Opinions on the New Income Replacement Funds

[mickeyd]

I am looking at these funds for a small part of my assets. I am currently eligible for a DB plan at a company that I worked for about 20 years, but have long ago left. They are now offering a lump sum distribution (RO?) option which was not available until now. If I could RO this lump into one of these funds and create an income that is greater than that offered as a pension payout, I may be willing to assume the additional risk myself in order to get a higher payout. The ER of around .54% is a bit steep for me, but I will have to do the math and evaluate the risk to see if it works for me.

[cute fuzzy bunny]

Its a little steep but a lot of that has to do with the market neutral fund and the commodity piece...the MN fund has a 250k minimum and there is no commodity fund available at vanguard. So rolling your own without adding outside funds is hard to do.

There are also some minimums and purchase/redemption fees you get to avoid. The ftse ex-us has a .25% purchase fee and the MN fund has a 1% redemption fee on shares held under a year and the ftse ex-us fund has a 2% redemption on shares held under 2 months.

So spendy, but I see where its going. I think it'll drop into the .35-.4 range once they build enough assets.

[cute fuzzy bunny]

The first real day of the new funds!

I'm as excited as a little school girl!!!

[chinaco]

Another article from Morningstar.

Six Things to Mull before Buying a Vanguard Managed Payout Fund - Morningstar Specialists

[cute fuzzy bunny]

Seems a fair assessment, although I still dont agree that they're entirely for "decumulation". The 7% fund certainly will act in that role, I find it curiously difficult to classify a fund that will be stuffed full of assets with high potential for capital gains like the 3% fund to be a "decumulation" fund.

And woo hoo! I'm up another $30!!!

This has been a great investment so far...its paid for all my Cinco de Mayo stuff and then some!

[Want2retire]

Originally Posted by cute fuzzy bunny

\And woo hoo! I'm up another $30!!!!

You're rich, I tell you, RICH!!!

By the way, little girls aren't always that excited. To the contrary! My first grade teacher was constantly giving me notes for my parents that said I was bored and daydreaming, not excited. (I was practicing for later, oh so exciting times in the working world.)

[Dude]

Originally Posted by cute fuzzy bunny

Seems a fair assessment, although I still dont agree that they're entirely for "decumulation". The 7% fund certainly will act in that role, I find it curiously difficult to classify a fund that will be stuffed full of assets with high potential for capital gains like the 3% fund to be a "decumulation" fund.

Well, this accumulator is anxiously awaiting the reveal of the holdings.....might xfer $25k from TR2035 into the 3% fund if tempted enough!

[cute fuzzy bunny]

We might have to wait a while for that. Maybe until the end of the next quarter.

I'm sort of hoping they reveal the initial holdings right away, but so far communications about these funds have been held rather close to the vest.

[cute fuzzy bunny]

Up 8c, 9c and 10c for the 7%, 5% and 3% funds today.

Woo hoo, I'm up a grand!

I think I need to put another quarter in and pull the handle again...

Still not posting any holdings, and my fancy pie chart still shows these funds as being "Other".

[WilliamG]

Originally Posted by cute fuzzy bunny

We might have to wait a while for that. Maybe until the end of the next quarter.

I'm sort of hoping they reveal the initial holdings right away, but so far communications about these funds have been held rather close to the vest.

I've always liked to see how Vanguard's Asset Allocation fund allocated its positions and it usually doesn't provide that information until well after the quarter ends so you are likely right.

Am having a Vanguard planner review my plan in June. My Vanguard rep called and pimped a little bit on the new payout funds in prep for my getting with planner. Will be interesting to see if they incorporate the payouts into their recommendation cookie cutter for us retirees. One question I will ask concerning each payout is how the planner would compare their risk/reward in terms of percentages in a stock/bond portfolio.

[cute fuzzy bunny]

Well now this is interesting. After the recent market up days the funds moved pretty much as one might expect, with the 3% fund gaining the most and the 7% fund gaining the least. On market down days, the expected reverse. Seems theres about a 25% difference between the movements of the 3 and 7% funds.

At this point after four rather volatile days, my investment in the 3 funds is exactly the same as what I put in. The 5% fund is where it started, the 7% fund is a little higher and the 3% fund is commensurately lower. No big surprises...the more conservative fund handles downward volatility better and the most aggressive one doesnt.

The volatility on the 7% fund seems to be a bit lower than wellesley.

