Managed Payout Fund going away (sort of)

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FRANK2009
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Managed Payout Fund going away (sort of)

Post by FRANK2009 »

Looks like Vanguard is abandoning its 4% annual payout formula for the Managed Payout fund. Highlights from the article:

-The fund's new name will be "Vanguard Managed Allocation fund"'
-Investments will remain the same as the Managed Payout fund.
-Investors can pull money from the fund same as any other Vanguard fund.
-Change to begin in June.

https://www.marketwatch.com/press-relea ... iteid=nbkh
yohac
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Re: Managed Payout Fund going away (sort of)

Post by yohac »

The managed monthly payout is going away, which is about the only reason anyone would want to own this fund. It's been an underperforming stinker since day 1.
azanon
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Re: Managed Payout Fund going away (sort of)

Post by azanon »

Very disappointing. It’s been underperforming because it’s overweight of international, value, and commodity holdings have been out of favor for most of its existence.

I think Vanguard needs to go the opposite direction - integrate a retirement payout option for ANY account that doesn’t require it be done manually. I know Betterment has this feature.
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nisiprius
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Re: Managed Payout Fund going away (sort of)

Post by nisiprius »

Straight from the horse's mouth (Vanguard's press release)Vanguard Announces Changes to Managed Payout Fund

This is a significant black eye for Vanguard, in my opinion.

As I write this on 2/28/2020, there is not a hint of it on Vanguard's web page for the Managed Payout fund.

Image

They don't think it's necessary to mention that the "income you need in retirement" will stop in May. That, and the fact that so little notice was given, and that John Ameriks was replaced as fund manager (although "Mr. Ameriks will remain head of Vanguard’s QEG team," so he hasn't left Vanguard). Clients using Managed Payout as intended have chosen a hands-off, autopilot, "let Vanguard take care of it all" approach. Giving only three months' notice to scramble and figure out what to do now, seems inconsiderate to their clients. It makes me think that Something Happened, something abrupt and chaotic.

Is it possible that Vanguard is so spooked by current events that they don't want to be committed to a 4% payout target--but don't want to adjust the number down for the second time? (The fund began life with an overconfident 5% target).

The history of this fund speaks poorly both to the concept of portfolio withdrawals as an alternative to annuities. And I think it also speaks poorly to the whole investment strategy and style used by the fund.

Compared to Wellesley Income, an active fund using only traditional securities, and LifeStrategy Income--almost a three-funder, bond-heavy, using only passive funds--Managed Payout has had turned in about the same return as LifeStrategy Income with more than twice the volatility; and has had both more volatility and lower return than Wellesley.

Source

Image

It's probably unfair to look at the last week but I will anyway. On the face of it, reducing volatility with bonds is more reliable than keeping the stock allocation high and trying to reduce volatility with a witch's brew of supposedly uncorrelated alternatives.

Image
azanon wrote: Sat Feb 29, 2020 8:50 am...I think Vanguard needs to go the opposite direction - integrate a retirement payout option for ANY account that doesn’t require it be done manually. I know Betterment has this feature...
Agreed. For the time being, Vanguard's automatic RMD service is serving us well enough in a crude way, but they can and should do much better.

Back in 2007 or so, I remember wondering--maybe even out loud in the forum, after someone had talked about a Guyton-Klinger withdrawal strategy with ±20% guardrails and 10% adjustments, just how you would go about actually doing it. There wasn't any way back then and there doesn't seem to be any way now.
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.
GaryA505
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Re: Managed Payout Fund going away (sort of)

Post by GaryA505 »

I always wondered about this fund, like what kid of secret sauce it had. Now we know, the answer is NONE.
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nisiprius
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Re: Managed Payout Fund going away (sort of)

Post by nisiprius »

GaryA505 wrote: Sat Feb 29, 2020 4:30 pm I always wondered about this fund, like what kid of secret sauce it had. Now we know, the answer is NONE.
I wondered the same thing. When it was introduced, this was the situation:

a) "Classical" SWR strategies claimed to provide a first-year withdrawal of 4% of the portfolio, then subsequent withdrawals every year increased by inflation. The withdrawal amounts were to be taken unconditionally, regardless of portfolio fluctuations.

