What I’m about to share with you is something I’d like you to share with or teach to your spouse. In 2008 some of the smartest guys in the room sat and watched as their mutual funds lost close to 50%. Meanwhile boring old Vanguard GNMA made money. That’s all the proof I need to make sure my well balanced portfolio owns Vanguard GNMA. It would be nice to be able to buy just one balanced mutual fund and be done with it. But there are none out there today that fit the bill. Don’t get me wrong, I love the world class Vanguard Wellesley fund. There is no better low cost balanced fund. But without getting into too much detail I do have a couple of concerns.
One is its size. The fund is aircraft carrier big making it difficult to buy smaller stocks without overrunning the company. And two, the bond duration is longer than I’d like. I decided to run a back-of-an-envelope portfolio using Vanguard GNMA, Vanguard Short-Term Investment Grade, and Young Research’s Retirement Compounders stocks using Vanguard Wellesley’s 60/40 bond to stock mix. I was pleasantly surprised to find that this portfolio had a higher income/dividend rate. My two concerns were solved—a lower duration or risk on the bond side and the ability to own dividend paying stocks with Navy SEAL like anonymity. Teach this to your spouse because as the saying goes: to learn read, to know write, to master teach.
E.J. Smith works with new investors that have $2 million or more to invest. He can be reached at: email@example.com