The following Article was posted here at MFO back in February and I wanted to rekindle the conversation regarding your strategies for generating retirement income from your investments.
The article looks at 4 open-end mutual "conservative allocation" funds using the following criteria:
VWINX, USBLX, GLRBX, PRPFX
The Retirement Income withdrawal will be 4% of the beginning investment value with each successive year's withdrawal increasing by 3% to allow for inflation. Any dividends collected in excess of this will be accumulated in a money market account (MMA) until the year the mutual fund produces less in dividend income than is required and the difference between the next year's household income need and the dividend collected is taken from the MMF. I'm assuming the interest rate on the MMA is zero. If the collective cash reserve is not sufficient…or non-existent…and the dividend collected that year is not sufficient to meet household income need, then sufficient shares will be sold at the end of the year to provide the required cash. This is repeated each December at the end of the month (last trading day).The clear winner over the the last 25 years?
Read on:
https://seekingalpha.com/article/4050402-long-term-growing-income-open-end-mutual-fund-possible
Comments
A few quick observations, with a quick read of the article, as outside chores await.
---Writer didn't note whether the investments are all, any or partial IRA monies
---Writer didn't note any other income/living sources
---Writer didn't state age....over 59 1/2 ???
I don't follow why the writer moves the dividends to a money market account. This move skews all of the data work he did with his graphics. How the hell does he think the 25 years of data he noted arrived? Not from removing distributions.
If these monies were rollovers into IRA's or mostly IRA's at the time of his write, he wold be required to pull about 4% after age 70 1/2. We don't have any reference to any of this.
I could not offer any opinion or suggestion to this writer, as there isn't enough information provided.
Regards,
Catch
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Bee, great catch. I found the article very informative.
My present circumstances are such that I don't rely much these days on any hybrid funds. - Though I do maintain small, placeholder positions in VWINX in both taxable and IRA accounts. I do so, only, in the event I live to a ripe old age, and lose interest (or ability) to actively invest, I believe VWINX will make a superb "one-stop" holding for purposes of estate-planning, given VWINX's income-generation focus, muted volatility, prudent institutional management, and low expenses.
The article reinforced my thesis that, based on data at this point, VWINX remains a superb choice.
Thanks for the link.
Opps, you did have the question; which fund?
I would vote VWINX, too. We have some money in this fund.
A chart compare of the 4 funds starting with Jan. 1999.
A few points:
---one may see the market melt area
---also reactions to the U.S. AAA downgrade in July of 2011
---there was also a bond blip/psuedo sell off in mid-July, 2015
Also, that after the begin of the U.S. recovery in markets in March of 2009; Europe in particular, but also Japan were still very twitchy markets for several years after and for whatever reason, as I recall, most of the market jerks were in the late spring months. We know that Europe has just began to find some favor within the last 9-12 months.
PRPFX seems to have had a stumbling time since early 2011.
USBLX and GLRBX appear to have flattened a bit from early 2015.
Jan. 2015 to date:
---USBLX = +15.3%
---VWINX = +14.7%
---PRPFX = +7.7%
---GLRBX = +3.6%
The last two above remind me of VILLX , which was a very decent fund and then fell on its face in 2014 and 2015 and has not been very happy since. I read about investment rotations with this fund moving more into sm/mid cap and apparently the fund is still stuck in a funk.
http://stockcharts.com/freecharts/perf.php?VWINX,PRPFX,USBLX,GLRBX&n=4662&O=011000
Regards,
Catch
Set up another way lets say you decide to quit working in 1992, so you take all of your savings ($100K), plop it down in one of these funds, and then withdraw the 4% and the added 3% of that over the next 25 years. Will any or all of the funds hold up?
It looks like they all did only that some did it better than the others. The only trouble I have is the usual and customary past performance is ..... blah-blah.
It was just a barebones look at the numbers, a "what if" if you will.
Just for fun, from January, 1992:
Dow - around 3000.
NASDAQ - around 600
10-year Treasury - around 7%
Gold - around $350
Never considered PRPFX an income fund. Not sure why it was included. If anything, it's a "wild card" - liable to do almost anything over 25 years - with the potential to hold up better during periods of unusual financial stress due to investments in precious metals (25%) and Swiss Francs (10%).
Personally, I don't think in these terms (generating income in retirement). Probably because my overall positioning is quite conservative, having a lot of hybrid products, I pull distributions "off the top" without the concern about market fluctuations many voice. (That's not to say I don't include income generating investments for diversification within the whole mix.) Guess my approach is quite unorthodox - based on board discussions.
@Mark - I hope @ Old_Joe gives us the color of those things he never thinks about.
If those ETFs are investing in mining companys, it would (partially) explain the outperformance you note - since equities have generally been in a bull market for as long as some of the members here have been alive (with a couple dramatic corrections along the way) and would have bolstered the miners. That said, I've no doubt you'd be better off owning the assets of PRPFX directly and avoiding those outrageous fees.
Thanks to @BobC for noting the dramatic move in AUM away from PRPFX. The move into that fund was, I believe, nearly equally dramatic as gold soared from near $300 an ounce over the decade beginning around 2000. Highlights the performance chasing that goes on. I'll refer to it as "indirect performance chasing" in this and many instances. While a lot of investors wouldn't dream of buying gold or gold shares, they'll chase an allocation fund or a fund like PRPFX anyway - perhaps oblivious to how much of the glowing performance is/was related to its p/m holdings. Human nature I guess.
PS - DavidS made essentially the same argument you're making here re PRPFX ... umm, maybe 6 or 7 years ago (memory like an elephant here - when it works)
According to Wikipedia, "the Permanent Portfolio mutual fund, however, is more complex than Browne's original concept and has six asset categories. The fund aims to invest in a fixed percentage of uncorrelated, asset categories to minimize risk in changing economic climates. These include 35% in government bonds, 25% in gold and silver bullion, 15% in growth stocks, 10% in cash and Swiss francs and 15% in energy, mining, and real estate stocks."
I certainly wouldn't want to put all my eggs in history's basket, but PRPFX has seen a lot more volatility in getting to what, at this point, is a worse return, at least in the last decade plus. My understanding of Browne's intent was to have a portfolio that would be profitable in any type of economic environment. In my simplistic way of looking at things that suggests less volatility and that's not what the fund has delivered. I have no idea which will do better in the future but considering the expense ratio together with the historical volatility, I'd far prefer a straightforward etf approach if I was going to invest in something like this.
Wasn't always the case, but in the past - maybe 20 years - they did come out with a way to own bullion thru an ETF.
BTW - You'll also need to come up with 10% worth of Swiss francs, some highly aggressive growth stocks, some real estate and some natural resource stocks to go with those other holdings. Than you'll need to rebalance once a year buying/selling among those assets - perhaps more often when one segment runs hot or cold. It can all be accomplished of course.
For simplicity, I'll sit on my chunk and see what happens. Converted to a Roth in January 2016. Believe that was near its recent bottom. Nice bounce since then. Am certainly not predicting success for this fund going foreward (and I don't give investment advice). But for diversification purposes I'm willing to hold both winners and laggards. There are many here who disagree with that "mix it up" approach and concentrate only on winners. I'd wish them "investing success" - except that they don't need any best wishes. They're excellent investors in their own right.
Thanks again for the informative posts & the reply.
If that happens.
https://twitter.com/paulkrugman/status/885926494937128960
some of the responses are good
Disclosure- I own Hartford.