honest. It’s not an ideal fund, or the ideal fund, but it allows me to ignore the “dividend strategy noise” and bypass the temptation to buy dividend stocks or ETFs. And, it’s a splendid “sleep at night” fund. It’s down 8.58% so far this year, which is a bit of an “ouch!”, but not nearly as “ouchy” as total stock’s -18.87% or total bond’s -9.27% YTD performance.

Morgan Housel’s excellent The Psychology of Money discusses the difference between being reasonable versus rational when making (and sticking to) investment decisions and plans. He states, “Do not aim to be coldly rational when making investment decisions. Aim to just be pretty reasonable. Reasonable is more realistic and you have a better chance of sticking with it over the long run, which is what matters most when managing money.”

As a number have posters have mentioned in this thread, a managed choice such as Wellesley or Wellington isn’t an awful choice. I would add that it might be a fine choice it it helps one avoid panic, fear, overreaction, and impulse-driven responses to market shocks.
Umm, “reasonable” is better than “rational”? By some definitions, “rational” requires optimization. So if “reasonable” is optimal, then it is “rational”. I am not understanding the point of the author’s quote; the two word essentially the same thing to me in the context I see here.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

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secondopinion wrote: Sat May 21, 2022 2:15 am Umm, “reasonable” is better than “rational”? By some definitions, “rational” requires optimization. So if “reasonable” is optimal, then it is “rational”. I am not understanding the point of the author’s quote; the two word essentially the same thing to me in the context I see here.
Maybe it's in some way related to this:
Live Free or Diehard wrote: Wed May 06, 2009 9:02 am
John Bogle speech wrote:Over the years, I’ve come to respect Von Clausewitz’ epigram, “the greatest enemy of a good
plan is the dream of a perfect plan.”
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by dkturner »

Samuel Glover wrote: Tue May 17, 2022 2:52 pm This question is, of course, for those who would even consider an active fund.

Currently, Vanguard Wellesley Income Fund (VWIAX) makes up 40% of my total assets. Vanguard states that investors can consider it as a "core holding in their portfolio."

Those of you who hold or would hold active funds, would you consider 40% too much? Just right? Could I reasonably go higher? I'll be rolling over funds to my Traditional IRA and would love to keep it all in one place, but that would jack up the percentage even more.

Any thoughts are appreciated in advance.
My entire rollover IRA is currently invested in the Vanguard Wellesley Income fund. It also accounts for about 40% of our combined portfolios. It’s difficult to come up with index funds which replicate the Wellesley portfolio, because of its unusual fixed income allocation - which consists primarily of “A” or better rated corporate bonds. Most indexed corporate bond funds have 50+% invested in “BBB” bonds.
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Re: What's the Largest Percentage of Your Portfolio You'd Have in An Active Fund??

Post by Charles Joseph »

HanSolo wrote: Sat May 21, 2022 2:53 am
secondopinion wrote: Sat May 21, 2022 2:15 am Umm, “reasonable” is better than “rational”? By some definitions, “rational” requires optimization. So if “reasonable” is optimal, then it is “rational”. I am not understanding the point of the author’s quote; the two word essentially the same thing to me in the context I see here.
Maybe it's in some way related to this:
Live Free or Diehard wrote: Wed May 06, 2009 9:02 am
John Bogle speech wrote:Over the years, I’ve come to respect Von Clausewitz’ epigram, “the greatest enemy of a good
plan is the dream of a perfect plan.”
+1000. In my written investment plan (aka IPS?) the phrase "good enough" is written in four different places as a reminder of the above.
"The big money is not in the buying and selling, but in the waiting." - Charles Munger
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