Of course, they're probably not fully invested yet and theres probably still a lot of money on the sidelines.

[Dude]

Originally Posted by cute fuzzy bunny

I still dont agree that they're entirely for "decumulation".....I find it curiously difficult to classify a fund that will be stuffed full of assets with high potential for capital gains like the 3% fund to be a "decumulation" fund.

I agree. I studied the prospectus and felt comfortable enough to dip my toe in the water and today exchanged the minimum investment from my Roth IRA Vanguard TR2035 holding into the 3% "Growth Focus" fund, reinvesting all distributions/dividends/captial gains. As someone else has said on this forum, "you pay your money and you place your bets!"

Glad I have Quicken to download/easily track all of the monthly/additional distributions from the Mngd Payout fund, will be interesting to track ROI vs TR2035. Stay tuned.....

[cute fuzzy bunny]

I'd propose that when the US equities markets are going full speed ahead, tr2035 will do better. Maybe a lot better.

The rest of the time...maybe not.

[WilliamG]

Vanguard has posted assets as of end of April; 100% short term reserves. Will be interesting when they post end of quarter to see how they will initially allocate.

In the mean time, they have their benchmark allocations posted which is interesting. The stock part is indexed global equity and is 65%, 50% and 40% respectively of 3,5, and 7% payouts. All 3 portfolio benchmarks have 10% each of REIT and commodity. Do these count in equity when considering allocation? Don't know. But they definitely aren't bonds. The bond/cash % of the 3 benchmarks is therefore 15%, 30% and 40%. Does that mean a 50% allocation to cash/bond is too conservative for a retirement distribution portfolio?

Reason I ask, we recently got back to 10% REIT index in our portfolio but have been including it as part of 50% stock allocation. Wondering about bumping overall stock to 55% to consider REIT "outside" the stock/non-stock split....

[JohnEyles]

Originally Posted by Want2retire

By the way, little girls aren't always that excited. To the contrary ...

I think what he meant to say was "as excited as a little French
schoolgirl on Bastille Day".

French schoolgirls are a useful rhetorical device. For example,
after reading the description of Coast Guard parachute rescue
swimmers in "A Perfect Storm" (great book, do not confuse with
the lame-ass movie), I decided that they made Navy SEALs look
like little French schoolgirls :-)

[JohnEyles]

Called Vanguard and they gave a disappointing vague answer ...

Anyone know if the Vgd "managed payout" funds will pay QDI
(qualified dividend income that gets favorable tax treatment)
or is it all ordinary income ?

[cute fuzzy bunny]

Some of it would likely be. And may vary from year to year I presume depending on what assets they're holding.

I wouldnt expect most of it to be qualified. The funds look to be holding less than 30%ish US equities in a TSM bucket and the TSM doesnt pay a very large dividend. Might be some qualified stuff from the market neutral fund. Everything else would probably be ordinary income.

French schoolgirls are fine. I think i'll leave any further talk of school girls alone

[mickeyd]

Will be interesting to see if they incorporate the payouts into their recommendation cookie cutter for us retirees.

If the past is any guide to the future, the VG planners will not be recommending these new MP funds until they accumulate a record of some sort. They still do not recommend (at least as of last August) the TIPS fund as part of the cookie-cutter AA and it has been doing it's job for a number of years now.

[Rich_in_Tampa]

This from the Diehard forum re: AA:

.......................................................................
.                                              . VPDFX   VPGDX  VPGFX .
.......................................................................
. Vanguard Total Stock Market Index Fund       . 36.5%   40.3%  46.6% .
. Vanguard European Stock Index Fund           . 16.3%   17.7%  20.4% .
. Vanguard Pacific Stock Index Fund            .  7.2%    8.0%   9.1% .
.                                              .                      .
. Vanguard Total Bond Market Index Fund        . 19.9%   15.0%  10.0% .
. Vanguard Inflation-Protected Securities Fund .  5.0%    5.0%     -  .
.                                              .                      .
. Other** (commodities)                        .  5.2%    4.0%   4.0% .
. VANGUARD MARKET NEUTRAL FUND                 .  9.9%   10.0%   9.9% . 

Growth: 90% stock
Growth&D: 80% stock
Distribution: 75% stock

[cute fuzzy bunny]

Hmm, no REIT, no emerging markets, no foreign bonds and no cash. Interesting.

Also interesting how aggressive the distribution fund is and how fairly close all three are. Which is pretty much what I've been seeing in daily movements of the funds.