Replacing Cash with VWINX, the results look juicy

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ozzy
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Replacing Cash with VWINX, the results look juicy

Post by ozzy » Sun Mar 16, 2014 9:11 am

Hi all,
I made a modification to my PP and I’d like your feedback.  I've replaced the cash portion with VWINX.

I know, more risk, go easy on me.  I know its PP heresy, but I can't help it, the back tested results look too juicy.

I don't feel I need the cash portion, its dragging the whole PP down.  I still have many years until retirement and I keep a large cash cushion in my checking account for emergencies.  And since I'm in the growth phase I can add new cash to it whenever I want.

Here’s the website with my back tested results.  Feel free to comment.  Thanks.
http://www.tightwadweb.com/customportfolio.html
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Re: Replacing Cash with VWINX, the results look juicy

Post by AdamA » Sun Mar 16, 2014 9:27 am

What will you do if you need cash in an emergency?
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Re: Replacing Cash with VWINX, the results look juicy

Post by ozzy » Sun Mar 16, 2014 9:32 am

AdamA, I keep 12 months of living expenses in my checking account.
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Re: Replacing Cash with VWINX, the results look juicy

Post by AdamA » Sun Mar 16, 2014 9:37 am

ozzy wrote: AdamA, I keep 12 months of living expenses in my checking account.
I think what you're doing is fine, then.  As long as you stick to it.  Don't shuffle in and out of the vanguard fund when it's doing poorly. 
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Re: Replacing Cash with VWINX, the results look juicy

Post by ns3 » Sun Mar 16, 2014 9:56 am

I converted my wife's and my Roth IRA's to VWINX last year, about 10 percent of our whole portfolio right now. This didn't replace any part of the PP however. I just re-balanced the rest of it and thought of the Roth IRA's as my VP, although I wouldn't technically call it money we can't afford to lose.  Also, I have written advice to my wife for how to simplify the investments in case of my death and what I told her is to sell everything we have in the PP except for the physical gold and put everything else in VWINX.

Interestingly Vanguard tells my wife on one of the opening pages that this is too conservative for her based on her age (she's 48 - I'm 64). It doesn't tell me that.
Last edited by ns3 on Sun Mar 16, 2014 10:02 am, edited 1 time in total.
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Re: Replacing Cash with VWINX, the results look juicy

Post by tnt » Sun Mar 16, 2014 9:58 am

Outside of a strict pp perspective, I would say, Good job Ozzy.  If I had not made the mistake of exiting stocks in 12/11 I would be 100% vwinx.  It is a fantastic fund that has done excellent work in all environments.  Why the pimco?  vwinx has about 77% corp and 22 gov with around 6 year average duration and you have the long bond and cash in your checking.  I keep a sheet of paper next to me with the returns of vwinx, prpfx, pp and the S&P and vwinx has a strong historical case.  The reason I like this managed fund, is that the performance comes from the Wellesley Group's discipline as a company that each manager follows along with Vanguard's willingness to not mess with the objective. 
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Re: Replacing Cash with VWINX, the results look juicy

Post by Reub » Sun Mar 16, 2014 10:03 am

For the past year, VWINX has a return of 0.88%.
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Re: Replacing Cash with VWINX, the results look juicy

Post by tnt » Sun Mar 16, 2014 10:15 am

Returns are a strange thing depending how you slice them.  Including the 08 crash up to 12/31/13 vwinx is 7.6 average going -9.84 in the crash then following with 16.02--10.65--9.63--10.06--9.19 and already 1.5 ytd.  Before 08 the last negative year was -4.14 on 99.  Including 2000 through 2013 it averaged 7.9  The only decade it underperformed pp was the 70's when it did 6.05 versus 15.2.  This fund is amazing and a beautiful mix with pp if you can stand the possible volatility introduced in some circumstances without cash, that is why it is more fitting in the vp format but nice work anyway.
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Re: Replacing Cash with VWINX, the results look juicy

Post by ns3 » Sun Mar 16, 2014 10:38 am

tnt wrote: This fund is amazing and a beautiful mix with pp if you can stand the possible volatility introduced in some circumstances without cash, that is why it is more fitting in the vp format but nice work anyway.
When I went looking for a safer investment strategy after the crash of 2008 I happened upon a heated discussion on some forum debating the PP vs VWINX. I think MT and maybe even Craig were contributing to it though I hadn't heard of them yet.

