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-   -   An alternative to: Psst...Wellesley (https://www.early-retirement.org/forums/f28/an-alternative-to-psst-wellesley-35055.html)

DblDoc 04-21-2008 07:15 PM

An alternative to: Psst...Wellesley
 
From Vanguard today:

https://personal.vanguard.com/us/Van...252008_ALL.jsp

A new set of balanced funds designed for generating income in retirement with varying degrees of capital appreciation.

There is a thread discussing them at the Bogleheads site titled " fyi managed payout funds"

DD

FIREd 04-21-2008 09:27 PM

I still like Wellesley's 40 year track record and even after reading more about these managed payout funds, I still don't know enough to really decide whether I like them or not... But I do like the monthly payout...

youbet 04-21-2008 10:29 PM

Quote:

Originally Posted by FIREdreamer (Post 646994)
I still like Wellesley's 40 year track record and even after reading more about these managed payout funds, I still don't know enough to really decide whether I like them or not... But I do like the monthly payout...

I'd prefer a daily payout, in small bills, placed discretely in my pocket on my way to the pub....... And of course, cleverly orchestrated so Moma don't know..... ;)

I like Wellesley too.

Rich_by_the_Bay 04-22-2008 06:30 AM

Yes, these funds had been discussed during their pre-release days. Looks like they survived the approval process intact. I checked Vgd to see what the holdings are and the page was blank.

Best I can tell, they might have been an excellent alternative to target funds or some of the balanced funds if I were still immersed in the accumulation phase, even though their focus is on the post-retirement cash flow piece. For me at the brink of retirement, I have too many questions about how the payouts are taken (pro rata from all holdings? rebalancing proceeds? fixed > equity?), and the lack of history.

But they do look interesting.

REWahoo 04-22-2008 06:38 AM

I have to wonder how popular these new payout funds will be until they develop some sort of a track record. I suspect that most folks in the drawdown phase will be somewhat reluctant to depend on a new and unproven fund as a significant source of their retirement income. I know I won't be for now.

WilliamG 04-22-2008 06:42 AM

Interesting, but would want to see them in action for at least a couple of years!

Don't have "absolute return" investment or any exotic investments, but like having something similar to what these espouse on my own, INCLUDING Wellesley..

7.5% REIT Index
12.5% International
20% Total Market Index
35% Wellesley
25% Total Bond Market and I Bonds

Dawg52 04-22-2008 06:48 AM

Yes, I will be watching these funds as well. This could be a nice way to supplement my SS check when the time comes. Eight years before that kicks in so will be following the Norwegian widow's philosophy in the mean time. Who knows, if it works well......might even marry her. Heh heh heh;)

W2R 04-22-2008 07:40 AM

Quote:

Originally Posted by WilliamG (Post 647069)
Interesting, but would want to see them in action for at least a couple of years!

Don't have "absolute return" investment or any exotic investments, but like having something similar to what these espouse on my own, INCLUDING Wellesley..

7.5% REIT Index
12.5% International
20% Total Market Index
35% Wellesley
25% Total Bond Market and I Bonds

Vanguard sent me an invitation to a "Webinar" (online seminar, I guess) on the topic of these managed payout funds, scheduled for this Thursday. I would say they invited me because I'm an especially cool person, but actually they said they usually invite Admiral customers and this time included some Voyager Select customers to attend, too. I declined since it is during work hours and I have no particular questions, but will get a link through which I can listen to it later.

The new managed payout funds are interesting to me because my asset allocation is very similar to yours: no REIT's, but 13% international, 20% total market index, 30% Wellesley, 35% cash and bonds, 2% fun investments (right now emerging markets and a little large cap value - - whatever I want, to help me resist the temptation to change my basic AA, and maybe eventually REIT).

I might want to put a little in these managed payout funds just so that I don't have quite so much in Wellesley. I'm not yet sure, and probably won't for simplicity's sake. But they are very interesting!! I do expect that these new funds will probably do well in their first few years.

youbet 04-22-2008 09:00 AM

Quote:

Originally Posted by Rich_in_Tampa (Post 647062)
For me at the brink of retirement, I have too many questions about how the payouts are taken (pro rata from all holdings? rebalancing proceeds? fixed > equity?), and the lack of history.

They're actively managed to keep withdrawals as constant as possible while preserving principal. All the methods you mention might be used over time depending on the economy.

