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Vanguard High-Yield Corporate Message Board

  • minireef05 minireef05 Jun 7, 2013 2:48 PM Flag

    Long-Term Holding Question

    Okay, I've got a question for those who seem to know much more about these recent gyrations than me:

    I've got a sizable position in VWEHX in my 401k-- roughly 2,000 shares-- and I am about 40 years away from retirement, assuming that I actually retire at 65. I bought into this and continued invested through a Vanguard account prior to the fund being closed to new investors so I am able to continue making my new investments every 2 weeks with my paychecks and have been doing so. Started in around $5.50, letting dividends reinvest and compound the whole way.

    Question: Is this still worth holding going forward if I have 40 years to let the yield compound? There's a lot of people on here talking about the price potentially/probably going as low #$%$ Would the yield at $5 still be in the 6% range? I will be adding to my position roughly every 2 weeks so I will have quite frequently "dollar cost averaging" on my position as well as the dividend stream since I do not need the cash as income now or anytime soon.

    I do realize that a drop to $5 will significantly erode my current capital gains vs what any potential increase in the payout would offset in the near term, but my "near term" could be construed as 10-15 years out relative to my retirement age. I would hate to dump my shares in light of the ability to let a 6% yield compound for next 40 years with increasing cash coming through to also boost monthly payouts-- especially since the fund is closed with no word on when it will reopen making it more difficult to step out and wait for a return to $5 to get back into this fund.

    What are your thoughts?

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    • I've been in this fund a long time, added to it over the last five years after I retired. It grew to too large a portion of my allocation, so I sold about a third last month. That said, I do intend to hold the remainder of my holdings. I realize my principle may shrink more, but then the yield will continue higher, meaning my monthly income will increase. Meanwhile, as the yield rises, more investors will buy shares of the fund. Interest rates are not spiking any time soon. They'll rise a bit here, but there's no sign of inflation in sight, and economies worldwide are struggling. So, even though I no longer reinvest my dividends to buy more shares as they decline in price, I'm content with seeing my monthly dividend check increase. Finally, I ask myself where I would put the money if I pulled it from this fund. The money I did move from this fund I put into Vanguard's new international bond fund. I am already way over-allocated to stocks -- something Uncle Ben forced me to do for income. This VG HY Corp Fund is a well-run, conservatively managed fund that will continue to do well over time. And remember, high-yield bonds can act as much like stocks as they do bonds, and therefore react to rising rates differently than regular gov. and corporate bonds.

    • Difangduana makes good points. Also remember that if you are reinvesting all dividends, which I recommend, then as the NAV drops you get more shares from the same dividend each month which will in turn give you more total dividends each month and so on another type of compounding. All those positive points aside you still have to decide what percent of your portfolio you want in bonds ( not that much at your age) and which funds. I'd say hang on to this one it is aggressive but you are young and the yield is pretty good for a bond fund. Get rich slowly like they say. Good luck I wish I were 25 again.


      Sentiment: Hold

      • 1 Reply to kenpalley2000
      • Thank you Ken and Difangduana for your responses. I went back and pulled up all of my transactions in my 401k for the last 2.5 years that I have held this fund and totaled all the inflows and outflows to get an average price per share (total shares bought or sold multiplied by the price per share at time of transaction. Total "value" divided by total net shares held = avg. NAV per share).

        I came up with $5.86 for my avg. NAV which is yielding me between 6.1 and 6.2% at a monthly .03/shr/month payout on the annual basis of .36/shr.

        I originally acquired some 1000 shares around $5.60, bought another 1,400 through direct investment and reinvestments, but sold out roughly 1100 shares to buy into stock funds over the last 4 months at the price rode higher (largest sell was 880 shares at $6.15). I've got maybe $100 directly into this per month and about $40 in dividends coming through. If this does fall lower toward my avg. NAV or below that, I will increase the contribution amount to further lower my NAV on this fund and hopefully kick up the dividend stream a bit (not just because of larger share count, but possibly because the yield on the fund would increase a little due to Vanguard adding bonds at higher rates).

        I've got the rest of my funds in Vanguard SP500 tracking fund, Health Care and Energy funds, their mid and small cap funds (1 of each), high yield dividend and cash (roughly 10% of portfolio for balance and taking advantage of price swings for adding to some of my funds).

    • If you are dollar cost averaging it, why do you care what the NAV is? The point of "dollar cost averaging" is to make sure your NAV reflects the bond's NAV, in which case, you are just receiving income from the yield. So if VWEHX drops to $1, it does not matter, because your NAV will be $1, if you have been putting money in over 40 years.

      For instance, I bought my VWEHX at like $5.85 or something, but because of the recent rise, my NAV has been pushed up to $5.95. I am sure as I continue to buy monthly, my NAV will reflect the fund's NAV, which is $6.05. Or if it goes down, then my NAV will go down as well.

      And bonds, even junk bonds drop very slowly. It does not have the volatility of stocks. So even if it drops down to $1, it does it over a very long time, as in one penny a penny every three days or something. Unlike stocks, which can lose 1% to 5% daily.

      Sentiment: Buy

      • 1 Reply to difangduana
      • And I also meant to write, "And bonds, even junk bonds drop very slowly. It does not have the volatility of stocks. So even if it drops down to $1, it does it over a very long time, as in one penny every three days or something. Unlike stocks, which can lose 1% to 5% daily. In a low volatility environment, your dollar cost averaging actually makes a difference. "

        Sentiment: Buy

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