Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Vanguard Managed Payout Funds?
Old 04-14-2013, 01:22 PM   #1
Full time employment: Posting here.
Dog's Avatar
 
Join Date: Apr 2006
Posts: 782
Vanguard Managed Payout Funds?

I'm about 20 - 32 months away from retirement and DH is 32 months away. We will be debt free and are feeling pretty good about our assets. I'm now in the stage of figuring out how we will tap our funds to make up the gap in income. Currently doing some research on the Vanguard site. Is anyone using one of the three Vanguard Managed Payout Funds or something similar?
__________________

__________________
"Tell me, what is it you plan to do with your one wild and precious life?" - Mary Oliver
Dog is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-14-2013, 01:25 PM   #2
Full time employment: Posting here.
 
Join Date: Nov 2008
Location: Harrogate, UK
Posts: 864
Been looking at those myself so I am interested in see what somebody has to say. I could make enough in the biggest payoff one to pay all my expenses and put $1-2000 a month back into savings. But if it acts like an annuity (no clue) it would pay better when % rates start going up.
__________________

__________________
F4mandolin is offline   Reply With Quote
Old 04-14-2013, 02:21 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Mar 2009
Posts: 1,437
I'm waiting to see how they work out over a little longer timeframe. All of the options are heavy on equities, even the max distribution fund. They also include a market neutral segment which is designed to take some of the big swings in NAV out. The expense ratio of about .5% isn't terrible but considerably higher than most of the component funds.
The most important thing to know is that these funds are not annuities at all. The monthly payout is set each year and could drastically decline or rise with the markets.
So far I'm not seeing a superior return to other balanced funds from Vanguard with similar equity allocation. Both Wellington and Lifestyle Growth fund beat the distribution focus fund. Also I'd like to see more than $687 million in assets before I'd consider this option.
__________________
Retired in 2016. Living off dividends / interest and a mini pension. Freedom.
foxfirev5 is offline   Reply With Quote
Old 04-15-2013, 04:31 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
As much as I love the concept of these funds, my guess is launching right before the financial crisis really hurt these funds. When you see the dramatic drop in the price of the share with in months of investing it looks pretty scary. I think if these funds were started in May 2005 or May 2009 instead of May 2008 they would be a lot larger which in turn would drive down expense ratio. I also question if Vanguard is really assigning its best and brightest to $500 million fund

You definitely want to read the first dozen or so pages of the annual report.
A 100K in growth fund would be worth a ~$102k today and annual payments would have dropped from $3,000 to $2622
100K in the growth and income would be worth ~$91,500 and payments would have dropped from $5,000 to $4,222
For the distribution fund payments would have dropped from $7,000 to $5,616

It looks like the distribution fund will have tough rough to get back to $7,000 annual

Another way of looking at this if you had invested $500K in the growth fund, and in growth and distribution fund, which would have been a 4% withdrawal right 5 years later your income from your $1 million, you have had 8 months of $40K withdrawals, and then a significant drop and today you would withdrawing $34,185. The funds would be worth $970K and you been 5 years into your retirement. All this despite completely horrible timing.
__________________
clifp is offline   Reply With Quote
Old 04-16-2013, 07:55 PM   #5
Recycles dryer sheets
 
Join Date: Feb 2013
Location: Morton
Posts: 56
I've looked at and considered the Payout funds. I was tempted greatly by the payout percentages and who would not be? The problem I have is having such a high percentage in equities at my age and maybe any age. As was pointed out, these are not annuities so the payouts can and most likely will have some fluctuations as time goes on. We've come through two recent bear markets and the market recovered nicely both times but what if the next bear market persists and your payout drops to a low level less than you need not for a year or two but many? On the positive side, however, they are not annuities so you can pull the money out or move it to any other Vanguard fund you want at any time. On the positive side, they are not annuities so you have not relinquised complete control of your money forever. Of course annuities have their advantages but I know this has been discussed many times so I won't go there.

