Vanguard Managed Payout Funds

Recently the Fidelity Investments introduced a new class of mutual funds: Fidelity Income Replacement Funds. These funds are intentionally designed for retirees who will need a fairly stable income stream. Previously this kind of income producing products is in the forms of CDs provided by banks or annuity provided by insurance companies. Now mutual fund families are offering competitive products in this category.

Vanguard is going to offer three managed payout funds. These funds will become available around the end of the year. Personally I believe this set of funds will be very popular among people who seek consistent returns over long periods of time.

Managed Payout Real Growth Fund is designed for investors who seek a modest initial current payout, and wish to see their capital and payouts grow in real terms (inflation-adjusted) over time. This fund is expected to sustain a managed distribution policy with a 3% annual distribution rate.

Managed Payout Moderate Growth Fund is structured for investors who want to balance their initial payout stream with maintaining the purchasing power of their future payouts and capital. This fund is expected to sustain a managed distribution policy with a 5% annual distribution rate.

Managed Payout Capital Preservation Fund is geared toward investors who seek a higher payout level to satisfy current spending needs while preserving their capital over the long term. This fund is expected to sustain a managed distribution policy with a 7% annual distribution rate.

In the next three months, Vanguard is also going to introduce three Mega-Cap index funds. They might be a very interesting way to take the advantage of the globalization impacts since mega-cap companies are equivalent to multinational corporations.

I may consider adding these funds when they are available later this year.