Vanguard Managed Payout Fund

[Symplelife]

I’ve been considering this fund- anyone have experience with it (pro or con)? Any suggestions for a similar fund or investment strategy? Trying to find alternatives to an annuity and something that might pay better than a MM or CD. I understand there’s risk to the fund as well as a .34 fee.

 

[retired1]

I’ve been considering this fund- anyone have experience with it (pro or con)? Any suggestions for a similar fund or investment strategy? Trying to find alternatives to an annuity and something that might pay better than a MM or CD. I understand there’s risk to the fund as well as a .34 fee.

Thanks for asking. I'm in the similar position and looking for alternates for Annuity.

 

[Free bird]

Managed payout & annuity are pretty different animals.

 

[OldShooter]

According to Morningstar, their fee is 34bps. This will be on top of the fees charged by the mutual funds they hold for you.

Basically this is like comparing convenience store prices and selection to regular grocery store prices and selection. How much extra are you willing to pay for convenience and how much flexibility are you willing to give up because the selection of investments is out of your control? No one can answer those questions for you.

Personally, I wouldn't give this type of fund a second look but YMMV.

 

[USGrant1962]

According to Morningstar, their fee is 34bps. This will be on top of the fees charged by the mutual funds they hold for you.

I don't believe that is true for Vanguard fund-of-funds products. I've read that Vanguard waives subordinate fund fees, and the prospectus for this one and Target Retirement Funds both say:

"According to an agreement applicable to the Fund and Vanguard, the Fund’s direct expenses will be offset by Vanguard for (1) the Fund’s contributions to the costs of operating the underlying Vanguard funds in which the Fund invests and (2) certain savings in administrative and marketing costs that Vanguard expects to derive from the Fund’s operation."

So I think the total management fee is really 0.34%. Here's the prospectus: https://www.vanguard.com/pub/Pdf/p1498.pdf

This kind of fund would not be my cup of tea either, but I can see the attraction for a single, simple product that generates an income stream from a diversified portfolio.

Keep in mind, though that the income stream may include return of capital - not really a problem with a 4% distribution (i.e., this is really a 4% of current portfolio SWR which cannot run out of money). Secondly, the distribution will vary - they use the prior 3-year average price as a basis for the 4%.

 

[OldShooter]

I don't believe that is true for Vanguard fund-of-funds products. I've read that Vanguard waives subordinate fund fees ...

Thank you for correcting me. I didn't read past the Morningstar rap sheet.

 

[USGrant1962]

Thank you for correcting me. I didn't read past the Morningstar rap sheet.

I was curious and looked it up because DS is in Target Date 2065 in his new 401(k). If fees were stacked then Target Date and other fund-of-funds would be a particularly bad deal. I would also guess that the SEC would require total fees to be total fees, but couldn't find a reference for that.

 

[ESRwannabe]

I own VPGDX in my Roth IRA, but its making me question the boglehead/"modern portfolio theory" strategy even more than I used to.

The 10 year total return is not good. It is 5.19% which is kind of pathetic imho. Cheaper ER fees are a silly thing to obsess about. Even if you gave this fund 0% fees the 10 year total return would still suck.

Vanguard Managed Payout Fund Investor Shares (VPGDX) Fund Performance and Returns

This is basically the best that Vanguard, the champions of indexing, can do using index funds. You basically have to be a multi-millionaire to retire off of index funds.

 

[ESRwannabe]

According to Morningstar, their fee is 34bps. This will be on top of the fees charged by the mutual funds they hold for you.

False.

The ER fee is all-inclusive. I have owned VPGDX for years.

 

[pb4uski]

I own VPGDX in my Roth IRA, but its making me question the boglehead/"modern portfolio theory" strategy even more than I used to.

The 10 year total return is not good. It is 5.19% which is kind of pathetic imho. Cheaper ER fees are a silly thing to obsess about. Even if you gave this fund 0% fees the 10 year total return would still suck.

Vanguard Managed Payout Fund Investor Shares (VPGDX) Fund Performance and Returns

This is basically the best that Vanguard, the champions of indexing, can do using index funds. You basically have to be a multi-millionaire to retire off of index funds.

I dunno.... my benchmark for a 60/40 portfolio is the Vanguard Life Strategy Moderate Growth fund... this VPGDX lags it but not by a whole lot... looks pretty similar to me.

VPGDX Vanguard Managed Payout Fund Investor Shares Fund VPGDX chart

 

[ESRwannabe]

This is just an example which took less than 5 minutes to find.

I went to BlackRock and randomly picked one of their municipal bond CEFs. The ten year total return (note: total return includes all ER fees and interest/dividends paid) is 8.24%. If you factored in after-tax returns it would look even better (9.03% total return if in the highest tax bracket). FYI, there is no federal tax on municipal bonds.

https://www.blackrock.com/investing/products/240216/blackrock-municipal-bond-trust-fund

This CEF has an ER of 2.31% which goes to show that your total return is what is important, not the lowest ER. On the link above you can look at the credit quality which is extremely high. If you are worried about inflation you can use options to buy insurance when/if you want it.