It was a bit of a surprise to read the borchure describing an actively managed fund giving the managers wide discretion in investiment and withdrawal style coming from Vanguard.

cute fuzzy bunny 04-22-2008 10:13 AM

About frickin time! I've been waiting for these to come out.

Nice for people who are asset allocators that like lots of asset classes and dont want to do the work. The ER's have inched up a little since their outset, but still reasonable for the range of assets used. They started around .34 then went to .4 and now around .57/.58. Looks like the payout amounts backed up as well...looks like ~2.5, ~4.1 and ~6.5 instead of 3/5/7 as they originally were proposed. I think thats a good idea.

Do note that the potential for capital appreciation goes down as the payout goes up. Thus the high growth fund might pay out a higher actual dollar amount than the payout focused fund after 7-10 years.

Nice to buy half of the high growth and half of the middle growth, get your ~4%, and forget about the rest.

I expected them to hold onto this release until they felt the markets were firming up. So if you agree with that idea, that means vanguard thinks things are turning up. Wouldnt make a lot of sense to launch a series of funds with fixed payout expectations if they expected the principal to take a huge dive.

WilliamG 04-22-2008 10:14 AM

W2R - regardless these new funds, i don't think roughly a third of portfolio in Wellesley is "dangerous". Ignoring good history and manager objectives this just breaks down into around 10% value stock and 20% corporate bonds in your overall allocation. Both reasonable and you get managed selection and re-balancing. I personally like the managed part as an offset to the indexing and self rebalancing i do otherwise... bill

Rich_by_the_Bay 04-22-2008 10:15 AM

Careful - it's for nontaxable accounts for the most part. Per recent Boglehead posts it will be very actively managed.

WilliamG 04-22-2008 10:17 AM

Quote:

Originally Posted by cute fuzzy bunny (Post 647164)
About frickin time! I've been waiting for these to come out.

Nice for people who are asset allocators that like lots of asset classes and dont want to do the work. The ER's have inched up a little since their outset, but still reasonable for the range of assets used.

Do note that the potential for capital appreciation goes down as the payout goes up. Thus the high growth fund might pay out a higher actual dollar amount than the payout focused fund after 7-10 years.

Nice to buy half of the high growth and half of the middle growth, get your ~4%, and forget about the rest.

Yep. I can see a thread on allocations of Managed Payout funds! Not internal but mixtures and possible account locations. By the way, is there a cheat sheet on what the approximate bogies are for the allocations within these guys; like Wellesley's 35% stock, 65% bond?

REWahoo 04-22-2008 10:23 AM

Quote:

Originally Posted by WilliamG (Post 647168)
By the way, is there a cheat sheet on what the approximate bogies are for the allocations within these guys; like Wellesley's 35% stock, 65% bond?

Here is the investment strategy for Managed Payout Growth Focus:

Investment strategy
The fund invests in Vanguard mutual funds and other investments according to an asset allocation strategy designed to provide shareholders with regular cash flow from their investments in the fund.

Investment policy
The fund may invest in futures contracts, options on futures contracts, options on securities or securities indexes, credit default swaps, interest rate swaps, total return swaps, forward foreign currency agreements, and other derivatives. The advisor will not use derivatives to change the risks of the fund as a whole as such risks are described in the prospectus.

Looks to me to be "whatever we think will work".

youbet 04-22-2008 10:39 AM

Quote:

Originally Posted by REWahoo (Post 647170)
Looks to me to be "whatever we think will work".

There ya go..... As I said above, I'm a little surprised to see Vanguard coming up with an actively managed fund that gives the managers such wide leeway. Not disappointed. Just surprised.

cute fuzzy bunny 04-22-2008 10:41 AM

Its a mixture of total stock and total bond, international, tips, commodities, market neutral and other components. Some of the earlier threads had specifics of the buckets and very broad ranges.

Looks like we wont know for sure until the funds invest and release next month.

cute fuzzy bunny 04-22-2008 10:44 AM

Prior thread with some pointers to some articles and sec filings.

https://www.early-retirement.org/foru...unt-32872.html

youbet 04-22-2008 10:46 AM

Quote:

Originally Posted by cute fuzzy bunny (Post 647164)
Looks like the payout amounts backed up as well...looks like ~2.5, ~4.1 and ~6.5 instead of 3/5/7 as they originally were proposed. I think thats a good idea.
.

Wonder where you got that from? The payout calculator provided by Vanguard at the site still shows 3/5/7.

