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An alternative to: Psst...Wellesley
Old 04-21-2008, 08:15 PM   #1
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An alternative to: Psst...Wellesley

From Vanguard today:

https://personal.vanguard.com/us/Van...252008_ALL.jsp

A new set of balanced funds designed for generating income in retirement with varying degrees of capital appreciation.

There is a thread discussing them at the Bogleheads site titled " fyi managed payout funds"

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Old 04-21-2008, 10:27 PM   #2
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I still like Wellesley's 40 year track record and even after reading more about these managed payout funds, I still don't know enough to really decide whether I like them or not... But I do like the monthly payout...
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Old 04-21-2008, 11:29 PM   #3
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I still like Wellesley's 40 year track record and even after reading more about these managed payout funds, I still don't know enough to really decide whether I like them or not... But I do like the monthly payout...
I'd prefer a daily payout, in small bills, placed discretely in my pocket on my way to the pub....... And of course, cleverly orchestrated so Moma don't know.....

I like Wellesley too.
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Old 04-22-2008, 07:30 AM   #4
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Yes, these funds had been discussed during their pre-release days. Looks like they survived the approval process intact. I checked Vgd to see what the holdings are and the page was blank.

Best I can tell, they might have been an excellent alternative to target funds or some of the balanced funds if I were still immersed in the accumulation phase, even though their focus is on the post-retirement cash flow piece. For me at the brink of retirement, I have too many questions about how the payouts are taken (pro rata from all holdings? rebalancing proceeds? fixed > equity?), and the lack of history.

But they do look interesting.
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Old 04-22-2008, 07:38 AM   #5
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I have to wonder how popular these new payout funds will be until they develop some sort of a track record. I suspect that most folks in the drawdown phase will be somewhat reluctant to depend on a new and unproven fund as a significant source of their retirement income. I know I won't be for now.
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Old 04-22-2008, 07:42 AM   #6
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Interesting, but would want to see them in action for at least a couple of years!

Don't have "absolute return" investment or any exotic investments, but like having something similar to what these espouse on my own, INCLUDING Wellesley..

7.5% REIT Index
12.5% International
20% Total Market Index
35% Wellesley
25% Total Bond Market and I Bonds
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Old 04-22-2008, 07:48 AM   #7
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Yes, I will be watching these funds as well. This could be a nice way to supplement my SS check when the time comes. Eight years before that kicks in so will be following the Norwegian widow's philosophy in the mean time. Who knows, if it works well......might even marry her. Heh heh heh
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Old 04-22-2008, 08:40 AM   #8
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Interesting, but would want to see them in action for at least a couple of years!

Don't have "absolute return" investment or any exotic investments, but like having something similar to what these espouse on my own, INCLUDING Wellesley..

7.5% REIT Index
12.5% International
20% Total Market Index
35% Wellesley
25% Total Bond Market and I Bonds
Vanguard sent me an invitation to a "Webinar" (online seminar, I guess) on the topic of these managed payout funds, scheduled for this Thursday. I would say they invited me because I'm an especially cool person, but actually they said they usually invite Admiral customers and this time included some Voyager Select customers to attend, too. I declined since it is during work hours and I have no particular questions, but will get a link through which I can listen to it later.

The new managed payout funds are interesting to me because my asset allocation is very similar to yours: no REIT's, but 13% international, 20% total market index, 30% Wellesley, 35% cash and bonds, 2% fun investments (right now emerging markets and a little large cap value - - whatever I want, to help me resist the temptation to change my basic AA, and maybe eventually REIT).

I might want to put a little in these managed payout funds just so that I don't have quite so much in Wellesley. I'm not yet sure, and probably won't for simplicity's sake. But they are very interesting!! I do expect that these new funds will probably do well in their first few years.
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Old 04-22-2008, 10:00 AM   #9
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For me at the brink of retirement, I have too many questions about how the payouts are taken (pro rata from all holdings? rebalancing proceeds? fixed > equity?), and the lack of history.
They're actively managed to keep withdrawals as constant as possible while preserving principal. All the methods you mention might be used over time depending on the economy.

It was a bit of a surprise to read the borchure describing an actively managed fund giving the managers wide discretion in investiment and withdrawal style coming from Vanguard.
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Old 04-22-2008, 11:13 AM   #10
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About frickin time! I've been waiting for these to come out.

Nice for people who are asset allocators that like lots of asset classes and dont want to do the work. The ER's have inched up a little since their outset, but still reasonable for the range of assets used. They started around .34 then went to .4 and now around .57/.58. Looks like the payout amounts backed up as well...looks like ~2.5, ~4.1 and ~6.5 instead of 3/5/7 as they originally were proposed. I think thats a good idea.

