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Fund Spy

Did Vanguard Goof on This Fund Launch?

Managed payout funds stumble onward.

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Vanguard was one of many firms since 2007 to launch funds designed to turn investors' nest eggs into retirement income. Vanguard's were among the more interesting because they aspired to be mini-endowments. So far, they've been unimpressive.

Yet the funds, which Vanguard rolled out in May 2008, are still intriguing. They're designed to invest shareholders' money so that it generates enough income to support monthly payments and enough capital appreciation to perpetuate an investor's principal. By making allocations to domestic and foreign stocks, bonds, REITs, Treasury Inflation-Protected Securities, alternative strategies, and commodities, they aim to protect retirees against the risk of exhausting their savings before death, even as they tap it for spending.

So, far, though, they've merely served to point out the benefits of annuities that have guaranteed payouts. In the trailing year ended May 2009, roughly the funds' life span, they have shed between 22% and 28% and have been among the worst in the retirement-income category that includes about two dozen other monthly payout funds. A larger-than-average helping of stocks hurt, as did a helping of tanking commodities.

Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.