in the Withdrawal Stage:

 

http://insurancenewsnet.com/article.asp?n=1&neID=20070927290.2_87ed0030b844acb3

 

Joe

Thanks for bringing this to our attention, Joe. It ought to create a lot of discussion.

 

Paul 

Click here to read the prospectus in the SEC filing.

It will be interesting to see if there are any differences in the portfolios of these three funds.  I predict they will all use the same portfolio and just have different payout rates.

Ron

Although the prospectus talks a lot about Total Return the investor in any of these funds is most likely thinking only of monthly distributions for income expenses. So these funds would be for Yield Investors.

If that's the case where would this fund be held with regard to those concerned about Asset Allocation and Rebalancing - separate from their Balanced Portfolio? In that context it would seem to me that these funds would not be those one would choose to deduct (sell) shares from in a rebalancing act. Add to but not deduct.

 Perhaps I'm wrong but, annuities aside, I think these would be the first funds by Vanguard where, in the real sense, Yield is being promoted over Total Return.

 Billym

 

 

"Maybe Vanguard will add withdrawal strategies to more of its mutual funds. "

 In addition to the bucket strategy tied into the 3-4% safe withdrawal strategy of selling winners, buying losers and rebalancing, or simply living off distributions and reinvesting CGs how many other withdrawal strategies are there?

 "Some classes could even be designed to liquidate over a certain time period."

Why would you want to liquidate shares of a fund whose primary purpose is to provide income based on the number of shares you own? My view on the new funds referred to in this thread starter is that they're held long term. You take the dividends and reinvest the CGs to purchase more shares to provide more income. They're being marketed as income vehicles.

I wonder what the Diehards reaction is to these funds?
 
Billym 

 

Yes, I caught the story in the WSJ and 2 other places...

In General? I like the idea... only, if for being creative and creating more competition... wether they actually work better than Target Funds or other Ports? Remains to be seen......

Competition is the Mother of Investing....& the beneficiary is the Investor..

Joe, first, thank you for this post...

I do feel that Ron and Billym have made some interesting observations or opinions of the proposed new Vanguard funds, specifically, positioned for the withdrawal stage, as an investment tool.  I believe it is to early to know what type of vehicle or vehicles we will be dealing with...and they will probably evolve once they are made available to investors.

Will the goal be primarily that of Income & Dividend investing, or will the primary goal  be that of true capital preservation and growth, with the guarantteed service of the Vanguard Team assigned to each fund, automatically, rebalancing and distributing an income (3%,5% or 7% annually) on a monthly basis.

I see this offer as Vanguard's answer to the Insurance companies' Annuity vehicles ,as a competitive venture,of trying to guarattee income, but, at the same time telling the investor that they will have "a team" of professionals working to preserve and grow their capital.  In other words, I see them telling investors such as ourselves, that you do not have to purchase an Annuity/or give up part of your capital, for a guarantteed income during retirement.  They may very well be able to sustain a 3% and 5% income-guarantted fund(s), it may be trickier to guaranttee the 7% income-vehicle...but, I believe that they feel they have a 'past historical record' of being able to do so, over a long-term period (10-20 year block) of time.

Just an opinion...but, it will certainly be interesting, as all the Boomers begin to truly peak...and seek safer havens to place their monies and have a guarantteed income as they reach and live through retirement...

Curanderotk 

From the Prospectus:

Each Fund distributes to shareholders virtually all of its net income (including
interest and dividends, less expenses) as well as any net capital gains realized
from the sale of its holdings. In addition, each Fund may make distributions
that are treated as return of capital.

Here is a link to a discussion on Bogleheads with both pros and cons. A post was made on Diehards, but there was almost no response. It's an empty room over there right now.

http://www.diehards.org/forum/viewtopic.php?t=6381&sid=6d68ae970f446cf820816e04facf79c1

I'm not taking a stand on these new funds until I learn more. But one of my first thoughts is, wow, this is very un-Bogle like. I don't think Mr. Bogle would approve. Market neutral, short selling, commodity futures, shifting asset allocations? No, I don't think so.

Paul 

 

 

 

 

 

 

 

If I read the offering correctly, an investor may reinvest the distributions and also contribute additional $$$ ). Correct? IOW, one need not take the distributions and instead use a fund, like Real Growth, to take advantage of a portfolio that includes many lower-correlated assets (market neutral, absolute return, long-short, and commodities), a portfolio that is very difficult for the average investor to obtain unless a special product like this is offered. I could see investors using this portfolio, not for income, but to achieve return objectives from lower correlated assets while simultaneously holding other investments, e.g., foreign bonds, natural resources, and more emerging market equity in attempting to achieve even lower correlations.

For example, I noticed that Vanguard will be offering a market neutral fund, but the minimum investment for Investor Shares is 250K; however, this fund would be available to investors owning the Payout funds. FWIW, it's very difficult for the individual investor to achieve asset allocations in lower correlated products -- not just asset classes -- to the extent that Vanguard is now offering here.  

