Which Vanguard Funds are best for monthly income?

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PacNorWest
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Which Vanguard Funds are best for monthly income?

Post by PacNorWest »

We need a little more monthly cash income.
The money would be used to eat out once a week instead of ALWAYS eating at home.
With 100K in Vanguard, what would be the best Vanguard funds to invest it in to produce a modest monthly income stream?

Caveat #1; We'd like to know that the fund(s) could enjoy some growth if the economy ever revives.

Will we be eating at McDonalds or the Surf & Turf restaurant? :happy
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archbish99
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Re: Which Vanguard Funds are best for monthly income?

Post by archbish99 »

I'll start with a caveat of my own -- most Bogleheads look at withdrawals from a portfolio independent of the amount of "income" it produces. Taking out the return from dividends and taking out the return from growth are both taking money out of the portfolio.

That said, if you're looking for something relatively simple, you could consider the Vanguard Target Retirement Income Fund (VTINX) which is a balanced fund consisting of:
  • 45% nominal bonds (Total Bond Market)
  • 20% inflation-protected bonds (TIPS)
  • 21% domestic stocks (Total Stock Market)
  • 9% international stocks (Total International Stock Market)
  • 5% cash (Prime Money Market)
Current yield is around 2.3%, with distributions quarterly.
I'm not a financial advisor, I just play one on the Internet.
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Taylor Larimore
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SPIAs

Post by Taylor Larimore »

PacNorWest wrote:We need a little more monthly cash income.
The money would be used to eat out once a week instead of ALWAYS eating at home.
With 100K in Vanguard, what would be the best Vanguard funds to invest it in to produce a modest monthly income stream?

Caveat #1; We'd like to know that the fund(s) could enjoy some growth if the economy ever revives.

Will we be eating at McDonalds or the Surf & Turf restaurant? :happy
You may be a candidate for a Single Premium Immediate Annuity (SPIA). This investment offers the highest guaranteed lifetime income of any security. You can find more information here:

http://www.bogleheads.org/wiki/Immediat ... ity_-_SPIA

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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nisiprius
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Re: Which Vanguard Funds are best for monthly income?

Post by nisiprius »

Without regard to general investment considerations, considering only the mechanics of "monthly payments."

Mutual funds pay out dividends; depending on the fund, it may be monthly, quarterly, semiannually, or annually. And depending on the fund and what it invests in, those payments may be fairly equal and steady or highly fluctuating. It also makes distributions of capital gains, if any, usually annually near the end of the year.

When you buy a fund, you can specify whether these distributions are reinvested back into the fund, buying more shares and making it grow faster, or paid out to you, and you can change this at any time.

The only Vanguard funds that make payments monthly are most of the Vanguard bond funds, such as Vanguard Total Bond Market Index; and the Vanguard Managed Payout funds. In both cases, the monthly payments are least reasonably steady and roughly equal. The Vanguard Wellesley Income Fund also makes reasonably steady payments but they are only quarterly.

For the schedule, go to the page that describes All Vanguard funds and click "distributions."

For any fund at all, any fund, you can set up an automatic withdrawal that is anything you like, completely independent of what the fund itself is earning. These withdrawals can be any size you like and with a choice of intervals, but for withdrawals the shortest seems to be monthly. So, you could invest in any Vanguard fund at all, and tell Vanguard to pay $400 a month into your bank account. It doesn't seem as if you can do it weekly, alas. There's no control over whether your fund can "afford" to pay that much. If you withdraw more than it earns, your fund's balance shrinks until it's all gone. If you withdraw less than it turns, it grows.

With regard to how much, these days all safe investments are sucky, that's just the way it is. There's no reward without risk, no special magic at Vanguard, and something like a Vanguard bond fund is not going to pay you a whole lot more than, say, a bank CD.

I am constantly talking out of both sides of my mouth with regard to the Managed Payout funds. I don't like 'em. I don't use 'em. But someday I might.

