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I AM NEW TO BONDS. I HAVE A STOCK PORTFOLIO THAT I'VE BEEN WRESTLING WITH FOR OVER A YEAR. HAVEN'T WE ALL?!!

I JUST CAME INTO SOME MONEY AND AM TRYING TO DECIDE BETWEEN INVESTING IN THE VANGUARD WELLINGTON BALANCED MUTUAL FUND (VWELX) AND THE VANGUARD TOTAL MKT. BOND INDEX FUND (VBMFX) AS I HAVE NO BONDS. AS I DON'T NEED THE INCOME IT WILL BE REINVESTED BACK INTO THE FUNDS.

I'M A LONG TERM INVESTOR SO DON'T WANT TO MAKE ANY MISTAKES AND HAVE TO SWITCH FUNDS. ANY SUGGESTIONS???

THANX......

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Hi, amanda1357!

Please don't type in all caps; it's hard to read. It's considered to be the equivalent of shouting. Be polite, capitalize right!

A balanced fund is a combination stock and bond fund. The fund manager buys and sells as necessary to keep the two assets in balance (i.e. one of them does not grow to dominate the other).

Why have you decided you need bonds? Laying out your reasons should make things a lot more clear.

Is this a taxable or tax-deferred account?

I'M A LONG TERM INVESTOR SO DON'T WANT TO MAKE ANY MISTAKES
Guess what -- you WILL make mistakes. It is impossible to avoid. In fact, perfectionists can get hurt really badly when investing because it's harder for them to admit they made a mistake in the past, and move on.

Switching funds isn't the end of the world.
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Thanx for the response and sorry about the caps. I'm talking about a taxable bond fund. I guess I feel that bonds would balance my portfolio. I want something I can leave my money in for the long run and not have to check it out each day as I do with my equities.

How ever, I keep reading that if you're not already in the bond market you've missed the boat because it's time to get out. But is this true for people who want to be in for the long term?

I originally thought about going into a balanced fund because it has some stocks. But then I thought, I already have some of the stocks in the fund and would rather be more divirsified.

P.S. I agree that I will make mistakes, and have, but the fund I'm in does not allow for switching in and out of funds at the drop of a hat. In fact, as I understand it, if you do it too often they won't take your order over the phone, it has to be in writing.
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What do you mean by "balance"? Why do you want it? Why didn't you want it before? Are you taking the longterm view, or are you concerned about week-to-week (or year-to-year) fluctuations? Knowing yourself is a big part of any investment decision.

Bonds are now quite high-priced and low-yielding (except junk bonds, but that's a whole different story). If you buy bonds now, you will lose principal when rates go up. If you can keep on adding funds to your bond portfolio during the ups and downs, though, that's not a big deal. I wouldn't pour all my funds in right now.

The point of a balanced fund is to buy bonds when they're cheap relative to stocks, and sell them when they're expensive relative to stocks.

the fund I'm in does not allow for switching in and out of funds at the drop of a hat
Good for them! But if you realize you've made a mistake, and your thinking is sound, you should switch out of the mistake at the earliest opportunity (as long as you have something better to switch into). Don't dawdle around just for "patience's" sake.
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You might be interested in buying both Wellington (about 60% stock and 40% bonds) (WELIX) and Wellesley (about 60% bonds and 40% stocks) (I think it is WINIX). Then you will be about 50-50 stocks and bonds. Wellesley is called an income fund so they have lots of dividend paying stocks in their portfolio. Over the long haul you will average about 10% increase in each per year. Wellesley had two down years in the 1990s and neither was big because of the income and the early 1990s had one of the worst bond markets on record (1994). I used to have both of these but made a mistake and got out early last year when it looked like Wellesley was going to have a third down year (they didn't).

Of course you are going to have both dividends and capital gains to pay taxes on. But if you like to watch the grass grow, these two funds are pretty good. Incidentally, this is not a good year for Wellington so it is probably not a bad year to buy in. Wellesley is up nicely, but you might catch the last rise. I believe they have a distribution in December so if you are going to get in this year, you should hop to it to maximize the shares you get. If you don't do it soon, then I would wait until next year when the price will go back down because of the distribution. That way you will get more shares for your money.

brucedoe
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Greetings jrr7,

The point of a balanced fund is to buy bonds when they're cheap relative to stocks, and sell them when they're expensive relative to stocks.

No, this is the point of so-called "Asset Allocation funds" that use tactical asset allocation such as Vanguard's Asset Allocation fund(VAAPX) rather than those funds that seek a somewhat constant mix and try to be a fund that almost has everything in one for a given asset allocation as Vanguard's Balanced Index(VBINX) doesn't try to time the markets but just hold a mix of 60% stocks to 40% bonds.

JB
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