All of this said, I might go ahead and invest in one to give me a higher payout to get me to age 70 when I will start social security. I have a need for a limited number of years that the payout funds can help with. The payout may go down and eat into capital but at the same time the payout has some ballast so to speak in that they base the payout on the past 3 years performance. The market does bad, you have a somewhat even payout based upon the average previous three years and most likely eat into capital. The market does well you will have an even payout based on the previous three years and you build capital for future payouts and therein lies the rub. The success of these funds is linked entirely to the success or failure of equities.

I'm on the fence. I like the idea but part of me says I can do as well with a sensible asset allocation and I can roll money into the money market account on a monthly basis and do so with a lower expense ratio than .50 and part of me says go for the higher payout instead. Time will tell which way I fall off the fence.

For what it is worth, most of the Bogleheads shun the Payout funds because of the expense ratio, high proportion of equities, and the market neutral fund which they don't believe it's what it's cracked up to be.
__________________
Brooks Saddle is offline   Reply With Quote
Old 04-16-2013, 08:17 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
Realistic I think they are a 70s type investment for me also. As my interest and ability to manage my portfolio diminishes I think my interest in simpler portfolio will grow.

I just hope they are around in 15 to 20 years after their disastrous start
__________________
clifp is offline   Reply With Quote
Old 04-17-2013, 10:11 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,983
If you search here on "Managed Payout" you will see there have been many threads on Vanguard Managed Payout funds (one you started last May) - though they don't seem to elicit many responses. FWIW
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Old 04-17-2013, 09:35 PM   #8
Thinks s/he gets paid by the post
Onward's Avatar
 
Join Date: Jul 2009
Posts: 1,668
FYI, Fidelity has them too.

https://www.fidelity.com/mutual-fund...funds/overview
__________________
And if I claim to be a wise man, it surely means that I don't know.
Onward is offline   Reply With Quote
Old 04-17-2013, 10:30 PM   #9
Full time employment: Posting here.
 
Join Date: Nov 2008
Location: Harrogate, UK
Posts: 864
I want a fund that gives me a guaranteed 6-7% with NO risk....like everybody else wants.....guess I will just go with the Wellington....
__________________
F4mandolin is offline   Reply With Quote
Old 04-17-2013, 11:06 PM   #10
Full time employment: Posting here.
gcgang's Avatar
 
Join Date: Sep 2012
Posts: 928
Quote:
Originally Posted by F4mandolin View Post
I want a fund that gives me a guaranteed 6-7% with NO risk....like everybody else wants.....guess I will just go with the Wellington....
I want to pitch for the Yankees, but that ain't gonna happen either.
__________________
In theory, there's no difference between theory and practice. In practice, there is. YB
gcgang is offline   Reply With Quote
Old 04-18-2013, 02:08 AM   #11
Full time employment: Posting here.
Tyro's Avatar
 
Join Date: Aug 2012
Location: Upstate
Posts: 699
Quote:
Originally Posted by F4mandolin View Post
I want a fund that gives me a guaranteed 6-7% with NO risk.
BWAHAHAHAHAHAHAHAHAH!!!!!
__________________
Yeah well, that's just, ya know, like, your opinion, man. ~ The Dude
Tyro is offline   Reply With Quote
Old 04-18-2013, 10:02 AM   #12
Full time employment: Posting here.
 
Join Date: Nov 2008
Location: Harrogate, UK
Posts: 864
I hope you all realize that I was kidding with the guaranteed 7% comment. Although I still would love to have it.....and nobody else of course, then I would be "special". And sorry.....don't want to pitch for the Yankees....at least not as long as I still root for the (crappy) Mariners. Although I am finishing up the work with Vanguard today and moving almost all of my Edward Jones money into the Wellington.....with probably a little of it going to the International.
__________________
F4mandolin is offline   Reply With Quote
Old 04-18-2013, 10:40 AM   #13
Full time employment: Posting here.
Tyro's Avatar
 
Join Date: Aug 2012
Location: Upstate
Posts: 699
Quote:
Originally Posted by F4mandolin View Post
I hope you all realize that I was kidding with the guaranteed 7% comment.
Yeah, don't mind me. I'm a bit of a horse's @$$ with an odd sense of humor anyway....
__________________
Yeah well, that's just, ya know, like, your opinion, man. ~ The Dude
Tyro is offline   Reply With Quote
Old 04-18-2013, 10:48 AM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,616
Quote:
Originally Posted by F4mandolin View Post
Although I am finishing up the work with Vanguard today and moving almost all of my Edward Jones money into the Wellington.....with probably a little of it going to the International.
Congratulations. Lowering your investment costs is as good as a guaranteed return. Maybe not 7%, but guaranteed nonetheless.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 04-18-2013, 01:22 PM   #15
Full time employment: Posting here.
 
