“Pay more, get less” isn’t exactly a compelling sales slogan, but that’s what active money managers are trying to peddle.

This Week/Nov. 19-25

BE THANKFUL. Great vacations and wonderful family events fade from memory. Similarly, we quickly adapt to material improvements in our lives, such as the new car and the remodeled kitchen. To counteract this process of adaptation, pause for a moment, and ponder the major purchases you’ve made over the past year and the great experiences you’ve had.

Earlier updates »

Money Guide

Everything you need to be smarter about money—all in one place.

Start Here

Managed Payout Funds

AS AN ALTERNATIVE to income annuities, some mutual fund companies have rolled out managed payout funds. Historically, mutual funds have been geared toward investors who are amassing money for financial goals, notably retirement. Managed payout funds represent an attempt by fund companies to cater to investors who are no longer saving and instead are looking to generate regular income. For instance, Fidelity Investments offers a series of income replacement funds. The funds, when coupled with Fidelity’s Smart Payment Program, aim to provide a stream of income that rises with inflation between now and the fund’s horizon date, at which point your investment would be depleted. A more common approach is taken by Vanguard Group, which offers a managed payout fund that aims to throw off 4% a year, with the income paid monthly—but with no fixed horizon date. The hope is that the income will climb over time with inflation, but it could be cut if the fund performs poorly. To generate steady and rising income, the Vanguard fund owns a traditional mix of stocks and bonds, but also allocates money to commodities, foreign bonds and low-volatility stocks. In addition, it has part of its money in a so-called market neutral fund, which aims to generate moderate returns no matter what happens to stock prices. Like Vanguard, Charles Schwab aims to provide monthly income in perpetuity. But Schwab’s lineup of monthly income funds comes in three flavors, each of which targets a different combination of income and growth. If you buy the fund that generates the most income, you should expect lower long-run growth. Unsurprisingly, managed payout funds were roughed up during 2008’s stock market collapse, forcing them to cut the income paid to shareholders. Those cuts hurt the reputation of managed payout funds, many of which had only just been launched. Still, such funds are an intriguing option for retirees who want to keep their finances simple. These funds don’t provide guaranteed lifetime income, like Social Security or an income annuity. But they do offer a way to generate additional retirement income, while maintaining control over your assets and possibly allowing you to bequeath at least part of the money to your children or other family members. Next: Spending Home Equity Previous: Immediate Variable Annuities
Read more »

Latest Blog Posts

Keeping It Private

WHILE SITTING AT MY DESK a few months ago, I received a text message from Citibank notifying me of “suspicious activity” on my primary credit card. I immediately logged onto my account and discovered someone that morning had attempted to use my credit card number at a luxury resort—one located several hundred miles from where I work. The charge had been denied, but the damage was done. I immediately cancelled the card. I also began notifying the companies I have automated payments with,

Read more »

All the Right Reasons

WHAT’S A GOOD REASON to dial down your stock market exposure? A year after Donald Trump was elected president, many folks are still smarting from their decision to bail out of stocks. Clearly, we shouldn’t lighten up on shares just because we don’t like the guy in the White House.
We also shouldn’t bail out just because stocks sport high price-earnings ratios and skimpy dividend yields. No doubt about it, stocks today are expensive.

Read more »

This Year or Next?

I RECEIVE MANY QUERIES about taxes. Most of the questions people send are pretty much the same: They want my advice on how to lose less to the IRS.
Most of the answers I send back are pretty much the same: I advise them to plan ahead and stay on top of tax-law changes, especially whether they will be hurt or helped by the Republicans’ proposals for the most sweeping revisions in more than 30 years.

Read more »

Blog archive »

Follow Us

Money Guide

Everything you need to be smarter about money—all in one place.

Start Here

Managed Payout Funds

AS AN ALTERNATIVE to income annuities, some mutual fund companies have rolled out managed payout funds. Historically, mutual funds have been geared toward investors who are amassing money for financial goals, notably retirement. Managed payout funds represent an attempt by fund companies to cater to investors who are no longer saving and instead are looking to generate regular income. For instance, Fidelity Investments offers a series of income replacement funds. The funds, when coupled with Fidelity’s Smart Payment Program, aim to provide a stream of income that rises with inflation between now and the fund’s horizon date, at which point your investment would be depleted. A more common approach is taken by Vanguard Group, which offers a managed payout fund that aims to throw off 4% a year, with the income paid monthly—but with no fixed horizon date. The hope is that the income will climb over time with inflation, but it could be cut if the fund performs poorly. To generate steady and rising income, the Vanguard fund owns a traditional mix of stocks and bonds, but also allocates money to commodities, foreign bonds and low-volatility stocks. In addition, it has part of its money in a so-called market neutral fund, which aims to generate moderate returns no matter what happens to stock prices. Like Vanguard, Charles Schwab aims to provide monthly income in perpetuity. But Schwab’s lineup of monthly income funds comes in three flavors, each of which targets a different combination of income and growth. If you buy the fund that generates the most income, you should expect lower long-run growth. Unsurprisingly, managed payout funds were roughed up during 2008’s stock market collapse, forcing them to cut the income paid to shareholders. Those cuts hurt the reputation of managed payout funds, many of which had only just been launched. Still, such funds are an intriguing option for retirees who want to keep their finances simple. These funds don’t provide guaranteed lifetime income, like Social Security or an income annuity. But they do offer a way to generate additional retirement income, while maintaining control over your assets and possibly allowing you to bequeath at least part of the money to your children or other family members. Next: Spending Home Equity Previous: Immediate Variable Annuities
Read more »

Our Free Newsletter

Getting Better

TO IMPROVE OUR BEHAVIOR, we first need to realize we’re on the wrong path and then figure out the right way forward. Often, this isn’t especially difficult. If we have no savings, obviously we need to sock away some money. If we’re overweight, we should cut back on the calories. If we’re out of shape, we need to hit the gym.
Instead, the real problem is getting ourselves to act.

The contemplative side of our brain is fully aware we ought to eat and spend less,

Read More »

Follow Us

Jonathan Clements

About Jonathan

Jonathan Clements is the founder and editor of HumbleDollar. He spent almost two decades at The Wall Street Journal, where he was the personal finance columnist. His latest book: How to Think About Money.

Full bio »