Now, here's how they might apply to your situation. The minimum investment in them is $25,000. If you put $25,000 in Managed Payout Growth and Distribution, here's what will happen, according to [url=ttps://personal.vanguard.com/us/funds/vanguard/ManagedPayoutList]Vanguard's web page about them[/url]. Initially, it will pay you $95 a month. So, not McDonald's, but not a fancy sit-down restaurant either.Maybe the neighborhood "family casual dining." If you put in $100,000, you'd get $378 a month, by golly that's Cheesecake Factory territory. That amount will get automatically adjusted every year, could go up or down. The underlying investments are actually moderately aggressive; if the stock market booms, you will indeed get some growth. If it doesn't, it will shrink and your monthly payments will get cut. These are tricky and complicated funds, if the idea appeals to you take plenty of time to make sure you understand how they work and what stuff they are investing in.

The reason I think they're relevant is that they do two things for you: put you into a pretty darn aggressive suitable-for-the-long-run kind of portfolio, while paying you regular dining-out money every month automatically in a way that adjusts to how well the fund is doing.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: Which Vanguard Funds are best for monthly income?

Post by 3247 »

Excellent post nisiprius!

Clear explanation and sound advice.

To lend credence to the advice from nisiprius, I have been using a spread sheet to 'monitor' a hypothetical $150,000 investment in Vanguard Intermediate Term Bond index fund (VBILX) for the past 8 months (all dividends and cap. gains reinvested) to see if I wanted to take that plunge myself.

Distribution amounts are available on Vanguards website, so share purchases are easily figured (probably not quite exactly, but close enough for my purposes). The 'hypothetical' fund balance has grown from $150,000 some 8 months ago to $163,000 now (adjusted for monthly share purchases from reinvesting dividends and capital gains plus daily NAV ups and downs).

The monthly dividend has been running a little over $400 per month. Definitely Cheesecake Factory range. I will make this investment myself as soon as the CD I have matures (in 29 days and counting).
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PacNorWest
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Re: Which Vanguard Funds are best for monthly income?

Post by PacNorWest »

Thanks everyone. It's easy to get overwhelmed with information but all this was good.
Annuities have their place, but are not very liquid. . .sorry, I left that requirement out.

I found the https://personal.vanguard.com/us/funds/ ... PayoutList web page.
Looking closely at the pop up window, it has a tab that shows it's composition of background funds (Holdings and management).
Which gives rise to the idea that one could customize the collection of funds slightly by investing in them with some changes in percentage allocation.
Which would make the "managed" part my responsibility.

I'll sleep on this for a few days and put the can opener away next week.
Thanks again. . .very informative.
DualIncomeNoDebt
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Re: Which Vanguard Funds are best for monthly income?

Post by DualIncomeNoDebt »

I'm following up on this thread to see if there are any new ideas, funds, or other Vanguard products for a monthly income product. Anything new or on the horizon from Vanguard?

Also wondering if anyone purchased and is happy with the Vanguard Managed Payout funds? The fees range from 0.34% (Managed Payout Growth Focus VPGFX) to 0.46% (Managed Payout Distribution Focus VPDFX). One minus is I don't see admiral shares for these funds, all of them are investor class with $25k minimums. The minimum is fine, but is the expense appropriate for this type of fund? Also wondering about the "return of capital" portion of the monthly distribution, which is bothersome if ROC is a big % of the monthly payout, sounds like a CEF if it is.

Finally, if the managed payout fund class is less than optimal, what currently is a decent stock or balanced fund we can invest in and add to, while drawing monthly income?
crowd79
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Re: Which Vanguard Funds are best for monthly income?

Post by crowd79 »

Go with the Vanguard Intermediate Term Bond index (VBBIX)
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Taylor Larimore
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Income or Total Return approach ?

Post by Taylor Larimore »

Which Vanguard Funds are best for monthly income?
PacNorWest:

Your post suggests that you may be seeking funds with large monthly distributions. I wonder if you realize that for most of us it is best to use total return for income. This article explains:

Spending From a Portfolio: Implications of a Total-Return Approach Versus an Income Approach for Taxable Investors

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
dbr
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Re: Which Vanguard Funds are best for monthly income?

Post by dbr »

Why would anyone
PacNorWest wrote:We need a little more monthly cash income.
The money would be used to eat out once a week instead of ALWAYS eating at home.
With 100K in Vanguard, what would be the best Vanguard funds to invest it in to produce a modest monthly income stream?

Caveat #1; We'd like to know that the fund(s) could enjoy some growth if the economy ever revives.

