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New ETF Aims To Provide A Steady 7% Annual Distribution Rate
03-13-2019, 02:34 PM
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#1
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Recycles dryer sheets
Join Date: Aug 2018
Location: YUKON,OK
Posts: 255
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New ETF Aims To Provide A Steady 7% Annual Distribution Rate
New ETF Aims To Provide A Steady 7% Annual Distribution Rate
https://www.investors.com/etfs-and-f...2cUFqopLgWpPj0
Too good to be true?
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03-13-2019, 02:39 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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Quote:
Originally Posted by COZICAN
Too good to be true?
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I think so. A few years ago, Vanguard tried to create a series of these "managed payout funds" with fairly aggressive withdrawal rates on the high end. These funds had difficulty meeting their objectives in a number of market environments and Vanguard eventually replaced them with a single managed payout fund which targets 4%. The biggest problem with meeting the higher target in recent years has been low bond yields.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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03-13-2019, 03:12 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,153
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Quote:
Originally Posted by COZICAN
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I’m sure a chunk of that is return of principal. You just have to decide how much depletion you are comfortable with.
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Retired since summer 1999.
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03-13-2019, 03:16 PM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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More from the article:
Quote:
The distribution is not a dividend. It's a consistent payout that investors can rely on. All or part of the distribution may consist of a return of capital. That means if dividends, fixed income and capital gains don't fund the distribution, it may be funded by the capital investors pay in.
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So yes, they may be able to guarantee a 7% payout, but many times -- especially if the market doesn't cooperate for a long time -- much of it will be return of principal. And over time, if enough of your principal is returned, there isn't enough of it left to generate 7% off the original investment amount even in good markets, so principal is still returned in *that* case.
In other words, be prepared to outlive your distributions. Is there a chance you won't deplete it, even over decades? Sure. Do I like the chances? No.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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03-13-2019, 03:20 PM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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Oh, and there's more:
Quote:
This ETF says it's the first designed to pay its investors a consistent monthly distribution. That distribution should equal 7% of the fund's net asset value by the end of the year.
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That's not 7% of the original investment. That's 7% of the fund's NAV. In a bad market the NAV will be dropping, so from year to year, so will your income. Return of principal could result in lower NAV, too. If you invested $100K, you should get $7,000 returned the first year (simplifying some), but if the NAV drops by 12% (including returns of principal), your next year's payout looks like it would be 12% lower. And so on.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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03-13-2019, 03:23 PM
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#6
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Recycles dryer sheets
Join Date: Aug 2018
Location: YUKON,OK
Posts: 255
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Quote:
Originally Posted by ziggy29
More from the article:
So yes, they may be able to guarantee a 7% payout, but many times -- especially if the market doesn't cooperate for a long time -- much of it will be return of principal. And over time, if enough of your principal is returned, there isn't enough of it left to generate 7% off the original investment amount even in good markets, so principal is still returned in *that* case.
In other words, be prepared to outlive your distributions. Is there a chance you won't deplete it, even over decades? Sure. Do I like the chances? No.
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Thank you for that explanation. I read through it but didn't totally understand. I do appreciate your input.
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03-13-2019, 03:26 PM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2017
Location: City
Posts: 10,351
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You can take 7% out of any portfolio if you are willing to take principal. No need to look at this particular fee-heavy and leveraged contraption. I think P.T. Barnum would approve of this one.
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03-13-2019, 03:58 PM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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Quote:
Originally Posted by OldShooter
You can take 7% out of any portfolio if you are willing to take principal. No need to look at this particular fee-heavy and leveraged contraption. I think P.T. Barnum would approve of this one.
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And by taking out 7% of the new balance each year, rather than 7% of the original investment, you will never run out of money!
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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