 

[ESRwannabe]

pb4uski,

Vanguard LifeStrategy Moderate Growth Fund Investor Shares (VSMGX) Fund Performance and Returns

That fund has a 10 year total return of only 5.61%.

 

[DyNess]

Greetings!

While most disagree with the fund, it actually sits well with me. I dont feel a need to check on things and leave it all to autopilot while throwing what I can at it, when I can.

I choose it for various reasons, and the ups and downs dont matter too much to me, as does the regular payout schedule. Granted, I do not need this yet and reinvest it. But in the future, when I want to use to to supplement my income, it seemed best to have it already purchased, instead of trying to sell other funds (taxes) to invest in it later. Side note: I have issues budgeting long term (1 year out etc, as I have no idea what toys I will buy.), but easily handle a monthly and major purchases. Which is a major attraction for me. Especially for trying to retire early. Its payout changes yearly, based on the underlying funds, and then is stable for the year.

Since early 2013 when I started in VPGDX, Vanguard says my rate of return is 7%. The income return totals are about 4x the market gain.

Tax wise, it hasnt been that big of a burden. While the return of capital doesnt necessarily sit well, it has the benefit of not being taxable. In addition, as it is reinvested (for myself), it doesnt actually affect anything until I start distributions to myself.

Second note on taxes, I have not optimized my deductions, so yea, the government gets a free loan. Even with this fund in my taxable, I receive a decent chunk back on the federal return. The only time I didnt was when I had other sales involved and they were taxable (A huge chunk of paper bonds came due).

Numbers for those who want:
Lifetime:
~225K in VPGDX taxable.
Purchases: 166.8k
Market gain: 12.6k
Income: 42.7k

YTD:
Gain: (2.2k)
Income: 2.7k

1 Year:
Gain: 8.9k
Income: 8.2k

3 Year:
Gain: 1.1k
Income: 30.7k

Hope this helps.

~Dy'Ness

 

[samclem]

This CEF has an ER of 2.31% which goes to show that your total return is what is important, not the lowest ER.

It's a bit like saying that it's the speed of the runner, not how fat he is, that is important. Okay. But being overweight will slow down any runner, and fat people are not well represented in ranks of fast runners.

If you think municipal bonds (or a muni bond fund CEF), will be a better investment for you, then you should buy that. It's easy to find retrospective examples of things that outperformed, but more tricky to do that looking forward.

 

[ESRwannabe]

Past total return data is the only thing viable to look at when making comparisons. Otherwise we have nothing left but making guesses. I randomly chose the CEF. I wasn't cherry picking.

Frankly I am surprised at how poorly VPGDX has done. I am disappointed to see the low 10 year total returns. Granted there was the great recession, but also one of the best and longest bull markets in history.

A large ER does not mean it is harder to outperform. It depends on what the ER is used for. In the case of CEFs usually half or more of the ER is used to pay for leverage (purchased at institutional rates, which are far lower than what a normal individual investor can get).

 

[ESRwannabe]

Here is Vanguard's long term municipal bond fund (admiral shares).

Vanguard Long-Term Tax-Exempt Fund Admiral Shares (VWLUX) Fund Performance and Returns

The 10 year total return is 4.61% and the ER is .09%. It doesn't outright say it is an index fund, but it is managed by the Vanguard fixed income group. So it probably is an index.

The random CEF I chose has a management fee of 1.05% and the rest of the 2.31% ER goes to pay for leverage.

IMHO this confirms my statement that when comparing two investment options, total return is the most important factor to look at.

 

[OldShooter]

I own VPGDX in my Roth IRA, but its making me question the boglehead/"modern portfolio theory" strategy even more than I used to.

The 10 year total return is not good. It is 5.19% which is kind of pathetic imho. Cheaper ER fees are a silly thing to obsess about. Even if you gave this fund 0% fees the 10 year total return would still suck.

Vanguard Managed Payout Fund Investor Shares (VPGDX) Fund Performance and Returns ...

@ESRwannabe, your first sentence intrigued me, so I looked at your linked page and at the current fund prospectus.

From the linked page I would say that this fund is not doing too badly. For 10 years TR is is 50bps below its Morningstar benchmark. This is a pretty squishy benchmark, though, because the "Morningstar Moderate Target Risk" category is going to include funds with varying allocations between equities and income investments. The 50bps underrun may simply be due to VPGDX holding a little higher % of fixed income than the benchmark average. (This is why I avoid balanced and target date funds BTW; they are nearly impossible to accurately benchmark.) So ... If I were an investor looking at your linked chart, I would not be upset.