Ultimately the PP came out on top for me but very good points were made for VWINX too although the person making them was a real a**hole. I moved the Roth IRA's to VWINX when the PP wasn't doing so well last year so it will be interesting to compare them side by side in the long run.
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Re: Replacing Cash with VWINX, the results look juicy

Post by tnt » Sun Mar 16, 2014 10:49 am

Vwinx comes up a lot because it is so good but contrary to pp as a sole investment because there is no gold or long bonds and the stocks are dividend. Because it is so good, many people come up with vp mixes including vwinx. Some have suggested vwinx and gold and so forth.  I believe the vwinx success comes from a masterful combination of bonds and the dividend stocks always contributing.  The Wellesley management team has done a first class job for 43 years and because of that, they will always be in the discussion.
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Re: Replacing Cash with VWINX, the results look juicy

Post by Dieter » Sun Mar 16, 2014 12:40 pm

I've also been considering what to do with the Cash part due to low yield, still accumulating, and have a deprecate emergency fund. (Currently my "cash" part is split between VG Prime Money Market and VG ST Bond index, and less than 25% target.)

What you have now (assuming other aspects are standard PP)

35% Stock with a large value tilt
40% bond, 40% intermediate corporate bond
25% Gold

Will probably have higher return and volatility.
I expect it to do worse than standard PP with rising interest rates.

Still seems a solid portfolio.
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Re: Replacing Cash with VWINX, the results look juicy

Post by Reub » Sun Mar 16, 2014 12:55 pm

Desert wrote:
Reub wrote: For the past year, VWINX has a return of 0.88%.
Vanguard claims that the 1 year return was a bit over 8%...
That is odd. Google Finance shows 0.88%.
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Re: Replacing Cash with VWINX, the results look juicy

Post by tnt » Sun Mar 16, 2014 1:16 pm

The intermediate corporate bonds would end up being 15% of your portfolio and about 3.3% of your portfolio would be in intermediate gov bonds and of course the additional 9.5 percent dividend stocks.  They also adjust the type of bonds as conditions warrant so it is hard to look at bonds too specific.  With that said, there is definitely the possibility of additional volatility but vwinx barely shows any end of year volatility as it had gains every year from 2000 until 2008 and lost only 9.84% then and averaged 7.6% since. Even so it would be a vp portfolio.
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Re: Replacing Cash with VWINX, the results look juicy

Post by Reub » Sun Mar 16, 2014 1:17 pm

Yahoo Finance is also showing 0.88%.

Also, please keep in mind that VWIAX throws off large, taxable dividends and capital gains.
Last edited by Reub on Sun Mar 16, 2014 1:20 pm, edited 1 time in total.
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Re: Replacing Cash with VWINX, the results look juicy

Post by tnt » Sun Mar 16, 2014 1:21 pm

By the way, vanguard and Google are using different dates.  Yahoo also says .88 one year but that is 1 year from the day you are looking at it.  It returned 9.19 last year
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Re: Replacing Cash with VWINX, the results look juicy

Post by ozzy » Sun Mar 16, 2014 2:55 pm

Thanks everyone for your feedback.

TNT - thanks for your comments on the 5% Pimco allocation I had.  I agree with your assessment and I removed it.  I just added a 10% international weighting and updated the results on the website, it looks really good.

I'm going to rebalance my RothIRA with this tomorrow morning, I can't wait!  ;D
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Re: Replacing Cash with VWINX, the results look juicy

Post by Xan » Sun Mar 16, 2014 3:07 pm

ozzy - Why not just consider your 12-month checking account savings to be part of your PP cash?  It's not Treasury bills, so it's not 100.00% orthodox, but I think it's close enough.  In practice, this may be similar to Desert's suggestion of moving to a cashless 3x33% PP.  (Depends how you look at it.)

I would without hesitation consider a large checking account to be PP cash.
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Re: Replacing Cash with VWINX, the results look juicy

Post by ozzy » Sun Mar 16, 2014 3:30 pm

Xan - I have back-tested a cashless 3x33% (VTI/TLT/GLD) and the returns are 8.5%.  So it underperforms my custom VWINX allocation which returns 9.7%.