Join Date: Jan 2013
Posts: 660
I looked into Vanguard's managed payout funds several years ago and came away with a decidedly negative opinion of them. I would certainly like to hear from people with more favorable opinions, since I am more than willing to admit that the experts at Vanguard who put these funds together know a lot more about investing, protecting retirement assets, and systematic withdrawals than I do.

The first thing that struck me about these funds is how "gimmicky" they were. At first glance, the distribution looks like a relatively stable addition to one's retirement income. But of course it's not stable at all. The distributions can and will be reduced after extended periods of subpar investment returns. Even worse in some ways is that the distribution is only recalculated once per year and stays constant for an entire calendar year. That may work well most years, but how about 2008? The stock market had reached bear market territory by summer, 2008, and by late September it was already clear that a stock market crash of historic proportions was underway. Anyone with an ounce of ordinary common sense would have known long before the end of 2008 that major belt tightening was going to be needed, yet here were Vanguard's managed payout funds, blithely ignoring market conditions and still paying a fixed distribution every month until January, 2009.

Then I looked into the underlying investment portfolio being held by the managed distribution funds and found that with one exception all of the holdings were plain vanilla representatives of major asset classes, which could easily be duplicated by do-it-yourself investors like me. Vanguard's Total Stock Market Index fund currently comprises 40.1% of the growth and distribution fund, for example.

The one exceptional holding is Vanguard's Market Neutral fund, VMNFX, which has a $250,000 minimum investment and so cannot be purchased directly by anyone save extremely wealthy individuals. If you want it, you need to purchase one of the managed payout funds, or some similar Vanguard invementment that owns it as part of a broader portfolio.

Is VMNFX worth holding? Not as far as I can see. Vanguard compares its long term performance to three month t-bills and over the past ten years gives results showing that VMNFX has beaten t-bills over the past one and three years, but has lagged t-bills over the past five and ten year periods. Yuck!

But t-bill like returns might be acceptable if VMNFX were accomplishing something in the managed payout funds that couldn't be accomplished by holding t-bills directly. Is it? Unfortunately, the answer appears to be a definite "no". Vanguard describes VMNFX as follows: "This fund has a unique and complex investment approach, compared with other Vanguard funds. Its goal is to “neutralize,” or limit, the effect of stock market movement on returns."

So let's see how well VMNFX accomplished its stated goal of limiting the effect of stock market movement during the stock market crash of 2007-2009. Looking at the chart of the growth of a $10,000 investment over the previous ten years, I see that $12,471.89 invested in VMNFX in October, 2007, would have declined to $10,036.75 by March, 2009. That's a decline of 21.85%. Double yuck!

So my conclusion is that VMNFX does a vastly worse job of protecting assets in a major stock market crash than directly holding three month US treasury bills, which would not have declined in value by even one penny from October, 2007, through March, 2009. And for this inferior type of protection, investors are being charged a cool 1.71% annually, which is VMNFX's stated expense ratio.

Thanks, but no thanks, Vanguard. As far as I can see, I'm better off investing in your ultra low cost mutual funds on my own and deciding on my own "managed payout".
__________________
karluk is offline   Reply With Quote
Old 04-18-2013, 09:00 PM   #16
Recycles dryer sheets
 
Join Date: Feb 2013
Location: Morton
Posts: 56
Karluk, your post was well written and is basically how I feel. I guess I cling to the hope that someone will come along and convince me they are a good deal even though I don't believe in fairy tales. That's sort of how I view these as fairy tales or another way of looking at it is if it seems to good to be true....

A 6.75% or whatever it is now payout seems enticing with a coupled goal that the principal will remain intact for years to come seems unrealistic.
__________________

__________________
Brooks Saddle is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 07:36 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.