Will the Vanguard Wellesly Dividends Continue to Increase
Mutual Funds; Reader's Mail: Enduring the Rate Rise
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November 27, 1994
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Question. I own shares in the Vanguard Wellesley Income Fund, which comprises about one-third of my individual retirement account. The fund has an excellent track record; however, with the rise in interest rates and fluctuation in the bond market, I'm getting nervous. I do not plan to become wildly rich with this fund, but neither do I wish to lose principal. Please advise.
Answer. Wellesley Income has performed exceptionally well during the last 10 years because of generally declining interest rates. When rates rise, however, Wellesley's relatively static allocation of 60 percent bonds leaves management with few options to protect investors' capital.
Hindsight says the time to bail out was at the end of February, when the fund was off just 1.1 percent for 1994, said Anthony J. Ogorek, an investment adviser based in Buffalo. By mid-November, it was down more than 6 percent, because bonds have been hit harder than stocks so far this year and because Wellesley owns mostly longer-duration bonds, which lose value more rapidly than shorter ones. Also, the fund owns a big chunk of utility stocks, which have not fared well this year.
What to do now? Hang on to your shares, Mr. Ogorek says. "Although rising rates will continue to have a negative impact on Wellesley's share prices, most of the damage may be done," he said. When interest rates begin to fall as the economy heads into the next recession, you may be able to recoup some of your loss as bond prices recover. But "since the economy is still expanding, I don't expect to hear talk of another recession for at least six to nine months," he said.
Q. Because some of us are having difficulties with brokers, would you please consider several related issues: How do brokers obtain the names and addresses, or financial holdings, of potential clients unknown to them? Is there some central clearinghouse that provides this information? Once a client has agreed to buy, is it legal and moral for the broker to demand more personal information? What agencies should abuse of these practices be reported to?
A. Brokers compile all kinds of lists, from magazine subscriptions, building directories, even from the telephone book. "That's an industry in itself," said Dan Jamieson, editor of Registered Representative magazine, a trade publication in Irvine, Calif. When a broker you do not know calls, "there's nothing wrong with asking 'How did you get my name?'," Mr. Jamieson said.
He knows of no clearinghouse of such information or sources of confidential financial data. Again, if you want to know how a person knew something, ask.
Once you agree to buy, the picture changes. Brokers must be sure you meet legal suitability standards -- whether the investment makes sense for you. Without basic financial information about a client, "the broker couldn't make any intelligent recommendations," Mr. Jamieson said.
As for possible abuses of confidentiality, contact the brokerage firm's branch manager, then the company's headquarters, he said. If you feel you have a major legal problem, contact a lawyer or the National Association of Securities Dealers, which has jurisdiction over brokers.
Q. I closely track the performance of my mutual funds and would like to compare them to the Standard & Poor's 500-stock index, with reinvested dividends, from the time I bought shares to the present. However, the daily S.& P. 500 index published in The New York Times and elsewhere is a price-only index that does not take into account reinvested dividends. Do you know where this data is available?
A. While Standard & Poor's sells such information to institutions, there is no similar product aimed at the individual investor, said Martin Skala, senior editor of the Standard & Poor's Outlook, a weekly newsletter for individual investors.
Outlook, however, does publish the dividend yield in each issue. Currently, it is 2.9 percent, meaning that if no companies in the 500 change their dividends over the next 12 months, an owner of the 500 stocks would collect that much in dividends, in addition to any gains or losses in price.
To analyze how well a fund is doing relative to the index, it is better to use more recent figures, perhaps only as far back as three years, than data from a long-ago date of purchase, said Maria Crawford Scott, who edits the American Association of Individual Investors Journal, in Chicago.
Source: https://www.nytimes.com/1994/11/27/business/mutual-funds-reader-s-mail-enduring-the-rate-rise.html
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