 | Every year, thousands of people retire with some kind of nest egg.
Most wish they had started sooner, saved more, handled the money better or left it alone longer so it ended up being larger. But in the end, it is what it is. The next step is to use it to generate income to supplement social security or, perhaps, a pension.
Yet studies show the majority of retirees have only a vague idea what to do with their lifelong savings - and many make one of two serious mistakes. The first is they turn it over to "that nice young man down at Merrill Lynch" and tell him to handle it.
Big mistake. A stockbroker is not a fiduciary. And most Wall Street firms are more interested in lining their own pockets than their clients'.
Another mistake is to plunk a huge chunk of it in an annuity. Not all annuities are bad, of course. But most are illiquid, opaque and way too expensive.
Helping Retirees Turn Savings into Income
A better alternative is managed payout funds. This is a new type of fund designed to help retirees turn their retirement savings into regular income. The goal is to provide a predictable stream of payments - like an annuity - but without the sales charges, surrender penalties and high annual costs.
Take the Vanguard Managed Payout Distribution Focus Fund (VPDFX), for example. This is an endowment-style fund that aims to pay 7% annually out of earnings and do it indefinitely, appealing for investors who don't want to dip into principal.
There is no guarantee Vanguard will achieve this goal, of course. (Just as there are no guarantees any mutual fund will achieve its objective. Or any money manager, for that matter.) During lean years, the manager may have to dip into principal to make the target distribution. In fat years, it may accumulate capital to fund future distributions. That is exactly what it has done so far. Over the last three years, the fund has earned 9.2% a year and paid out the target 7% to shareholders.
There is no magic here. The fund pursues its objectives with asset allocation and rebalancing. This is just straightforward money management. Nothing tricky. But don't kid yourself that most retirees know even the ABCs of investing. That's what makes this a reasonably good choice for the new retiree who is scratching his head and saying "Well, I'm finally here. Now what do I do?" | Sponsored For a Limited Time, Get Access to Research that ALWAYS Kills the Markets It doesn't matter who's in the White House... how the economy is doing... or what's happening overseas. For more than two decades, this research has helped a small group of ordinary people outperform the Dow... the S&P 500... and score gains eight times that of the average investor.
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I recommend Vanguard not just because it is the nation's largest mutual fund group with more than $1.7 trillion in assets under management. It also has a unique structure as a not-for-profit corporation. That means the funds themselves - and by extension the fund shareholders - own all of the common stock of the Vanguard Group. So there is never any incentive to do anything other than provide the best service at the lowest possible cost.
The company's huge asset base allows it to enjoy enormous economies of scale. Vanguard's costs are the lowest in the mutual fund industry. And not by a little. The average mutual fund charges fees six times higher than Vanguard's.
Managed payout funds have only been around a few years. But VPDFX is the largest such fund in the industry - and the one with the lowest costs.
Can you do better buying, owning - and occasionally trading - dividend-paying stocks? Perhaps. But that takes time, attention and at least some foundation of knowledge.
If you're like me, you have friends and relatives who wouldn't know a stock from a bond and aren't conversant with even the most basic investment terminology. For them - and many others - this fund is a no-brainer, and a practical way to start converting that nest egg into monthly income.
Good Investing,
Alex
Editor's Note: Get a chance to see Alex present his favorite investment ideas for 2013 live at the 15th Anniversary Investment U Conference this March.
Not only will you get the chance to see our experts, along with Alex, present their most profitable recommendations, you'll also have the opportunity to network with some of the nation's top financial minds.
This year the conference will be held in St. Petersburg's luxurious Renaissance Vinoy Hotel. For more information on how to reserve your spot to this incredible event, click here. |
   
Market Metrics Japanese Stocks to Rally in 2013? For over a year now, we've been telling you Japanese stocks are cheap and are due for a correction. However, strength in the yen throughout the year has held up growth in the Nikkei. That's because a strong yen makes it hard for Japanese exporters to compete on the national stage against other economies.
That all could change in 2013. Many think Shinzo Abe is the favorite to take power after the elections on December 16. His platform is one of monetary easing and essentially devaluing the yen. This development has led to a recent rally in Japanese stocks as well as a run of bearish activity on the yen.
Alexander Green has written in the past that an easy way to play a Japanese rally is the WisdomTree Japan SmallCap Dividend (NYSE: DFJ). You'll see below that the ETF has almost run exactly inverse from the CurrencyShares Japanese Yen Trust (NYSE: FXY). This may be a development worth watching in December and into the New Year.
- Justin Dove 
Click here to view the full chart. |
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