I guess it all depends on how you view your cash.  I don't consider my checking account cash to be part of my retirement account because its not invested.  It’s basically an insurance policy.  I prefer to keep it separate.
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Re: Replacing Cash with VWINX, the results look juicy

Post by Tyler » Sun Mar 16, 2014 4:20 pm

Although I am 100% PP myself, I really like VWINX as a fund and recommend it to friends.  That said, it is not a substitute for PP cash.  You're just chasing yield with more stocks and bonds.  This is perfectly fine as a VP, but be aware of how it changes your risk profile. 

I absolutely see my checking account as part of the PP.  I'm invested in a portfolio, and cash is an important asset for the PP as a whole. 
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Re: Replacing Cash with VWINX, the results look juicy

Post by ozzy » Sun Mar 16, 2014 5:17 pm

Desert - yes, that's it.  Thanks for your results, they match mine results perfectly.  Good to know my spreadsheet data analysis is accurate.

I’m in the same boat, trying to figure out the best portfolio for me, which I believe is the PP, but I just can't swallow the cash portion (at least during my working years) so I'm going with my custom PP. 
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Re: Replacing Cash with VWINX, the results look juicy

Post by tnt » Sun Mar 16, 2014 6:46 pm

Good work guys, it is interesting this discussion came up since I am in the midst of phasing into pp and have been debating this option as well since I have the cash outside of my retirement account.  I am sitting in 12.5 stocks between prpfx and S&P 500, 26.9 bonds which includes 20% tlt, 22.5 gold and 36.8 cash. My intention is to end up like ozzy, eventually eliminating prpfx and investing the cash.  At this point I thought about using the standard pp rebalance method to move into them as if I owned them by watching their price movement from this point.  However, there is a quandary with vwinx since it did not move 10% during the last crash nor has it ever closed a year that low although I do not know it's max dd history just year end results. Do you guys have an opinion about how to move into to these positions with the 36% cash considering the elevated stock market levels?
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Re: Replacing Cash with VWINX, the results look juicy

Post by Ad Orientem » Sun Mar 16, 2014 7:53 pm

Given your 12 months worth of living expenses in the bank, I don't think I would lose a lot of sleep over this. VWINX is an excellent fund and for people who don't like gold it's one of my favorite recommendations.
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Re: Replacing Cash with VWINX, the results look juicy

Post by Alanw » Sun Mar 16, 2014 8:34 pm

Ad Orientem wrote: Given your 12 months worth of living expenses in the bank, I don't think I would lose a lot of sleep over this. VWINX is an excellent fund and for people who don't like gold it's one of my favorite recommendations.
I also recommend VWINX to investors regularly.  Got tired of defending gold and LTT's in a portfolio.  My portfolio for several years has been 80% HBPP and 20% VWINX.  Both are treated as separate portfolios with the HBPP rebalanced as needed.  This gives me a gold allocation of 20% (I wanted a smaller percentage), and slightly overweights  stocks and bonds.  The cash portion is enough to cover roughly 4 years of living expenses (I am semi-retired). So far it seems to be performing quite well.  If you want a higher stock percentage, I would just go with Wellington.
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Re: Replacing Cash with VWINX, the results look juicy

Post by annieB » Mon Mar 17, 2014 7:47 am

I show these max drawdowns for VWINX:

1987--down 14.2
2008--down 18.3
2009--down 12.9
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Re: Replacing Cash with VWINX, the results look juicy

Post by Laker » Mon Mar 17, 2014 7:50 am

Desert wrote: Ozzy, is this the mix you're looking at now?
25% GLD
25% Wellesley
25% TLT
25% VTI

If so, it certainly did well in the past.  I do a lot of back-testing as I'm trying to figure out the best portfolio for my family, even though I know that back-testing can lead investors down a bad path at times.  I looked at the above portfolio and compared it with the PP and my present portfolio (using Simba's spreadsheet).  My present portfolio is 30% equity (10% each in EM, SCV and TSM), 60% 10-year treasury (or CD's if I can beat the 10-year T yield), and 10% gold. 


Results for 1972-2013:
                PP        PP+Wellesley    30/60/10
CAGR          8.89    10.13              10.37
SD              7.87    8.64                7.11
Sharpe        0.51    0.61                  0.76

Results for 1985-2013:
                PP        PP+Wellesley    30/60/10
CAGR          7.69    9.22                9.79
SD              5.83    7.44                7.33
Sharpe        0.68    0.75                  0.84

Desert,

Do you have a maximum drawdown for this mix in your backtesting?
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