Will we be eating at McDonalds or the Surf & Turf restaurant? :happy
Let's see. Assume you want to spend around $100/week for a pretty darn good meal. That's $5000 a year. If you want to increase that with inflation every year for the rest of your life, you are asking for a withdrawal rate of 5%. There aren't any Vanguard funds that allow you to spend that much with solid assurance there will still be money there years later.

Well, maybe the meal you want is only $50, still a very possible meal out. Then the withdrawal rate is 2.5%. You could probably invest in just about any Vanguard fund and make that last for decades.

Now, the next problem is trickier. You want some growth. The problem is how certain do you want that growth to be? If your condition is "when times get better" then it would probably be a good bet you could achieve that with about a 50:50 blend of stocks and bonds while still spending $50-$60 a week. You could also fail, however.

In any case, the mechanics described by Nisi allow you to select the assets independently of the interest and dividends paid.

As far as the SPIA. If you could get a payout of 5%, you could invest $50,000 in the SPIA and get $50/week, every week, without inflation increase and leave the other $50,000 liquid and able to grow untouched for any length of time. What is the reaction to that.

I hope people notice how this is a micro example of the general problem of retirement income.

PS Just saw Taylor's posting. It would be good to heed this well.
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Peter Foley
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Re: Which Vanguard Funds are best for monthly income?

Post by Peter Foley »

On the chance tht you are asking a real simple question regarding comparing Vanguard funds, you can use Yahho finance or a number of other web sites to research yields and dividends. For example:
Wellesley is often recommended - this is primarily a bond fund with some stocks with a yield of 3.19 but with lower dividends than
Wellington - another oft recommended balanced fund, more stocks than bonds with a yield of 2.77 but higher dividends than Wellesley, but lower than
Internmediate Term investment grade (VFICT) - yield of 3.49 and higher divendends than either of the above.

I'm making the assumption that you would spend the dividends. Either of the two W funds would be reasonable choices for dividend plus some growth.
am
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Re: Which Vanguard Funds are best for monthly income?

Post by am »

Is there any advantage to the managed payout funds over simply having a 3 funder and taking what you need, say 4% per year? Are there studies showing that these funds offer the same probability of lasting a retirement over a 3 funder? Managed funds have pretty high allocations to stocks for retirees.
FRANK2009
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Re: Which Vanguard Funds are best for monthly income?

Post by FRANK2009 »

am wrote:Is there any advantage to the managed payout funds over simply having a 3 funder and taking what you need, say 4% per year? Are there studies showing that these funds offer the same probability of lasting a retirement over a 3 funder? Managed funds have pretty high allocations to stocks for retirees.

The managed payout funds haven't been around long enough to draw any conclusions. That said, i think the purpose of these funds is to obtain predictable withdrawl amounts using a hands off approach.
Johm221122
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Re: Which Vanguard Funds are best for monthly income?

Post by Johm221122 »

PacNorWest wrote:We need a little more monthly cash income.
The money would be used to eat out once a week instead of ALWAYS eating at home.
With 100K in Vanguard, what would be the best Vanguard funds to invest it in to produce a modest monthly income stream?

Caveat #1; We'd like to know that the fund(s) could enjoy some growth if the economy ever revives.

Will we be eating at McDonalds or the Surf & Turf restaurant? :happy
We could help you a lot more if you post this way(for example how old you are)
http://www.bogleheads.org/forum/viewtopic.php?t=6212
John
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Hexdump
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Re: Which Vanguard Funds are best for monthly income?

Post by Hexdump »

We selected Welesley to do just that. We reinvest the dividends and cap gains, then once a quarter sell some shares.
It's asset allocation fits with our model.

Good luck.
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JustDucky
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Re: Which Vanguard Funds are best for monthly income?

Post by JustDucky »

One solution offered by http://www.fundadvice.com/portfolio.html, is to use four Vanguard bond funds:


Vanguard Short-Term Investment Grade
Vanguard Intermediate-Term Investment Grade
Vanguard GNMA
Vanguard High-Yield Corporate

They suggest putting 25% into each fund.

WD
Johm221122
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Re: Which Vanguard Funds are best for monthly income?

