Have you heard of the Vanguard Wellington Fund? VWELX (investors shares) or VWENX (admiral shares) is my #1 fund for retirees.
This guide explains wha is the Vanguard Wellington (VWELX, VWENX), who should buy it and how is it performing.
You’ll learn the exact secrets that make the Vanguard Wellington Fund the miracle to retiring wealthy. And when it may not be ideal for you.
- What is the Vanguard Wellington Fund?
- Vanguard Wellington Fund Returns
- Stocks and Bonds Inside the Vanguard Wellington Fund
- Taxes and Fees on the Vanguard Wellington Fund
- Who Are the Ideal Customers of the Vanguard Wellington Fund?
- History, Culture, People and the Future of Wellington Management
- Should You Invest in VWENX and VWELX?
- When to NOT Invest in the Vanguard Wellington Fund?
- What’s Next?
What is the Vanguard Wellington Fund?
In the Best Vanguard Funds for Every Stage of Your Life, I said Wellington is my favorite fund for retirees.
Here, I am going to go into detail on the Wellington Fund and why I love it for retirees.
The Wellington Fund™ is Vanguard’s oldest mutual fund. The fund is created in 1929. Not many mutual funds survive this long, and I’ll explain why below.
VWELX belongs to the category of balanced funds. In fact, VWELX is the oldest balanced fund in the world.
The admiral shares has a slightly lower expense ratio (0.16%) but a higher minimum investment requirement ($50,000). The investor shares has a slightly higher expense ratio (0.24%) but lower minimum investment requirement ($3,000)
The objective of the Wellington Fund is to provide both (1) long-term capital appreciation and (2) reasonable current income. And to do so with (3) consistency and low volatility.
This is a tall order. But Wellington tries to achieve their goals by:
- Setting an asset allocation of 60% to 70% stocks and 30% to 40% bonds
- Investing in mostly large, some mid-cap value stocks
- Buying government and investment-grade corporate bonds.
Vanguard Wellington Fund Returns
In the past ten years (2013 to 2023), the Vanguard Wellington (VWENX) Fund delivered a 8.48% annualized return.
That is your money growing at 8.48% per year, every year, for 10 years. Not too shabby, right?
It’s even more impressive if you consider that Vanguard Wellington only invests 65% of assets in stocks.
Comparatively, the S&P 500 grew by 12.64% during the same 10-year period. But 100% of its assets there are stocks, which makes it more risky.
The chart above suggests that through multiple recessions, wars, and the changing of guards in the company, the Wellington Fund has delivered on average 7.57% since 1929… that is an insane statistic.
This sort of performance over this long period of time is unheard of.
Even the best hedge funds do not survive through multiple recessions and multiple portfolio managers, consistently earning 7.57%.
But it’s not just the growth that makes Wellington special. It’s also volatility… or the lack there of, that makes Wellington especially attractive to consider.
Fund Performance During Periods of Crisis and Recessions
Wonder what was the performance of Vanguard Wellington fund during the 2008 housing crisis? Below, I’ll share how this fund has fared during the worst-performing years of the stock market.
During the housing crisis of 2008, the S&P 500 declined by -38% while Wellington declined by nearly half as much, only 22%.
During 2022 where both bonds and stocks dropped, the S&P 500 declined -18% while the Wellington declined -14%.
The two charts below show this in detail:
- Chart 1: In the depth of 2008, S&P 500 nearly erased all of its gains in the past 15 years; VWELX also dipped, but not nearly as badly.
- Chart 2: In the 10 years since 2008, the S&P 500 clearly outpaced VWELX by many folds. You might look at the second chart and exclaim, “I should definitely invest in the S&P 500 instead!” But hold that thought…
When you are approaching retirement age, a big crash on the S&P 500 can give people heart attacks, wiping out a decade worth of profits.
During the worst year of the dot com bubble, the market decreased by 23% while Wellington dropped by 7%. If you are under 40, a 23% decline isn’t a big deal. But if you are over 60, a 23% drop might mean you can’t retire anymore.
