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Vanguard Managed Payout Fund/taxable account?
Old 01-27-2008, 08:43 AM   #1
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Vanguard Managed Payout Fund/taxable account?

I've been kicking around an idea, not committed to it, and thought this is the best place for feedback and opinions.

Roughly 80% of my assets are in a taxable account, 20% tax deferred.

With the goal of simplifying my life, less time on investments (and checking them), I thought about putting all my taxable money (except for a money market account for distributions) into two of the Vanguard managed payout funds, spitting to create a percentage that works for me. I'd put the retirement money (20%) in something else, to access in more than 15 years. (I could leave retirement money in Small Value, REIT and Intl. Value, like it is now.)

I'm 45, I live a low cost lifestyle, I own two homes (no mortgages) and will sell one in the future, probably when I'm 80.

I was thinking there's a risk of losing portfolio value with the managed payout funds, but perhaps I can deal with that by purchasing an annuity when I'm much older since I don't have any heirs.

Any thoughts on this? I'm hoping to drop the idea if it's a bad one, or figure out what else I need to consider.

Thanks!

kate
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Old 01-27-2008, 10:16 AM   #2
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I was thinking there's a risk of losing portfolio value with the managed payout funds, but perhaps I can deal with that by purchasing an annuity when I'm much older since I don't have any heirs.

I have been considering an annuity + SS + small pension to create an income floor for DW and I. If we did it, the annuity would probably consist of about 10 - 15% of our portfolio.

This would hopefully give us cushion against most economic events to not have to sell securities when they are down. However, inflation could still be a problem.

If we do buy one, it would probably not be until we are around 65. when we approach that age, we will probably keep an eye on interest rates and try to pick a favorable time to buy.
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Old 01-27-2008, 11:27 AM   #3
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Thats if they ever launch the managed payout funds. They've pushed the date out three times so far and the last date I heard was 1/24. Still no sign of them.
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Old 01-27-2008, 02:16 PM   #4
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Thats if they ever launch the managed payout funds. They've pushed the date out three times so far and the last date I heard was 1/24. Still no sign of them.
Do you think it's the economy? Or are these things usually pushed back?

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Old 01-27-2008, 03:34 PM   #5
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What's the difference between a "managed payout fund" and an annuity ?

These VG payout funds invest in a mix of asset classs and have a target payout of a certain percentage - but no guarantee - right ? They have a NAV like a mutual fund ? and the "payouts" go out as a mix of dividends and LG cap gains ?

The "managed payout moderate growth" - the distrubtion target is 5% with the NAV of the original investment expected to grow with inflation (maintain purchasing power) - right ?

Annuities are generally "bad" right ? Maybe that's just variable annuities.

With annuities, you commit the principal in exchange for a guaranteed payout for a specific period or life. You gain a cash flow - but you never see the original principal again - right ?
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Old 01-27-2008, 04:58 PM   #6
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Fidelity also offers similar funds, e.g., Income Replacement fund. None of these funds offers any guarantee. The payouts are from principal. The fund becomes progressively more conservative as it approaches the liquidation date.

Annuity is different -- it offers guaranteed income but you will not be able to get your principal out. The cost is much higher than that of a payout fund.
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Old 01-27-2008, 05:33 PM   #7
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If I read it right, the vanguard funds are quite different from the fidelity ones. The fidelity ones presume portfolio consumption and may draw down to zero by their "target" date. The vanguard funds presume capital preservation with some, a bit, or a lot of growth with inverse payout percentages. Over time, the 3% fund might pay out more than the 5 and 7% funds should the principal appreciate enough...but I wouldnt count on the 7% fund maintaining capital preservation and fully keeping pace with inflation.

I still want to see the asset allocations before I'd be 100% sure of any of that...

The major differences between the MP funds and an annuity is that you dont get your principal back with the annuity, your principal may grow (or since we're all fatalistic lately, even shrink) so your payout percentage will be based on a varying principal level, and if the MP asset plan doesnt pan out, its plausible for you to run out of money at some future date while the annuity will pay out until the insurer goes bust.
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Old 01-28-2008, 06:28 AM   #8
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Re: VG Managed Payout Funds - apparently the fees went up - originally targeted to be 0.3x% went up to 0.5x%

Does Vanguard Have a Hedge Fund in the Works? - Morningstar Specialists
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Old 01-28-2008, 06:51 AM   #9
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Dave, I had read that article too. Just want to point out the paragraph where the fees are explained.

" The funds' expense ratios will range from 0.57% to 0.58%. That's higher than the early estimates of 0.34%, largely because the new levies factor in the Market Neutral Fund's "short-sale dividend expenses." Shorting stocks involves borrowing shares from another investor or institution and selling them with the intention of buying them back at a lower price and pocketing the difference. However, when you borrow stocks to sell them short, as the Market Neutral fund will do, you still have to pay the dividends that stocks may issue to the original owners. The Market Neutral fund expects to more than make up the dividend expenses by putting the proceeds of its short sales in interest-bearing accounts, but the SEC still makes funds that short include dividend costs in their expense ratios. Without the dividend expenses, the funds' expense ratios would be 0.27% to 0.28%. In contrast, Fidelity's recently launched Income Replacement funds charge between 0.54% and 0.65%."


I'm holding off until I see more details about the funds when they open. Instead of splitting my taxable between two funds, I'm also looking at just putting some percentage in one fund and leaving my AA the same otherwise. When I'm much older, I'll look to putting that chunk (what's left in that fund) into an annuity.
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Old 01-29-2008, 10:37 AM   #10
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Does anyone have any idea how investors in these funds will handle RMDs? I've read the preliminary prospectus on the SEC site, but couldn't find any info there.
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Old 02-16-2008, 09:21 AM   #11
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They have pushed back the launch date for these funds to Feb 26. I don't know how many times this has happened, but it is several. Maybe the SEC is really working them over?

http://www.sec.gov/Archives/edgar/da...t485bxt211.txt
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Old 02-16-2008, 09:27 AM   #12
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Thats about the 8th time. I remember at least 3 prospective launch dates in january after the original, and this is at least the fourth time they pushed it in february.
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Old 03-02-2008, 08:33 AM   #13
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Any news on launch date?
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Old 03-02-2008, 09:00 AM   #14
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Yeah, someones flagship rep said something about april/may. Guess they decided this isnt a good time to launch something with a semi guaranteed payout...
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Old 04-30-2009, 11:53 AM   #15
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These funds have been initiated according to the Vanguard web site.
Down quite a bit already.
Don't understant how they will be able to maintain the high percentage payout printed on the site.
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Old 04-30-2009, 01:37 PM   #16
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These funds have been initiated according to the Vanguard web site.
Down quite a bit already.
Don't understant how they will be able to maintain the high percentage payout printed on the site.
Easy. They pay back some of your principal. That's part of reason that the NAV had dropped. And that beg's the question: How long can they keep going if the stock market does not recover? Well, you can do the math --- unless the math gets fuzzy and convoluted due to a government bailout.
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