Do note that the potential for capital appreciation goes down as the payout goes up. Thus the high growth fund might pay out a higher actual dollar amount than the payout focused fund after 7-10 years.

Nice to buy half of the high growth and half of the middle growth, get your ~4%, and forget about the rest.

I expected them to hold onto this release until they felt the markets were firming up. So if you agree with that idea, that means vanguard thinks things are turning up. Wouldnt make a lot of sense to launch a series of funds with fixed payout expectations if they expected the principal to take a huge dive.
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Old 04-22-2008, 11:14 AM   #11
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W2R - regardless these new funds, i don't think roughly a third of portfolio in Wellesley is "dangerous". Ignoring good history and manager objectives this just breaks down into around 10% value stock and 20% corporate bonds in your overall allocation. Both reasonable and you get managed selection and re-balancing. I personally like the managed part as an offset to the indexing and self rebalancing i do otherwise... bill
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Old 04-22-2008, 11:15 AM   #12
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Careful - it's for nontaxable accounts for the most part. Per recent Boglehead posts it will be very actively managed.
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Old 04-22-2008, 11:17 AM   #13
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About frickin time! I've been waiting for these to come out.

Nice for people who are asset allocators that like lots of asset classes and dont want to do the work. The ER's have inched up a little since their outset, but still reasonable for the range of assets used.

Do note that the potential for capital appreciation goes down as the payout goes up. Thus the high growth fund might pay out a higher actual dollar amount than the payout focused fund after 7-10 years.

Nice to buy half of the high growth and half of the middle growth, get your ~4%, and forget about the rest.
Yep. I can see a thread on allocations of Managed Payout funds! Not internal but mixtures and possible account locations. By the way, is there a cheat sheet on what the approximate bogies are for the allocations within these guys; like Wellesley's 35% stock, 65% bond?
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Old 04-22-2008, 11:23 AM   #14
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By the way, is there a cheat sheet on what the approximate bogies are for the allocations within these guys; like Wellesley's 35% stock, 65% bond?
Here is the investment strategy for Managed Payout Growth Focus:

Investment strategy
The fund invests in Vanguard mutual funds and other investments according to an asset allocation strategy designed to provide shareholders with regular cash flow from their investments in the fund.

Investment policy
The fund may invest in futures contracts, options on futures contracts, options on securities or securities indexes, credit default swaps, interest rate swaps, total return swaps, forward foreign currency agreements, and other derivatives. The advisor will not use derivatives to change the risks of the fund as a whole as such risks are described in the prospectus.

Looks to me to be "whatever we think will work".
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Old 04-22-2008, 11:39 AM   #15
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Looks to me to be "whatever we think will work".
There ya go..... As I said above, I'm a little surprised to see Vanguard coming up with an actively managed fund that gives the managers such wide leeway. Not disappointed. Just surprised.
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Old 04-22-2008, 11:41 AM   #16
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Its a mixture of total stock and total bond, international, tips, commodities, market neutral and other components. Some of the earlier threads had specifics of the buckets and very broad ranges.

Looks like we wont know for sure until the funds invest and release next month.
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Old 04-22-2008, 11:44 AM   #17
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Prior thread with some pointers to some articles and sec filings.

Vanguard Managed Payout Fund/taxable account?
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Old 04-22-2008, 11:46 AM   #18
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Looks like the payout amounts backed up as well...looks like ~2.5, ~4.1 and ~6.5 instead of 3/5/7 as they originally were proposed. I think thats a good idea.
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Wonder where you got that from? The payout calculator provided by Vanguard at the site still shows 3/5/7.
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Old 04-22-2008, 11:55 AM   #19
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W2R - regardless these new funds, i don't think roughly a third of portfolio in Wellesley is "dangerous". Ignoring good history and manager objectives this just breaks down into around 10% value stock and 20% corporate bonds in your overall allocation. Both reasonable and you get managed selection and re-balancing. I personally like the managed part as an offset to the indexing and self rebalancing i do otherwise... bill
I am pretty sure you are right about a third of our portfolio in Wellesley being reasonable. We probably think pretty much alike about investing, since our portfolios are so similar! I doubt that I will invest much in the managed payout funds, even though it is tempting to jump right in at the ground floor. But really, Wellesley gives me what I want and has a great track record.
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Old 04-22-2008, 12:12 PM   #20
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There ya go..... As I said above, I'm a little surprised to see Vanguard coming up with an actively managed fund that gives the managers such wide leeway. Not disappointed. Just surprised.
It's the only way they can mitigate the risk, they need flexibility. How else can they "guarantee" 6 or 7% withdrawals when the market is down 10%??
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