But they didn't claim to preserve the value of the portfolio. They only claimed not to run out, not to drive the value all the way down to zero. Actually they didn't even claim that, only that the chance of running out of money would have been <5% in the past. Amount left for heirs, highly uncertain, maybe zero, maybe huge.

b) The initial Managed Payout Growth & Distribution fund... into which the others were merged... had an "aim" of supporting 5% withdrawals and having both the stream of payments and the value of the portfolio increase with inflation. The only tradeoff was that the withdrawals could fluctuate according to a formula based on a three-year moving average.

So the aim was to pay out 5%--a full 25% more than the "4% safe withdrawal rate" studies, based unsophisticated simple stock/bond portfolios... and, while paying out more, have the portfolio not only survive, but maintain real value.

It seemed a bit too good to be true, even with all the asterisks and disclaimers about these just being "aims."
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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vineviz
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Re: Managed Payout Fund going away (sort of)

Post by vineviz »

Interestingly, just a few months after Vanguard shuttered the Managed Payout fund in the US it has introduced an ETF in Canada with a very similar mandate.

According to the press release, Vanguard Retirement Income ETF Portfolio (ticker: VRIF):
helps you keep more money in your pockets and saves you time. Here’s how:

Fixed dollar amount paid monthly – targeted 4% yield at launch.
• 0.29% management fee – nearly one third of the cost of the industry average income fund.
• Confidence in the expert management by Vanguard, a global leader in single-ticket asset allocation ETF portfolios.
Tax-friendly ”total-return” approach. When distributing from capital appreciation, only the difference between the cost basis and the sale price is taxed.
• Time-varying asset allocations keeps your portfolios well diversified and focused on the 4% income goal.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Whakamole
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Re: Managed Payout Fund going away (sort of)

Post by Whakamole »

vineviz wrote: Wed Sep 16, 2020 9:35 pm Interestingly, just a few months after Vanguard shuttered the Managed Payout fund in the US it has introduced an ETF in Canada with a very similar mandate.

According to the press release, Vanguard Retirement Income ETF Portfolio (ticker: VRIF):
helps you keep more money in your pockets and saves you time. Here’s how:

Fixed dollar amount paid monthly – targeted 4% yield at launch.
• 0.29% management fee – nearly one third of the cost of the industry average income fund.
• Confidence in the expert management by Vanguard, a global leader in single-ticket asset allocation ETF portfolios.
Tax-friendly ”total-return” approach. When distributing from capital appreciation, only the difference between the cost basis and the sale price is taxed.
• Time-varying asset allocations keeps your portfolios well diversified and focused on the 4% income goal.
4% yield at a 50% stock/50% bond portfolio? Hmmm.
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vineviz
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Re: Managed Payout Fund going away (sort of)

Post by vineviz »

Whakamole wrote: Thu Sep 17, 2020 12:29 am
vineviz wrote: Wed Sep 16, 2020 9:35 pm Interestingly, just a few months after Vanguard shuttered the Managed Payout fund in the US it has introduced an ETF in Canada with a very similar mandate.

According to the press release, Vanguard Retirement Income ETF Portfolio (ticker: VRIF):
helps you keep more money in your pockets and saves you time. Here’s how:

Fixed dollar amount paid monthly – targeted 4% yield at launch.
• 0.29% management fee – nearly one third of the cost of the industry average income fund.
• Confidence in the expert management by Vanguard, a global leader in single-ticket asset allocation ETF portfolios.
Tax-friendly ”total-return” approach. When distributing from capital appreciation, only the difference between the cost basis and the sale price is taxed.
• Time-varying asset allocations keeps your portfolios well diversified and focused on the 4% income goal.
4% yield at a 50% stock/50% bond portfolio? Hmmm.
They call it a “yield” but it’s really a distribution that could include yield, capital gains, and/or return of capital.

It’ll be interesting to watch to see how long they can maintain it, but honestly I’m more interested to see if it portends a launch of Vanguard LifeStrategy ETFs in the US.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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