W2R 04-22-2008 10:55 AM

Quote:

Originally Posted by WilliamG (Post 647165)
W2R - regardless these new funds, i don't think roughly a third of portfolio in Wellesley is "dangerous". Ignoring good history and manager objectives this just breaks down into around 10% value stock and 20% corporate bonds in your overall allocation. Both reasonable and you get managed selection and re-balancing. I personally like the managed part as an offset to the indexing and self rebalancing i do otherwise... bill

I am pretty sure you are right about a third of our portfolio in Wellesley being reasonable. We probably think pretty much alike about investing, since our portfolios are so similar! I doubt that I will invest much in the managed payout funds, even though it is tempting to jump right in at the ground floor. But really, Wellesley gives me what I want and has a great track record.

FinanceDude 04-22-2008 11:12 AM

Quote:

Originally Posted by youbet (Post 647173)
There ya go..... As I said above, I'm a little surprised to see Vanguard coming up with an actively managed fund that gives the managers such wide leeway. Not disappointed. Just surprised.

It's the only way they can mitigate the risk, they need flexibility. How else can they "guarantee" 6 or 7% withdrawals when the market is down 10%??

youbet 04-22-2008 12:15 PM

Quote:

Originally Posted by FinanceDude (Post 647190)
It's the only way they can mitigate the risk, they need flexibility. How else can they "guarantee" 6 or 7% withdrawals when the market is down 10%??

Hey, no argument from me. I was just surprised that sponsoring an actively managed fund with wide manager discretion was on their agenda.

BTW, you are making a serious mistake in your interpretation of their literature. They DO NOT guarantee the withdrawals as you stated.

Now, important stuff. Did you get a boat or are you still screwing around with that? If you have one, when we going fishing?

FinanceDude 04-22-2008 12:28 PM

Quote:

Originally Posted by youbet (Post 647230)
Now, important stuff. Did you get a boat or are you still screwing around with that? If you have one, when we going fishing?

Well, since I chipped a bone in the top of my foot, and possibly some cartilage damage, I have been distracted. DW has moved on from boats to landscaping, and since I can't do the work..........:p

I am still hunting, but I don't think the PAIN the economy is inflicting has gotten the boat owners yet....they have to sell their gas-guzzling SUV first, then realize now they can't pull their boat, and THEN I can strike........probably a few months away........

When I get one, we can go fishing. I don't remember where you are at but I think it's Illinois or somewhere? Maybe a walleye sojurn on the Wolf River or Wisconsin River is necessary..........;D

cute fuzzy bunny 04-22-2008 02:31 PM

Quote:

Originally Posted by youbet (Post 647178)
Wonder where you got that from? The payout calculator provided by Vanguard at the site still shows 3/5/7.

The growth fund says on the main fund page "The fund's per-share payout for 2008 is $0.0500." on a share price of $20.

The middle one says "The fund's per-share payout for 2008 is $0.0833." on a $20 share price

The high payout one says "The fund's per-share payout for 2008 is $0.1167." on a share price of $20.

Perhaps this is prorated for the thing not starting until may of this year?

cute fuzzy bunny 04-22-2008 02:38 PM

I stuck $60k into the middle fund that I had laying around in a money market not making enough for me to want to leave it in cash anymore.

Very exciting. Lets see what happens! :)

FIRE'd@51 04-22-2008 02:44 PM

Quote:

Originally Posted by cute fuzzy bunny (Post 647317)
The growth fund says on the main fund page "The fund's per-share payout for 2008 is $0.0500." on a share price of $20.

The middle one says "The fund's per-share payout for 2008 is $0.0833." on a $20 share price

The high payout one says "The fund's per-share payout for 2008 is $0.1167." on a share price of $20.

Perhaps this is prorated for the thing not starting until may of this year?

Those are monthly payouts, so the annualized payouts would be 3%, 5%, and 7%, respectively.

BTW, the expense ratio is shown as 0.58%.

cute fuzzy bunny 04-22-2008 03:02 PM

Thats what happens when I try to do math in my head while drinking my first cup of coffee.

The distribution focus funds ER is .57.

Moemg 04-22-2008 04:11 PM

I have about half my assests in taxable accounts . Are these investments taboo for them ?

cute fuzzy bunny 04-22-2008 04:19 PM

Its sort of hard to say. I think by saying things like "<asset class> 0-50%" they're creating an impression that they may wildly change the holdings very quickly and the contents of the fund one day might be different from the next.

