Schwab jumps on the managed payout band wagon

[brewer12345]

I guess this product really has some legs:

Schwab Monthly Income Funds

[bentley]

Quote:

Originally Posted by brewer12345 I guess this product really has some legs: Schwab Monthly Income Funds

Reads very closely like the Vanguard Managed Payout Funds.
Vanguard and Schwab have three slightly different funds that payout different % based on equity exposure, ranging from 3% to 6% +/-.
I wonder if anyone else has considered a strategy of putting 33% of your portfolio into each fund.
Assuming a portfolio of 1.5 mm, then $500k into each style. That provides a decent income along with a somewhat enhanced equity exposure.

How dumb is this idea? and why?

[CaseInPoint]

Quote:

Originally Posted by bentley Reads very closely like the Vanguard Managed Payout Funds. Vanguard and Schwab have three slightly different funds that payout different % based on equity exposure, ranging from 3% to 6% +/-. I wonder if anyone else has considered a strategy of putting 33% of your portfolio into each fund. Assuming a portfolio of 1.5 mm, then $500k into each style. That provides a decent income along with a somewhat enhanced equity exposure. How dumb is this idea? and why?

If you're looking for something in the middle, why not just buy the "middle" fund and deal with a single fund rather than 3?

In any event, I currently use a garden variety Schwab managed account, and can say that they're just about average in comparison with other managed accounts in terms of performance. Not that any other comparable fund is really much better.... Schwab, however, does not use any tax reduction strategies. They just shoot for the highest taxable return.

This idea of combining income and growth in a single fund may be reasonable. IMO, anything that cuts down on the number of accounts that need to be monitored by typical investors, is probably a good thing. I haven't looked at the prospectus, but it's going to be key to check the fees charged for these funds, of course.

[Donzo]

I liked the idea of these funds esp. with the current MM interest rates of +- 2%. I put $100,000 in the VG middle fund(5%). At this point the share price is down but the payouts are buying more shares at this lower price. I won't need this money for at least 5 years and look forward to see how does.

[TN_INVEST]

Quote:

Originally Posted by Donzo At this point the share price is down but the payouts are buying more shares at this lower price. I won't need this money for at least 5 years and look forward to see how does.

I thought the fund was designed and marketed for folks in the distribution phase of retirement...not the accumulation phase. In which case, the reinvestment of the dividend at the lower share price is not happening.

What is happening is the income is really a return of principal. A more prudent strategy might be to tighten the belt and lower the income withdrawal in tough times in an attempt to preserve capital.

At least with an annuity, there is a guarantee of income (and potential growth of principal).