Post by Johm221122 »

WD4HJB wrote:One solution offered by http://www.fundadvice.com/portfolio.html, is to use four Vanguard bond funds:


Vanguard Short-Term Investment Grade
Vanguard Intermediate-Term Investment Grade
Vanguard GNMA
Vanguard High-Yield Corporate

They suggest putting 25% into each fund.

WD
High yield corporate is closed to new investors
https://personal.vanguard.com/us/funds/ ... IntExt=INT
John
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Re: Which Vanguard Funds are best for monthly income?

Post by Dandy »

Both the target retirement income fund and an immediate annuity are good choices.

You mentioned hoping for a little growth if the economy imporoves. The stock market has been experiencing excellent growth since the 2008 plunge. You missed out. Comments on the sluggish economy don't always translate to the stock market at the same time. Companies have had generally good profits and prospects for the economy to grow seem to have kept the market positive despite the so so economy.
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Re: Which Vanguard Funds are best for monthly income?

Post by YDNAL »

PacNorWest wrote:We need a little more monthly cash income.
The money would be used to eat out once a week instead of ALWAYS eating at home.
With 100K in Vanguard, what would be the best Vanguard funds to invest it in to produce a modest monthly income stream?

Caveat #1; We'd like to know that the fund(s) could enjoy some growth if the economy ever revives.

Will we be eating at McDonalds or the Surf & Turf restaurant? :happy
It seems that your current Asset Allocation for $100K in Vanguard provides to pay bills - including food (grocery store) - but doesn't allow for added cost like McDonalds or the Surf & Turf on a regular basis. :)

Well, a more aggressive AA could return enough to eat out weekly at Smith & Wollensky (http://smithandwollensky.com/). Caution: It may also prevent you from buying groceries at the local store. With expected return comes risk (and viceversa).
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
Topic Author
PacNorWest
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Re: Which Vanguard Funds are best for monthly income?

Post by PacNorWest »

YDNAL wrote:
PacNorWest wrote:We need a little more monthly cash income.
The money would be used to eat out once a week instead of ALWAYS eating at home.
With 100K in Vanguard, what would be the best Vanguard funds to invest it in to produce a modest monthly income stream?

Caveat #1; We'd like to know that the fund(s) could enjoy some growth if the economy ever revives.

Will we be eating at McDonalds or the Surf & Turf restaurant? :happy
It seems that your current Asset Allocation for $100K in Vanguard provides to pay bills - including food (grocery store) - but doesn't allow for added cost like McDonalds or the Surf & Turf on a regular basis. :)

Well, a more aggressive AA could return enough to eat out weekly at Smith & Wollensky (http://smithandwollensky.com/). Caution: It may also prevent you from buying groceries at the local store. With expected return comes risk (and viceversa).
No. . .bills and stuff are taken care of already. The Vanguard is up modestly since my original post.
I got out of High Yield Corporate Bonds a while back. . .not sure if being a previous investor allows for me to re-invest in a fund closed to "new" investors.
Currently 65% in Vanguard Total Stock Market Index Fund Admiral Shares and 35% in Prime MM Fund.
Up modestly since my original post. But I'm not taking any dividends or anything. . .it just reinvests.
YDNAL
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Re: Which Vanguard Funds are best for monthly income?

Post by YDNAL »

PacNorWest wrote:
YDNAL wrote:
PacNorWest wrote:We need a little more monthly cash income.
The money would be used to eat out once a week instead of ALWAYS eating at home.
With 100K in Vanguard, what would be the best Vanguard funds to invest it in to produce a modest monthly income stream?

Caveat #1; We'd like to know that the fund(s) could enjoy some growth if the economy ever revives.

Will we be eating at McDonalds or the Surf & Turf restaurant? :happy
It seems that your current Asset Allocation for $100K in Vanguard provides to pay bills - including food (grocery store) - but doesn't allow for added cost like McDonalds or the Surf & Turf on a regular basis. :)

Well, a more aggressive AA could return enough to eat out weekly at Smith & Wollensky (http://smithandwollensky.com/). Caution: It may also prevent you from buying groceries at the local store. With expected return comes risk (and viceversa).
No. . .bills and stuff are taken care of already. The Vanguard is up modestly since my original post.
I got out of High Yield Corporate Bonds a while back. . .not sure if being a previous investor allows for me to re-invest in a fund closed to "new" investors.
Currently 65% in Vanguard Total Stock Market Index Fund Admiral Shares and 35% in Prime MM Fund.
Up modestly since my original post. But I'm not taking any dividends or anything. . .it just reinvests.
So, PacNorWest, you are playing a mental exercise with Vanguard's $100K account for "a little more monthly cash income." Wrong approach, unless you account for more yield = more risk -- the point in my previous post.