Perhaps they're overdoing the ass covering on wanting to give themselves leeway to invest as they see fit. I cant see them making rapid massive changes to the holdings. I would anticipate them to moderate change over a period of years, but if they thrash trade I think they'll lose customers. Many people wanting these funds (primarily people near or in retirement) wont be able to use them in a tax advantaged account.

Plus they oughta be able to balance some of the selling gains with losses. Some pieces of this are going to be extremely volatile. They get the ying and the yang right and trim off the ends, it might end up being reasonable.

I wouldnt expect it to be as miserly in capital gains as the Tax Managed Balanced Fund, but I dont expect it'll look like a commodity fund either.

My 60k is in a taxable fund. We'll see how it goes.

Rich_by_the_Bay 04-22-2008 05:51 PM

Quote:

Originally Posted by Moemg (Post 647375)
I have about half my assests in taxable accounts . Are these investments taboo for them ?

Credible hearsay, if there is such a thing, over on the Diehards board indicates that these will be very actively managed, meaning they will not be great for taxable accounts. Too much taxes on gains, dividends, etc. Do your homework beforehand.

cute fuzzy bunny 04-22-2008 09:00 PM

Frankly, at this point I'd love to pay a lot of taxes on gains and dividends. Every year!

What Rich said is important though. Fully understand any fund before putting money into it, especially taxable funds.

That having been said, the diehards folks are a bunch of worry warts who think anything that isnt some sort of straight index thats been around for 40 year is suspicious, and I have spent a lot of time looking at these funds. Bogleheads think that a chunk of US equities, a slice of US bonds...and maybe...just maybe...a sliver of foreign equities...are all you need. Maybe that how its gone before. Maybe thats how it'll go another 40 years.

But having said that, $60k to me is like blowing a little extra money on a really nice batch of ice cream. My life doesnt depend on it. Shoot, Amazon just had a sale on chocolate and I think I bought about 40lbs worth. Oh well, Mothers Day is right around the corner.

Were I choosing between wellesley and this with safety in mind, I'd take mostly wellesley or target retirement or lifestrategy income and maybe some of this.

If I had a bunch of money and was looking at annuities and gold and commodities and market neutral funds and precious metals and thought "What the hell? Cant I get a little of all of this and not sweat the details?".

In that case I'd buy some. Whoo! Just did!

WilliamG 04-23-2008 06:29 AM

Quote:

Originally Posted by Moemg (Post 647375)
I have about half my assests in taxable accounts . Are these investments taboo for them ?

From the prospectus:
"The Fundsí twelve scheduled distributions in each year are made monthly, at mid-month. An
additional distribution may be made in December, and other additional distributions may be
made with respect to a particular fiscal year in order to comply with applicable law. The Funds
are designed with the expectation that the twelve scheduled monthly distributions will be
paid in cash but that each additional distribution for a particular fiscal year will be automatically
reinvested in additional Fund shares. Accordingly, to allow the Funds to achieve their design
objectives, the Funds will generally automatically reinvest any additional distribution for a
particular fiscal year in additional Fund shares. These additional shares can be redeemed
under the same terms and conditions as any other shares of the Funds."

Don't pay any attention to that man behind the curtain! Indeed it appears that there may be taxable returns you either get in cash or that are re-invested beyond the percent that is paid out monthly. It will be very interesting to track these guys once they are operational.

Gone4Good 04-23-2008 05:38 PM

Hey everyone, I didn't scour the prospectus so I might have missed something but these funds simply look like a modified fixed % withdrawal strategy. Am I wrong in thinking they just payout 3%/5%/7% of the trailing 3 year average NAV?

cashflo2u2 04-23-2008 06:06 PM

All the nervous nellies will probably crap their drawers on this one, but I am putting half my retirement account, which is in an IRA, in the 3% and 5% (50-50). I know somebody will post that they hope I don' t end up crapping my drawers in a few years.

REWahoo 04-23-2008 06:09 PM

Quote:

Originally Posted by cashflo2u2 (Post 647923)
I know somebody will post that they hope I don' t end up crapping my drawers in a few years.

No. But I hope you still have some drawers to...uh... ;)

Actually, I suspect you'll be fine. Let us know how it works out.

cute fuzzy bunny 04-23-2008 06:19 PM

I decided I like surprises and put 60k into the 3% version and 60k into the 7% version to go along with the 60k of the 5% fund I bought yesterday. I'll watch them for a while and see what the allocations turn out to be and what the short term performance looks like and maybe stuff some more money into the one I like the most.