... This is basically the best that Vanguard, the champions of indexing, can do using index funds. You basically have to be a multi-millionaire to retire off of index funds.

A couple of things here: First, VPGDX is a stock-picking fund, not an index fund. From the prospectus: "The advisor uses quantitative analysis and professional judgment in an attempt to combine complementary asset classes and investments across the risk/reward spectrum. The exact proportion of each asset class or investment may be changed to reflect shifts in the advisor’s risk and return expectations." Basically they are trying to pick winning sectors by allocating the equity side to various Vanguard funds. There is solid statistical evidence that this rarely works.

Re retiring off index funds, if history is any guide, over a 10 year period a passive investor's results will beat well over 90% of stock-picking funds' results. So unless you are lucky enough to pick the roughly 5% +/- of funds that outperform, you are in far better retirement shape with passive investments than you would be with the stock pickers. (Ref multiple S&P SPIVA reports). Further, there is no way to know in advance which stock pickers will be the lucky ones during the period. Past performance is not predictive. (Ref multiple S&P Manager Persistence reports).

Finally, comparing VPGDX with the TR of some other asset class is really not very useful. I will bet that for any investment you have, over any period you name, there will be some other investment that does better. Sorry. Life is like that.

 

[ejman]

This is just an example which took less than 5 minutes to find.

I went to BlackRock and randomly picked one of their municipal bond CEFs. The ten year total return (note: total return includes all ER fees and interest/dividends paid) is 8.24%. If you factored in after-tax returns it would look even better (9.03% total return if in the highest tax bracket). FYI, there is no federal tax on municipal bonds.

https://www.blackrock.com/investing/products/240216/blackrock-municipal-bond-trust-fund

This CEF has an ER of 2.31% which goes to show that your total return is what is important, not the lowest ER. On the link above you can look at the credit quality which is extremely high. If you are worried about inflation you can use options to buy insurance when/if you want it.

Just an an observation that the 1,3, and 5 year returns for VSMGX are better than the Blackrock example above. Different time frames, different results. Unfortunately the rear view mirror does not show the road ahead

 

[freedomatlast]

I’ve been considering this fund- anyone have experience with it (pro or con)? Any suggestions for a similar fund or investment strategy? Trying to find alternatives to an annuity and something that might pay better than a MM or CD. I understand there’s risk to the fund as well as a .34 fee.

As an alternative, check out Adams Express, ADX.

 

[alaska55]

Thank you for correcting me. I didn't read past the Morningstar rap sheet.

This seems to be a habit of yours, speak faster than you can read.

 

[alaska55]

@ESRwannabe, your first sentence intrigued me, so I looked at your linked page and at the current fund prospectus.

From the linked page I would say that this fund is not doing too badly. For 10 years TR is is 50bps below its Morningstar benchmark. This is a pretty squishy benchmark, though, because the "Morningstar Moderate Target Risk" category is going to include funds with varying allocations between equities and income investments. The 50bps underrun may simply be due to VPGDX holding a little higher % of fixed income than the benchmark average. (This is why I avoid balanced and target date funds BTW; they are nearly impossible to accurately benchmark.) So ... If I were an investor looking at your linked chart, I would not be upset.

A couple of things here: First, VPGDX is a stock-picking fund, not an index fund. From the prospectus: "The advisor uses quantitative analysis and professional judgment in an attempt to combine complementary asset classes and investments across the risk/reward spectrum. The exact proportion of each asset class or investment may be changed to reflect shifts in the advisor’s risk and return expectations." Basically they are trying to pick winning sectors by allocating the equity side to various Vanguard funds. There is solid statistical evidence that this rarely works.

Re retiring off index funds, if history is any guide, over a 10 year period a passive investor's results will beat well over 90% of stock-picking funds' results. So unless you are lucky enough to pick the roughly 5% +/- of funds that outperform, you are in far better retirement shape with passive investments than you would be with the stock pickers. (Ref multiple S&P SPIVA reports). Further, there is no way to know in advance which stock pickers will be the lucky ones during the period. Past performance is not predictive. (Ref multiple S&P Manager Persistence reports).

Finally, comparing VPGDX with the TR of some other asset class is really not very useful. I will bet that for any investment you have, over any period you name, there will be some other investment that does better. Sorry. Life is like that.

+1 I agree with you this time

 

[alaska55]

Just an an observation that the 1,3, and 5 year returns for VSMGX are better than the Blackrock example above. Different time frames, different results. Unfortunately the rear view mirror does not show the road ahead

Same for VGPDX 1,3,and 5 returns. This year for bbk down over -5%, VGPDX is about flat for the year.

 

[alaska55]

As an alternative, check out Adams Express, ADX.

ADX is a 100% equity fund and it can't even beat the vanguard total market fund. He asked about similiar funds which about a 60/40 fund.

 

[Lawrence of Suburbia]

At the end of the day ... 10/1/18, hopefully ... I'm going VWIAX.