Fund Performance During Boom and Growth
The chart below showed that during the best-performing years, while the S&P 500 grew by double digits between 30% to 40%, Vanguard Wellington was also able to grow at double-digit rates, though lower at 20% to 30%.
This suggests that the Vanguard Wellington Fund is capable of steady, even impressive growth during economic expansions.
While the Vanguard Wellington Fund is never the best performing fund of the year, its steadiness and consistency wins the race over the long run.
Stocks and Bonds Inside the Vanguard Wellington Fund
The Vanguard Wellington fund invests in stocks that are large and value, which means they have staying power and benefit from the test of time. Vanguard also tends to pick stocks that pay some dividends.
On the bond side, the Vanguard Wellington invests in quality stuff as well. The approach, on both stocks and bonds, is to participate in up markets and outperform and preserve when markets decline.
About 65% of the fund’s assets are in stocks, 33% in bonds, and 2% in short-term reserves. Let’s have a closer look at what each consists of.
Equity: Blue Chip Stocks with Staying Power
Wellington invests in 80 stocks in the fund’s portfolio, and their 10 largest stocks account for 20% of total assets (or 31% of total equity portion)
Nearly all of its stocks are large value, value, and US-based. Though there are some exceptions.
Compare to the S&P 500, the Vanguard Wellington Fund over-invests in a number of “value” industries (healthcare, industries, consumer discretionary), but under-invests in the growth industry of technology.
About 10% of Vanguard Wellington is invested in foreign stocks mostly in stable, western democracies like Switzerland or Germany. But the actual international exposure is a lot higher because on average 40% of the U.S. based company revenue comes from the internal market.
Bond: Medium Maturity and High Rating
While the bond portion of the portfolio is only about 35%, it plays a crucial role in balancing risks.
Vanguard Wellington invests in 1,197 bonds with an average maturity of 6.6 years. The longer the maturity, the more a fund’s share price will move up or down in response to changes in interest rates.
6.6 years maturity shows that Wellington is taking on a moderate amount of risk, not as low as 2 years, but not as high as 20.
What kinds of bonds are in Vanguard Wellington? About roughly 2/3 of its bond are corporate bonds from stable companies such as those in the financial industry (i.e., banks) because they are too big to fail (so your debt is as safe as possible).
Another 1/3 of the bonds are issued by the Treasury, which is backed up by the United States government.
Together, we see 80% of the bonds are high quality, stable and safe from defaults because they are A grade corporate bond or the U.S. Treasury. The rest the bonds are spread across foreign economies and commercial and municipal government bonds, or are b-grade corporate bonds.
With most the bonds in grade A or US-backed securities and the rest in grade B across a wide distribution of issuers, the bond team is working hard to create the kind of hedge that ultimately saves us on a rainy day.
How safe is the vanguard Wellington fund? ,With short-term government bonds, high quality corporate bonds, and large, value cap stocks, I’d call it sufficiently cautious.
Is It an Income Generating Fund?
The Vanguard Wellington fund’s dividend rate is 2.16% as of 2023.
This means if you put your money into the Vanguard Wellington Fund, you’ll earn today 2.16% in interests per year. That’s lower than inflation but not totally bad given it is still a fund focused deriving value from growth.
You might wonder, when should I buy the Vanguard Wellington Fund to Get dividends on time? The answer is whenever you want.
Vanguard Wellington pays dividends quarterly on the last day of each quarter (3/31, 6/30, 9/31, and 12/30). You qualify for each quarter’s dividend payout as long as you buy 2 to 4 days before the end of that quarter.
So if you want to get a dividends payout in December, you need to own Vanguard Wellington Fund Admiral or Investor shares by roughly December 26th.
Taxes and Fees on the Vanguard Wellington Fund
There is some argument that Wellington is. not tax efficient because it invests in stuff that are “taxable.” So many people argue one should not invest Wellington in taxable account.
I agree that a Wellington is not tax efficient – much of its returns are taxable. This is why when you compare Wellington to a tax efficient fund, the tax efficient fund pays less of its returns to tax.
