No. of Recommendations: 8
"So, with the risk of inflation looming and rates rising, how am I (at age 69) going to do with my investments in the Wellesley Fund which covers a field of bonds and includes dividend paying securities??
Only other investments are in the VFINX 500."

Don't suppose "damned if I know" is the answer you're looking for,

I guess I'd start by asking if this is really your total assets (other than home)? Do you have soical security? Pension? Cash or US Savings Bonds?

In principle, if stocks and bonds go opposite directions, an appropriate balance, both within the Wellesley Fund itself and for you, between the two funds, should offer protection if bond prices rise. The biggest worry is that both will decline together, high interest rates setting off falling stock prices (as in the last few days, only worse). I don't buy into the extreme Henny Penny scenarios, but we certainly are looking at a situation where there could be simultaneous bear markets, and I don't know what will happen when boomers retire, starting around 2010, though I think the effect may be overrated, since so much capital in stocks and bonds is not in the hands of those who will have to cash in to live on life savings.

If you've got enough put away that you're just living off the dividends, and can continue to do so for a few more years, I wouldn't worry too much, except doing some rebalancing. If you're needing to cash in shares, I'd think seriously about cashing out a few years living expenses and doing a CD ladder—rates such, but you won't lose the principle.

Have you looked at the Wellesley holdings?


http://flagship4.vanguard.com/VGApp/hnw/FundsHoldings?FundId=0027&FundIntExt=INT&

Note the bonds are all corporates. Corporates haven't had the same kind of bull bond market as treasuries, so they probably won't get hit as hard, at least initially, by rising interest rates. On the other hand, the heavy weighting of financial and energy stocks could be a problem—banks may get clobbered as stocks if interest rates go up, because they make their best profits in low rate environments.
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