VTINX (Vanguard Target Retirement Income) vs. VWINX (Vanguard Wellesley)

Apr 5, 2021 | Blog Post, Reverse Mortgages

You’d like to get some income off your portfolio, be it in retirement or otherwise.  You are also a fan of Vanguard. So, you’re sitting around looking at two funds that seem appealing, the Vanguard Target Retirement Income Fund (VTINX) and the Vanguard Wellesley Fund (VWINX). 

Both have roughly the same mix between stocks and bonds.  As of this writing (2/2020), VTINX is 30% stocks and 67% bonds. Whereas the Wellesley Fund is 36/58.  Wellesley has nearly 4% cash while VTINX carries about 2.50%.

Both funds maintain the low expense ratios of which Vanguard is known for; VTINX at .11% and VWINX at .23%.  VTINX has a turnover of 10% and VWINX 28%, so both rather funds have quite low turnover rates. 

But that is where the similarities end.  VTINX is a fund of funds of sorts. It’s diversified among 5 Vanguard index funds, to include roughly 30% exposure to international stock and bond markets. 

The Wellesley Fund is all domestic positions of individual stocks and bonds.  And is actively managed. 

It appears the exposure to the international markets for the Vanguard Target Retirement Income Fund has really hurt performance. In the 16 years since inception, VWINX has beat VTINX in annual performance 14 of those years.   Wellesley has averaged 7.19% in that time period vs. 5.44% with the Target Fund. 

That difference of 1.50% annually over 16 years turns out to have been worth $72,000 MORE for someone who invested in Wellesley than someone who invested in the Target Retirement Fund.  See the two charts below.

One could explain the difference in GROWTH to the fact Wellesley does have more stocks, right? I mean the Target Retirement Income Fund is for INCOME after all.  (Well the Wellesley Fund is actually called the Wellesley INCOME fund but we’ll let that slide for a moment.)

Check out these two charts:

In these tables, I have you starting with $100,000 invested in both funds in 2004. I also have you taking 5% a year in income at the end of each year.  Notice, the Vanguard Target Retirement Income Fund paid out a total of $83,099 over the course of that time, averaging around $5,200 a year. 

Wellesley, on the other hand, paid out nearly $95,000, about $5,900 a year. So, in the Wellesley Fund you would have received an extra $700 a year, on average, in income over the course of those 16 years. Oh, but the fun doesn’t stop there. 

Even after the higher income amounts Wellesely paid out, you also had $31,000 MORE in your portfolio balance at the end of the 2019!  THe Wellesley Fund left you with $136,000. The Vanguard Retirement Income Fund $105,000, just a fraction over what your starting value was. 

Not sure I need to say more here, actually.  Yes indeed, past performance is not indicative of future results and all that.  The facts are the international markets hurt the performance of VTINX. Again, nearly 30% of the fund was invested in the Total International Stock and Bond funds. 

So, the ONLY reason I can see investing in VTINX over VWELX is if you believe the International markets will bounce back relative to the domestic markets.  Many people, it seems the vast majority of prognosticators actually, think this. I did a video on this just yesterday where we look at some of the largest firms projections over the next 10 years, from BlackRock to Vanguard.   They ALL believe international and emerging markets will dwarf the returns of domestic. 

If you agree with the professionals by all means go with VTINX.  As for me, I’d stay with Wellesely. I simply don’t trust the international markets as much as these other folks do.