Vanguard Managed Payout Fund FAQ
Who should invest in the fund?
Vanguard Managed Payout Fund is primarily intended for retirees and other investors who would like to receive monthly payments to meet expenses, who are able to tolerate the inherent risks of the fund itself, and who want to retain access to their investments to meet unexpected expenses or to use them for estate planning purposes.
How much money do I need to invest in the fund?
The minimum initial investment is $25,000 for each account. (For example, if you want to hold the fund in both an individual nonretirement account and an IRA, you'll need $25,000 for each account type.)
Can I redeem shares anytime?
Yes. The fund is an open-ended mutual fund, so you can redeem shares anytime. Please note, however, that any changes in the amount of shares you own will affect your next monthly payout. For example, if you redeem shares, future payments will likely decrease from what they would have been if you didn't request a redemption.
Should the fund be used alone, or can it be combined with other funds?
Vanguard Managed Payout Fund is one of many single-fund investment options offered by Vanguard. Other options include Vanguard Target Retirement Funds, Vanguard LifeStrategy® Funds, and other balanced funds (for example, Vanguard Wellington™ Fund).
All of our single-fund options—including the Managed Payout Fund—are designed to either be the sole fund in your portfolio or to complement other investments as part of your overall investment strategy. The choice is yours, and it should be made based on your personal needs and preferences.
What's unique about the fund's payout feature?
Vanguard Managed Payout Fund is innovative in that it has a "built in" systematic withdrawal plan (SWP). The fund generates regular monthly payments that are set each year and expected to remain constant throughout the calendar year.
With a typical SWP, you'd have to construct a portfolio, set a spending level and withdrawal program, and monitor the portfolio over time. Because the SWP is built into the Managed Payout Fund, you get professional investment management combined with a convenient payout strategy.
A second unique quality of the fund's payout feature is its 3-year rolling-average payout strategy, which can help smooth the ups and downs in payouts from year to year. Vanguard will recalculate your monthly payout each calendar year on January 1 based on, among other factors, the fund's average share price over the past 3 years.
Is it possible for my monthly payout to decrease?
Yes. Although the payout per share for the fund should remain constant from month to month throughout the calendar year, it will likely fluctuate from year to year based on the fund's performance over the previous 3 calendar years. Also, additional purchases, reinvestments of fund distributions, or redemptions from your account will alter the amount of your future payouts for the year because of the resulting change in the number of shares you hold.
Depending on the investment performance of the fund's holdings, a portion of your distributions may represent a return of your original investment, known as a "return of capital."
How frequently will the fund distribute its payouts?
The fund distributes its payouts monthly. Shareholders of record will receive the payout on or around the 15th of each month. The fund may also distribute extra payouts in December of each year—and possibly again after the end of the year—to disperse any additional interest or capital gains amounts required by SEC or IRS regulations.
Can I reinvest my distributions back into the fund?
Yes. You can either receive the fund's planned monthly payouts in cash, or you can reinvest the payouts to buy more shares. Should any additional distributions occur at year-end or later, you can reinvest them automatically or have them sent to you by check.
If you elect to receive additional distributions in cash rather than reinvesting those distributions, the amount of future cash distributions you'll receive from the fund will proportionally decrease. The dollar amount of the fund's monthly cash distributions could go up or down substantially from one year to the next and over time.
The fund is expected to continue to make monthly cash distributions under its managed distribution policy irrespective of the fund's investment performance. The fund's monthly cash distributions will reduce the amount of assets available for investment by the fund. It's possible for the fund to suffer substantial investment losses and simultaneously experience additional asset reductions as a result of its distributions to shareholders under the managed-distribution policy. Moreover, even if the fund's capital grows over short, intermediate, or long periods of time, it's possible that such growth will be insufficient to enable the fund to maintain the amount of its scheduled cash distributions without returning capital to its shareholders.
If I'm holding the fund in an IRA, will the monthly distributions meet my required minimum distribution (RMD) each year?
Not necessarily. The fund isn't specifically designed to satisfy minimum distribution requirements, so your payouts may be greater or less than your RMD amount.
*Vanguard Managed Payout Fund is protected by U.S. Patent Nos. 8,180,695 and 8,185,464.
All investing is subject to risk, including the possible loss of the money you invest.
The Managed Payout Fund is not guaranteed to achieve its investment objectives, is subject to loss, and some of its distributions may be treated in part as a return of capital. The dollar amount of the fund’s monthly cash distributions could go up or down substantially from one year to the next and over time. It is also possible for the fund to suffer substantial investment losses and simultaneously experience additional asset reductions as a result of its distributions to shareholders under its managed-distribution policy. An investment in the fund could lose money over short, intermediate, or even long periods of time because the fund allocates its assets worldwide across different asset classes and investments with specific risk and return characteristics. Diversification does not necessarily ensure a profit or protect against a loss in a declining market. The fund is proportionately subject to the risks associated with its underlying funds, which may invest in stocks (including stocks issued by REITs), bonds, cash, inflation-linked investments, commodity-linked investments, long/short market-neutral investments, and leveraged absolute return investments.
The Managed Payout Fund may not be appropriate for all investors. For example, depending on the time horizon, retirement income needs, and tax bracket, an investment in the Managed Payout Fund might not be appropriate for younger investors not currently in retirement, in IRAs or other tax-advantaged accounts for those investors under 59½, or for participants in employer-sponsored plans. Investors who hold the Managed Payout Fund within a tax-advantaged retirement account should consult their tax advisors to discuss tax consequences that could result if payments are distributed from their core account prior to age 59½ or if they plan to use the Managed Payout Fund, in whole or in part, to meet their required minimum distribution (RMD) obligations. Distributions from the Managed Payout Fund are unlikely to precisely match an investor's IRA RMD obligations. In addition, use of the Managed Payout Fund may be restricted in employer-sponsored plans by the terms of the governing plan documents and/or at the discretion of the plan administrator. Review the information carefully with your financial advisor before deciding whether the Managed Payout Fund is right for you.
The fund's monthly distributions per share are calculated as of January 1 of that year and are generally expected to be fixed during the year.
Before investing, consider the Managed Payout Fund's investment objectives, strategies, risks, fees, and expenses. Carefully read the prospectus that contains this information.