I sugget you look at your overall portfolio and invest to generate a total expected return that provides for whatever you want to do... and that includes McDonalds or Surf & Turf regularly.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
Topic Author
PacNorWest
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Re: Which Vanguard Funds are best for monthly income?

Post by PacNorWest »

YDNAL wrote:
PacNorWest wrote:
YDNAL wrote:
PacNorWest wrote:We need a little more monthly cash income.
The money would be used to eat out once a week instead of ALWAYS eating at home.
With 100K in Vanguard, what would be the best Vanguard funds to invest it in to produce a modest monthly income stream?

Caveat #1; We'd like to know that the fund(s) could enjoy some growth if the economy ever revives.

Will we be eating at McDonalds or the Surf & Turf restaurant? :happy
It seems that your current Asset Allocation for $100K in Vanguard provides to pay bills - including food (grocery store) - but doesn't allow for added cost like McDonalds or the Surf & Turf on a regular basis. :)

Well, a more aggressive AA could return enough to eat out weekly at Smith & Wollensky (http://smithandwollensky.com/). Caution: It may also prevent you from buying groceries at the local store. With expected return comes risk (and viceversa).
No. . .bills and stuff are taken care of already. The Vanguard is up modestly since my original post.
I got out of High Yield Corporate Bonds a while back. . .not sure if being a previous investor allows for me to re-invest in a fund closed to "new" investors.
Currently 65% in Vanguard Total Stock Market Index Fund Admiral Shares and 35% in Prime MM Fund.
Up modestly since my original post. But I'm not taking any dividends or anything. . .it just reinvests.
So, PacNorWest, you are playing a mental exercise with Vanguard's $100K account for "a little more monthly cash income." Wrong approach, unless you account for more yield = more risk -- the point in my previous post.

I sugget you look at your overall portfolio and invest to generate a total expected return that provides for whatever you want to do... and that includes McDonalds or Surf & Turf regularly.


There's so much intellectual financial firepower here that it's hard to post a "simple" question of that nature.
And yes, I guess I could have framed the question differently. . .but to who's satisfaction?
I'm happy with the responses so far and have been given ample food for thought.

As a side note, we (I) tend to procrastinate. . .my significant other is still collecting un-employment which represents relief from breaking out the Alpo can opener.
But the day is soon coming when I will have to abide by these helpful posts in order to turn on a cash flow spigot.
Thank you your for your concern.
rj49
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Re: Which Vanguard Funds are best for monthly income?

Post by rj49 »

If you want something relatively safe, but with a prospect of some growth, I'd also recommend Wellesley. A high stock allocation, such as the Managed Payout Funds, has a high potential for losing a significant part of your money, and the problem with that is that they're disbursing it at the same time, so part of their monthly payout is often just returning the money you put into it. It's pretty difficult to replicate the fund, since the market neutral fund (kind of a dog, actually) has a high minimum investment, and they buy commodity futures as well. With Wellesley you get a decent payout, and if interest rates rise, then the payout rate would increase back to its historical payout of 4-5%. It's only lost money in a few years since the 1970s, although if we had a double whammy of inflation and stock market declines, Wellesley could lose money too, but you'd still get a reasonable, dependable dividend, with moderate growth potential, unlike bond funds. If you chart the long-term returns for high-yield and Wellesley, you'll see why the latter is a better option for growth and income and a fund even index-purist Bogleheads love, even Mr. Bogle himself.
DualIncomeNoDebt
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Re: Which Vanguard Funds are best for monthly income?

Post by DualIncomeNoDebt »

Also note I bumped this post because I was considering this question as well, and my question was whether anyone's thinking had changed since the summer. Appreciate the replies, they are helpful.
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