However, I would argue that even after removing taxes, Wellington still beats the returns of many other funds, especially when you look at the track record long-term.
We should not be so obsessed with avoiding paying taxes that we make decisions that hurt the net (tax) performance.
Plus, if you are a retiree, you are going to spend distribution anyways instead of investing it back into the fund and if you are a retiree in a low tax bracket, perhaps without a state income tax, then you won’t be paying much to Uncle Sam on taxes so it’s fine to invest Wellington in a taxable account.
Fees (Expense Ratios) for VWELX and VWENX
With any mutual fund, you need to look at the expense ratios.
Luckily, the Vanguard Wellington fees have always been reasonable.
The Vanguard Wellington fund investor shares mean you need a minimum of $3,000 to invest at an expense ratio of 0.24%. The same fund but for Admiral shares requires a minimum investment of $50,000 and a lower expense ratio of 0.16%.
At this level of sophistication, both funds are sufficiently cheap considering many hedge funds charge north of 1% for their fees.
If you bought Investor shares but eventually your money grew to meet the limits of Admiral shares, Vanguard will auto-convert your investor shares to admiral.
Who Are the Ideal Customers of the Vanguard Wellington Fund?
The perfect persona of a Vanguard Wellington Fund holder is an elderly widow.
She has outlived her husband and is now careful and wants to be super savvy with her wealth. She wants to craft a portfolio that safeguards her wealth for her to enjoy into the 90s and potentially pass down to her children and grandchildren.
In fact, many investors have shared that these women are confident enough to put all of their money into the Vanguard Wellington Fund.
I would not go that far as to say to put all of your eggs in one basket, but I think that says something about the track record, quality, consistency, and faith of this fund.
History, Culture, People and the Future of Wellington Management
To understand why the rich widows had so much faith, we have to understand the story behind this fund and the tight relationship between the Wellington Management Company and Vanguard.
History of Wellington and Vanguard
Vanguard’s founder, John Bogle, started his career at Wellington.
To this day, Wellington and Vanguard maintain a close relationship. Wellington manages all or portions of 12 Vanguard funds, including Vanguard’s top-performing Health Care Fund, Wellesley Income Fund, and of course, Vanguard Wellington Fund.
The Culture at Wellington Management
Wellington Management, based out of Boston, oversees some $1.1 trillion in assets for Vanguard and 600 other clients in over 60 countries.
We live in a world where mutual funds die every recession and close with the passing of every portfolio manager.
How could Vanguard Wellington stand nearly 100 years of tests?
I think the answer lies at the core of its company culture.
Here’s what Wellington Management says about its own culture:
At Wellington Management, we believe our collegial, collaborative culture is our sustainable competitive advantage.
Wellington makes it core tenets to be:
Wellington’s culture values match its goals, which is to not be the best in any one year, but to win through consistency and longevity.
Wellington’s company culture believes bursts of success are not worthwhile if it is harmful to longevity.
The People Behind the Wellington Miracle
In a world where portfolio managers retire after making millions in a short few years, people at Wellington work for decades at a minimum.
The Vanguard Wellington Fund’s portfolio managers have been Edward Bousa since 2002 and John Keogh since 2006. Edward Bousa manages equity while Keogh manages bond.
Together, they’ve had a great run for well over a decade, surviving the 2008 housing crisis and thriving after.
In 2019, John Keogh retired after 36 years at Wellington for 36 years. Soon after, Edward Bousa retired, too.
What’s going to happen to the 90-year-old fund now? Luckily, Wellington has planned the succession starting in 2014, when it hired Lorena Moran and Daniel Pozen to work on bonds and equity for the Wellington fund respectively, shadowing Bousa and Keogh to replace them.
The Future and Succession Plan
The investment thesis of the Vanguard Wellington Fund has remained consistent for over 40 years, well before Bousa and Keogh took place, and I believe the core thesis will remain the same with Moran and Pozen.
We should continue to expect a 65% allocation in large-cap blue-chip requirements, with the remainder in bond tilted toward high-quality, high-rating securities and notes.
Should You Invest in VWENX and VWELX?
