From today, until May 4, if you exchange into one of these three funds, your money actually goes into a Money Market account, at some yield.  On May 4, all monies collected go into the various Vanguard funds that are part of these new three.  These 3 funds are all 'fund of funds', that is, they invest in other Vanguard funds, rather then individual securities.

Anyhow, I can see no benefit in subscribing to these new funds until May 3.  After all, until May 4, my money is earning an 8% yield, in VWEHX.

El Lobo is correct.

The idea is to be able to create the "portfolio" on a single day and in order to do that they need to raise cash.

I'm not sure if all the "funds" they will go into exist yet, like the commodity portion or the hedge fund.  There is a market nuetral fund, but it has a $250,000 minimum so this is a way to get some of that.

The overall  .57 ER tells me that some of these other funds must have pretty heady ERs

The 0.57 ER includes dividends paid on short sales by the Market Neutral fund. The ER would be 0.27 if the dividend expense was excluded ( it must be included in the "official" SEC expense ratio.) The 0.30 dividend expense ratio on short sales is offset by the income earned on the cash proceeds from the short sales.

 More info:

The 2008 monthly payouts per share will be $0.1167, $0.0833, and $0.0500 for the Distribution Focus, Growth and Distribution, and Growth Focus funds, respectively. This is an annual rate of 7%, 5%, and 3% of the initial NAV of $20.00.

Anyhow, I can see no benefit in subscribing to these new funds until May 3.  After all, until May 4, my money is earning an 8% yield, in VWEHX.

Yield is irrelevant. It depends on VWEHX's total return between now and May 3rd. If it returns less than the Institutional Prime Money Market fund, then you would have been better off subscribing now.

YTD Total Returns as of 4/18/08:

VWEHX  0.06%

Inst. Prime MM 1.13%

Thanks for the link, Bill. I'll take the liberty to quote from the marketing materials here....

• Vanguard Managed Payout Growth Focus Fund seeks to make monthly distributions of cash while providing inflation protection and capital appreciation over the long term.
• Vanguard Managed Payout Growth and Distribution Fund seeks to make monthly distributions of cash while providing inflation protection and capital preservation over the long term.
• Vanguard Managed Payout Distribution Focus Fund seeks to make monthly distributions of cash while providing capital preservation over the long term.

The initial distributions for these three portfolios are 3%, 5%, and 7%, respectively. 7% seems a bit steep to me, even with no provision for inflation protection.

Peter Lynch penned an article in the 1990s entitled "The Seven Percent Solution", which was subsequently debunked by Scott Burns of the Dallas Morning News. Lynch's claim was that one should be able to invest in all stocks and withdraw 7% every year (no specific inflation adjustment). Burns showed that there was no combination of stocks+bonds for which this would have "worked out" for retirements that began in the mid 1960s.

Apparently the addition of other asset classes, and the market neutral portfolio, are supposed to enable this 7% withdrawal rate? That, or they're targeting withdrawals for a typical market, not a bad market?

Duane

Apparently the addition of other asset classes, and the market neutral portfolio, are supposed to enable this 7% withdrawal rate? That, or they're targeting withdrawals for a typical market, not a bad market?

The 7% payout (for 2008, $0.1167 per share each monthly) will be adjusted each January based on the fund's investment performance and monthly payouts during the previous 3 years. During a period of low returns, the payout amount would be reduced, helping to preserve the portfolio's assets. The idea of investing in these other [low-correlation, hopefully] asset classes is to limit the impact of poor performance of one or more of the fund's assets, thereby smoothing out the overall year-to-year returns, and reducing the chances of a negative payout adjustment.

Hi Duane,

It seems to me that if someone needs 7%, then one viable alternative would be an immediate annuity.  So if someone looks at it that way, then in this fund,  even if your capital fell by 20 or 30% over time, you would have more than with an annuity and you can always get out if you don't like what's going on.

I believe that the 7% is 7% of the average portfolio value over the last 3 years.  No inflation adjustment.  So your income will go up and down with the fortunes of the market. 

Like El Lobo says, if you keep taking out 7% of you portfolio value each year, you will always have 93% left :o}

Personally, I'm more interested in the 5% fund.

best,

Bill

"The idea is to be able to create the "portfolio" on a single day and in order to do that they need to raise cash."

 I suspect that these funds are already in existance as " Incubator Funds" within Vanguard. and will be valued at the intial NAV at the end of the subscription period and then "sold " from the Incubator fund to Investors who have subscriped at that point.

Joe