The ER is expected to drop as assets grow. I'm doing my part! ;)

W2R 04-23-2008 06:26 PM

Wow, you sure ARE doing your part! I am a teeny bit jealous since getting in on the ground floor like this sounds like such fun (but it's not in my plan). Enjoy! And let us know what you think once things shake out. :D

cute fuzzy bunny 04-23-2008 06:38 PM

Just like a box of chocolates!

clifp 04-23-2008 06:42 PM

My god folks its Vanguard, not a late night infomercial selling secrets of the wealthy.

Vanguard is "promising" growing returns starting at 3%, 5%, and ooh wait for it 7% for you Vegas gambling action junkies.


Me I'll probably put in $50K into the 5% after a muni bond matures later this year. This assumes that I still have money after my writing puts and naked calls... :)

cute fuzzy bunny 04-23-2008 06:47 PM

Well, they're suggesting growth in the 3%, inflation pacing with the 5% and 'we're gonna try to keep up with inflation but probably wont make it' with the 7%.

I think the juicy one will be the 3% if you've got enough other income sources to fill in while it picks up some capital appreciation. But I want to see what they do with it, how they move with the markets and what the tax situation looks like at the end of the year before I throw a couple more boat anchors in.

Do also remember that we're pretty low profile income wise. My wife only works part time and since we have no debt to service every month our income needs are pretty modest. So some capital gains arent going to make me cry at tax time.

The first 60k came out of cash. The $120k for the two other purchases came out of wellesley.

This is really some nice diversification for the price. The only part I'm not thrilled with is the market neutral piece. If they get the ER down under .45 I'll be thrilled.

Moemg 04-23-2008 06:47 PM

I cheated on Early Retirement and went to Boglehead 's to get their take on the funds . They seem like great funds if you are in the distribution phase but the funds they are investing with I already have so I'm not sure I see the value in changing especially since they are in my IRA which I will not be touching until required . If I did not have a cola pension I would seriously consider them because I like the security of a monthly pay out .

cashflo2u2 04-24-2008 05:47 AM

I'm in the distribution phase and will face RMD in two years. So, it seems a good fit for me as the portion in these funds will count towards that. The only problem is that do transfer the funds from my Schwab account I would have to sell all my DFA funds (a legacy from when I had a financial planner managing the portfolio). VG said they would not accept the DFA funds. I'm not sure I like doing that.

WilliamG 04-24-2008 08:15 AM

Fyi, my version of Vanguard site looks to be updated today (personal version). Like the new formats and also the additional informationals on the managed payout funds.

mark500 04-27-2008 08:12 AM

I wonder what percent of the distributions form one of these Vanguard funds will be capital gains and what will be taxed as income?

cute fuzzy bunny 04-27-2008 10:13 AM

All complete speculation at this point.

mark500 04-27-2008 03:54 PM

cute fuzzy bunny..did you know that your quote is from Winston Churchill also?

cute fuzzy bunny 04-27-2008 03:57 PM

Yes I did!

CCdaCE 04-27-2008 07:07 PM

If I were lookin' for income, I'd find funds that owned a buttload of stocks like ALD (Allied Cap. Corp.), companies that have given solid dividends forever. How are these funds different from what DVY tries to do?

-CC

volga 04-27-2008 07:58 PM

I put a maturing CD and my old position in the VG "Retirement" target fund o' funds into VPGDX (the Middle managed Payout fund with the target at 5%). For every 100 K the fund is projected to pay out @417 per month give or take. For me this is a decent way to make up a floor cash flow without worrying about laddering CDs or buying a single premium annuity, at least for the time being on my end. I have no issue with paying 50 basis points for a manged payout fund, since it will likely keep me from selling equities into a down market so long as I can keep my budget at the same level as the payouts and pensions I have coming in. I am more disapointed with excessive CEO salaries in my funds underlying equity holdings than VG's ER. (Your Mileage will vary)

Still have the same amount in Wellesly, and plan to keep a large (35%) part of my AA with Wellesly.

Danny 05-24-2008 04:11 PM

Quote:

Originally Posted by DblDoc (Post 646921)
From Vanguard today:

https://personal.vanguard.com/us/Van...252008_ALL.jsp

A new set of balanced funds designed for generating income in retirement with varying degrees of capital appreciation.

There is a thread discussing them at the Bogleheads site titled " fyi managed payout funds"

DD

Thanks for the heads up on this - just what I was looking for.


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