I love the Vanguard Wellington Fund. While I am nowhere near retirement, I have some of my money saved there.
I’ve also advised my parents who are just beginning their retirement to put a lot of their money there.
But Vanguard Wellington is not for everyone. There are some scenarios under which I do not recommend it.
The biggest reason is allocation. A 65% stock and 35% bond split is not appropriate for investors under 40 or 50, let alone 30. You will lose out on a lot of returns if you keep 35% of all of your assets in bonds.
For someone 40 years old, a 20% to 25% bond weighting is more appropriate.
Some people also criticize Vanguard Wellington for mostly avoiding international stocks and bonds, high-yield bonds, small-cap stocks, and mid-cap stocks. I don’t agree with this criticism. There is no empirical evidence that we need to invest in these categories; but, they could be valid.
Before 2022, the U.S. corporate and Treasury yields are low and domestic stock valuations are high. But in 2022, we had both stocks and bonds dropping off the cliff.
However, 2022 was particularly bad for Vanguard Wellington because the bonds were suppose to offset the stock declines. Instead, it went down with it. Wellington did perform spectacularly bad in 2022, but still weathered better than the S&P 500.
Might there be a scenario where natural resources and gold become better performing? Of course, it happened during 2022. But I’m still willing to bet that Wellington is as good as it gets, and that in the long run, minerals and gas don’t deliver like stocks do.
Are you now worried about a recession? Read my guide on the stock market crash.
When to NOT Invest in the Vanguard Wellington Fund?
First, having said all the amazing things about the Vanguard Wellington fund, let’s now do a reality check.
S&P 500 Outperforms Vanguard Wellington
The chart below compares the Vanguard Wellington Fund against the S&P 500 for the past nearly four decades since 1986.
the S&P 500 (100% stocks) outperformed the Vanguard Wellington by 15x.
Things really, really took off after 2008. Before 2008, the S&P 500 would also crash back to Wellington. But since 2008, the S&P really took off and has expanded its gap.
We don’t know what will happen in the next 20 years, or how much will the S&P 500 (BLUE) fall? Will the Vanguard Wellington catch up as tech ceases to become the darling it has been in the 21st century?
Here is my advice:
If you are below 40s, you should not invest everything in the Vanguard Wellington. Instead, go for the highs and lows of an all-stock stock fund such as the S&P 500 index fund.
Vanguard Wellington is for retirees who appreciate moderate gains and the stability of never crashing.
Buy Vanguard Wellington in Your Retirement Fund Only
The Vanguard Wellington fund pays a healthy dose of dividends. If you invest outside of a retirement account, you need to pay dividend income tax every year.
But if the Vanguard Wellington is in a retirement fund, you don’t pay dividends tax until you take i tout.
Further, the Wellington fund also has a high turnover rate. Because it is an active find rather than an index fund, stocks are traded more often. This tends to trigger capital gains tax, which needs to be paid every year if you invest outside of a retirement fund.
The Vanguard Wellington Fund is closed for personal investors outside of its brokerage account for retirement funds.
Therefore, you can only buy the Vanguard Wellington in a retirement account.
Retirement accounts are great. You don’t need to worry about paying taxes until you pull them out. This especially applies to the Wellington fund.
So ready to buy the Wellington for your retirement?
The Vanguard Wellington Fund Summary
If there is one word to describe this fund, it would be the word quality.
It’s got the highest quality bonds and highest quality stocks in the world. And the the fund having a 8% return over the course of 91 years is a testament to quality.
Quality stocks and bonds bring consistency in returns and become stronger as time goes on.
Quality stocks and bonds also have lower volatility, able to withstand crises and recessions and survive through.
If you are a retiree or know a loved one who is, look into the Vanguard Wellington. It might just save their life.
Looking for index funds to invest your money? Read Best Vanguard Funds for Every Stage of Your Life.
Scared for your stock investments and wondering when you should pull out? Read Will the Stock Market Crash? Complete Analysis
Know how I write posts quickly without grammatical errors? Read Grammarly Review: How to Avoid Epic Typos Every Time