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One of my favorite funds of all time is the Vanguard Wellington Fund. It’s been around since 1929! It’s a dirt cheap balanced fund with 2/3 stocks and 1/3 bonds. On the stock side, they tend to go with quality dividend payers, with about 10%
I’m not going to say Wellington is specifically the right fund for whoever might be reading this, but it’s extremely easy to do worse than Wellington. Over the past several decades, Wellington has been close to the return of the S&P 500 with a lot less volatility. Wellington avoided the scary tech bubble in the early 2000’s. Wellington only lost 22% in 2008 when the Vanguard 500 Index lost Fund 37%. According to Vanguard, In the past 10 years, The 500 Index has returned a cumulative 103% while Wellington is right behind at 102%. Past performance is never a guarantee of future performance of course.
Some further fascinating reading materials on the Wellington fund in particular are over at The Conservative Income Investor, a dividend stock picking guru. I enjoy these commentaries, but let’s make it clear that I absolutely don’t recommend subscribing to any stock guru’s newsletters:
How to Duplicate Wellington with Vanguard Funds:
While you’ll never be able to duplicate the day-to-day decisions that the professionals over at Wellington Management are doing on a day-to-day basis, you can come pretty close by utilizing index funds or ETF’s. I don’t personally like using ETF’s. ETF’s trade like stocks. There’s a bid/ask spread. If an ETF is not highly liquid (it it highly liquid when it has billions of dollars), it’s very easy to get hosed on the bid/ask spread, if you don’t know what you’re doing, please do stick with tried and true mutual funds, where you are guaranteed to get the end-of-day pricing on your purchase and sale every single time.
The simplest way would be 2/3 in Vanguard High Dividend Index (VHDYX) and 1/3 in Vanguard Intermediate Term Investment Grade (VFICX). The latter is technically an actively managed bond fund, but it’s dirt cheap and the Vanguard Intermediate Term Corporate Bond Index Fund has a minimum investment of $10,000 and the investment grade fund is closer to what the bond side of Wellington is doing anyway. If you used this strategy, you would have to be sure to rebalance though to make sure your allocation does not get to out of whack. It’d be a lot simpler just to buy Wellington.
Why I Created a Vanguard Wellington Motif at Motif Investing
Well, I actually signed up for Motif Investing solely to collect a $100 bonus. All you had to do was create an account, deposit $1,000, make 1 trade for $9.95 and you receive $100. Unfortuantely, the $100 referral is no longer available, but there is an affiliate program where you can collect up to $150 after making a certain amount of trades and depositing $2,000. Not nearly as lucrative, but better than nothing! Click the logo below to find out more:
After I created my Motif account, I spent a solid hour searching the existing motif’s for something that I could use for my single trade to trigger the bonus. This neded to be something I could hold forever because it’d be silly to pay another $9.95 when I can certainly spare an extra grand in the markets. I don’t mind maintaining an ongoing account at Motif because I already have to pay for TurboTax to import all my 1099’s, so who cares if there’s another 1099 to grab. A lot of the professional motif’s seemed super gimmicky. A lot of the community motif’s seemed poorly created. Like I mentioned before, liquidity in ETF’s is huge because of the bid/ask spread. You don’t have to worry about this if you’re in Betterment, Wealthfront or Schwab’s robo-advisors because they use incredibly liquid ETFs.
But in Motif Investing, there are so many motif’s utilizing ETF’s that have a drastically lower trading volume, or worse, individual stocks!. These are not securities that I suggest you be in, particularly when you are outsourcing the trade to a robot. If you’re going to grab individual stocks, I always suggest limit orders. No way to do that with a motif.
So, I searched the community motif’s for a Wellington motif. A lot of people like the Wellington fund. It is home to a whopping 92 billion in collective assets. Somebody must have created it, right? I found absolutely nothing. So what did I do? I created The Wellington Motif utilizing the following very liquid ETF’s. I was torn between VYM and VIG, but I do think that VYM better represents the equity side of the actual Wellington fund.
The weighted expense ratio for the Wellington Motif is only 15 bps, which is actually 11 bps less than the management fee for the Investor Share class of Wellington Fund, and 3 bps less than the Admiral Share class of Wellington Fund (the admiral share class requires you to invest $50,000 in the fund). To find the Vanguard Wellington Motif, just log in to your Motif account and search for Vanguard Wellington.
I don’t personally own the Vanguard Wellington mutual fund, though I have in the past and I think it’s a great fund for the lazy investor.
I did enroll the Vanguard Wellington Motif in Motif Investing’s Creator Royalty program. I theoretically would receive $1.00 every time someone purchases or re-balances the Vanguard Wellington Motif. I don’t realistically anticipate to receive much in the form of royalties because you’d think that if anyone was searching for a Wellington motif and wanted to use one, someone else would have come up with the idea of creating it already.
There is definitely a downside to Motif Investing and that is that you are going to need to rebalance your motif and that’s going to cost you $9.95 every time. Annual rebalancing is probably sufficient, and maybe those $9.95/trade fees are manageable if you stick with a relatively safe balanced strategy like the Wellington motif and tend to lump your deposits a few times a year. You definitely don’t want to use Motif if you are investing $100 every week, because you’d be losing nearly 10% of your new investment in trading fees. Obviously, any rebalancing costs inside the actual Wellington fund itself are already baked into the fund’s expense ratio, and there’s no trading fee to buy the fund in your Vanguard account. With the Wellington Fund, the managers can control the allocation with the daily in-flows and out-flows…and they have some more flexibility in what their prospectus allows them to do with the stock/bond split, the duration of the bonds, and probably the types of equities they own. But the latter is unlikely.
From Motif’s FAQ: We rebalance the motifs in the catalog on an annual and quarterly basis. If you own a motif that has been rebalanced, we’ll notify you so that you can follow the rebalance if you choose. Because this is a very small portion of my overall investment portfolio, I’ll probably just let my original purchase ride rather than incur another $9.95 to rebalance it.
Reader – what do you think of my psuedo-Wellington fund creation utilizing ETF’s? Would you have made different ETF selections to produce a quasi-Wellington fund ?
It will definitely be interesting to see how the Wellington Motif performs comparatively to the Wellington Fund itself over the next few years.