FA Center: This 50-year-old Vanguard mutual fund is holding its own against younger rivals

Vanguard Wellesley Income Fund prestigious its 50th birthday in July. A bilateral fund stuff in merchantry that long has wilt well-nigh as rare as couples reaching their 50th wedding anniversary, and so the fund’s longevity is noteworthy in its own right.

But, by analyzing this bilateral fund’s performance, we can yank important investment lessons for the future — expressly well-nigh the wisdom of the so-called 60/40 portfolio of stocks and bonds.

First, though, a walk lanugo memory lane. Wellesley Income

 ] was created in July 1970 by the Wellington Management Co., at which a gentleman by the name of John Bogle was working. Bogle would later create the Vanguard Group of bilateral funds, and the Wellesley Income fund became one of its offerings. Wellington Management unfurled to manage the fund.

The fund falls in the “Balanced” category, averaging well-nigh a 35% typecasting to stocks over the decades and 65% in bonds. Despite therefore stuff rather conservative, it has produced a quite respectable 9.7% annualized 50-year return through this past July 31, equal to investment researcher Morningstar. 

Over this same period, the unshortened U.S. stock market, as measured by the Wilshire 5000 Total Return Index, produced an 11.0% annualized return. Long-term Treasurys, intermediate-term Treasurys, and long-term corporate immuration produced annualized returns of 8.8%, 7.0%, and 8.3%, respectively.

Vanguard Wellesley Income is slightly superiority of a strategy that had a unvarying 35%/65% stock/bond typecasting over the past 50 years and invested the yoke portion in an tabulate benchmarked to either intermediate-term Treasurys or corporate bonds. As you can see from the twin chart, however, the fund would have slightly lagged a hypothetical tabulate fund portfolio that allocated the yoke portion to long-term Treasurys.

Since the vast majority of bilateral funds don’t plane match their benchmarks, much less slightly write-up it, Wellesley Income’s return puts it well-above average. In any case, it’s unfair to compare it to a portfolio of tabulate funds, since such funds didn’t plane exist in 1970. The Vanguard 500 Tabulate Fund
  Bogle’s landmark invention, wasn’t created until 1976. Equal to an article in Barron’s several years ago, furthermore, the first yoke tabulate fund wasn’t created until late 1986 (the Vanguard Total Yoke Market Tabulate Fund

 ). Given that, Wellesley Income’s victory is plane increasingly impressive.

Another way of appreciating Wellesley Income’s victory is to focus on the sorriness rate among bilateral funds. I am unable to find out how many bilateral funds existed 50 years ago, so I can only estimate how few of them exist today. Researchers have found that, between 1962 and 1995, the stereotype yearly mutual-fund sorriness rate was 3.6%. If we seem that rate for the unshortened 50 years of Wellesley Income’s life, that ways that just 16% of the funds that were in existence in 1970 are still virtually today.

Another estimate of sorriness comes from S&P Dow Jones Indices. In their year-end 2019 SPIVA U.S. Scoreboard, they report that just 44.53% of all domestic funds that existed at the whence of 2005 were still in existence at the end of 2019 — equivalent to an sorriness rate of 5.25% annualized. Assuming that was the very rate each year since 1970, only 7% of that year’s funds would still be in existence today. Regardless of which sorriness rate you assume, it is well-spoken that Wellesley Income is among a small minority.

Mixing stocks and bonds

All of this begs the question well-nigh how this 50-year old fund will perform in the future, however. Tabulate funds are widely misogynist now, and if the fund is so closely correlated with the long-term returns of a composite stock-bond benchmark index, you could very well ask if it’s worth the effort. Your wordplay will rest in part on whether you’re willing to withstand the risk of lagging that benchmark in order to preserve the possibility of outperforming it.

What I want to focus on, however, is whether the 35%/65% stock/bond split pursued by Wellesley Income is out-of-date. Many oppose that it is, including such investment legends as Burton Malkiel, the Princeton University economist and tragedian of the famous book, “A Random Walk Lanugo Wall Street.” Recently Malkiel told MarketWatch reporter Andrea Riquier that there no longer is justification for plane a 60%/40% stock-bond portfolio, much less a 35%/65% split.

I’m not so sure, however. Consider a recent wringer completed by Joe Tomlinson, a financial planner, actuary and retirement researcher. He focused in particular on the impact during retirement years of moving from a 60% stock/40% yoke portfolio to one that is 75%/25%. He found that, on stereotype wideness thousands of simulations, this move led to a surprisingly small increase in the value the median retiree could withdraw each year. But what that move did do was profoundly expand the range of possible outcomes — from very good at one end of the lattermost to very bad at the other.

One of the major implications of Tomlinson’s wringer is that increasing probity exposure may not be worth the risk. If you do, he adds, you should have a separate “solid wiring of secure lifetime income” with which to pay for vital needs. “Relying on stock-heavy portfolios to meet vital needs carries a lot of risk.” If you’re persuaded by this analysis, Wellesley Income may be an lulu consideration.

Mark Hulbert is a regular freelancer to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a unappetizing fee to be audited. He can be reached at

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