 Corrections and additions to the above are welcome,
 

Denny
 

 

 

 

Withdrawal strategies and portfolio management strategies are two separate things.  Most any withdrawal strategy can be tacked on to most any portfolio.

Withdrawal strategies are things like: fixed dollar amount (in nominal or real dollars); fixed percentage of the portfolio's remaining value; increasing percentage of the portfolio's remaining value; and ad hoc withdrawals of as much as you want whenever you want.  Bucket brigades are portfolio management strategies, not withdrawal strategies.

Vanguard has tacked a fixed-percentage withdrawal strategy on to a portfolio with everything but the kitchen sink.  Each part needs to be analyzed separately.  Does the portfolio management strategy suit you?  Does the withdrawal strategy suit you?

You can buy the fund for the portfolio without using the withdrawal strategy.  But if you buy the fund for the withdrawal strategy, then you have to take the portfolio too.  That's why I think Vanguard might tack the withdrawal strategy on to some of their existing funds.

Ron

"Withdrawal strategies and portfolio management strategies are two separate things.  Most any withdrawal strategy can be tacked on to most any portfolio."

I agree with Ron's second sentence. But mildly disagree with the first. Since this is the Investing During Retirement forum managing one's money in retirement for most retirees makes a withdrawal strategy and portfolio management a joint venture.

"Bucket brigades are portfolio management strategies, not withdrawal strategies. "

While I wouldn't presume to speak for Frank Armstrong I don't think he'd agree with that statement either.

I've been retired for over seven years  most of which I have drawn all of my expenses from my portfolio. So, I've got a pretty good take on the relationship between money management - withdrawals - and portfolio management. Simply because a Fund pays out X% in distributions, whether monthly or quarterly,  doesn't mean the investor has to spend those distributions. He can take some, all or none. There is no withdrawal strategy designation by the fund.

But I'm not interested in a discussion of semantics here. The sole point of my original post was really a question: Is this fund being directed to Yield/Dividend investors? If so, the emphasis on Yield/Income rather than Total Return would be a first for Vanguard, I believe.

 Billym

TIAA-CREF has filed plans for one of these withdrawal management portfolios.  Vanguard, Fidelity, TIAA-CREF, can TRowePrice and the brokers be far behind.  I wonder what the statistics on annuities are now.

Roberta 

Hi Billym:

"But I'm not interested in a discussion of semantics here. The sole point of my original post was really a question: Is this fund being directed to Yield/Dividend investors? If so, the emphasis on Yield/Income rather than Total Return would be a first for Vanguard, I believe."

IMO, no.  We won't have all the answers until we actually see the fund, but the composition constraints of the fund make it unlikely, in my view, to be high yielding.

If they are going to use the same asset allocation for all three payouts, and their goal for the the highest is 7% without invading original principal (but with no growth to cover inflation), then this needs to be a fairly aggressive fund, with at least 50% equities and other low yielding investments.  That means the TR has to average 7%.  There just aren't any really high yielders in that group.  The mainstay of the fund with be the domestic and international market index funds, maybe 2% yield if that.

In addition, this fund is going to be run by the VG Quant group.  That means asset allocation changes will be made by computers based on screens and AA changes will develop slowly and unemotionally.

So in my view, this is a Total return fund with a withdrawal strategy(ies) built in.  It will give retirees access to a broad range of less than perfectly correlated assets that they could not easily get.

BTW, I believe Wellesley income fills the bill as the first VG fund to emphasize yield/income.

best,

Bill

Helpful response and clarification, Bill. The fund prospectus emphasizes that these portfolios will be total return funds.

I view these, for now, as promising and will be watching for more details.

Denny 

Actually I read an article today in our local  business section that potentially clarified one issue.  Although the quant group will run the day to day operations, the AA will be picked and changed by " a committee of long time Vanguard managers".

If this is correct, I feel better about it already.  I like my active funds to be directed by humans, not computers. 

best,

Bill

Fidelity's Income Replacement Funds are now available.  These funds have an increasing-percentage withdrawal strategy that is designed to liquidate the fund in a specific target year.  That contrasts with Vanguard's Managed Payout Funds that will have a fixed-percentage withdrawal strategy that is designed to keep making payments forever.

Ron

My Suggestion to the " Big 3 ", Vanguard, Fidelity and TRP, would be for them to develop a RMD fund series. Similar to the Managed Payout funds in structure, but managed with regard to best providing a distribution equivalent to the RMD required for each particular year going forward and maximizing the growth of the remaining assets. For instance a RMD2008 Fund would be for those required to take their first distribution next year. In 2009 that fund would provide the distribution required in the 2nd year and so forth. They could start with 1 fund and keep adding a new fund each year to accommodate those who are starting RMDs that year. All the Best, Joe