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Discussion Starter #1
A new ETF from Vanguard that might be of interest.

  1. VRIF ETF is made up of eight existing low-cost underlying Vanguard index ETFs and features a management fee of approximately 0.31%.
  2. The stocks-bonds mix is 50-50.
  3. Designed to pay monthly income targeting a real-world 4-per-cent yield.
  4. Dividends and interest income will account for about 60 cents per $1 of income, with capital gains providing the other 40 cents.
  5. An ETF designed for generating income, not for growing your money.
 

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^ Finer print: use of ROC (as needed ... hopefully, not every 12 months).
 

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Discussion Starter #3
Definitely ROC if the capital gains do not materialize, but potentially a good all-in-one solution at 0.31% MER.
 

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^ I'm no beancounter but wouldn't that 4% be off or inflated then? Maybe the .31% MER is the most attractive thing versus its competitors.
 

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There is a good thread going on at FWF on Vanguard (VRIF) Digging into the details via SEDAR provides more perspective on how Vanguard is playing this one. As J4b is likely to note... this will be a highly actively managed asset allocation ETF. Vanguard must think there is a Canadian market for this sort of thing because they just recently threw in the towel on the US equivalent when they could no longer sustain initially 5%, and then more recently 4%.
 

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Definitely ROC if the capital gains do not materialize, but potentially a good all-in-one solution at 0.31% MER.
It's useful if you don't want to deal with transacting to raise cash to meet your income plan. However, you won't get a fixed stream of cashflow for a specific upfront investment. The 4% cash flow will vary with time, so in some ways if it performs well it may be spinning out more cash than you want/plan, and will need to be reinvested, or less cash due to market decline and you may need to sell additional units to hit your income goal.
 

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^ I'm no beancounter but wouldn't that 4% be off or inflated then? Maybe the .31% MER is the most attractive thing versus its competitors.
Would depend if they can hit a 4% real return to be sustainable. If they can, the fund will tend to increase in value over time. If not, it will decline (along with the stream of payments).
 

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4% in todays world is good but I'm not after ROC....

I can just draw from my savings on my own and skip the .31% MER
 

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The intention is 4% at launch for a starting position. If you read the link I provided, the actual monthly distribution will likely vary, presumably going up with CPI and perhaps some real growth as the underlying assets outpeform and grow their distributions correspondingly. Or the market will NOT cooperate and Vanguard may have to sell some assets (ROC) from time to time to maintain the distribution. Vanguard's analysis suggests once in every 10 years on average.

Lots of 'ifs' which may not pan out over time. Not something I'd be interested in BUT for the majority of retirees who are really looking for a 4% SWR, this may catch on. After all, it IS called Vanguard Retirement Income Fund, focused on that 4% SWR retiree.
 

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Can't be a true fixed SWR unless they are content with a % chance of it blowing up and going to zero due to sequence of returns risk.
 

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There is a good thread going on at FWF on Vanguard (VRIF) Digging into the details via SEDAR provides more perspective on how Vanguard is playing this one. As J4b is likely to note... this will be a highly actively managed asset allocation ETF. Vanguard must think there is a Canadian market for this sort of thing because they just recently threw in the towel on the US equivalent when they could no longer sustain initially 5%, and then more recently 4%.
If it's actively managed asset allocation targeting a high yield, isn't that exactly what XTR does?

XTR is a "balanced fund" that pays a high yield using all the income producing stuff you can think of. It also ran into similar problems where it initially had a higher yield, then found it was not sustainable (was eroding capital rapidly) so they had to reduce the payout.

Wondering how the Vanguard fund will be different than XTR? Even the policies on payouts sound the same.
 

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Can't be a true fixed SWR unless they are content with a % chance of it blowing up and going to zero due to sequence of returns risk.
IT isn't and Vanguard is not saying that. They will do what is reasonable, including ROC from time to time, to meet that criteria, but not once have they said it is a true fixed SWR.
 

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If it's actively managed asset allocation targeting a high yield, isn't that exactly what XTR does?

XTR is a "balanced fund" that pays a high yield using all the income producing stuff you can think of. It also ran into similar problems where it initially had a higher yield, then found it was not sustainable (was eroding capital rapidly) so they had to reduce the payout.

Wondering how the Vanguard fund will be different than XTR? Even the policies on payouts sound the same.
About half the MER for one thing.....That may require Blackrock to stop gouging! Once again, Vanguard comes in for fee rescue. Love or hate Vanguard, but it has single handedly been responsible for causing Blackrock and BMO to lover fees over time.

Not sure there is any other real difference albeit it appears Vanguard may more actively manage VRIF to be closer to a continuous 4% yield.adjusted for CPI. Time will tell.

No doubt there will be the upcoming comparisons over time by Justin Bender, MoneySense, Rob Carrick, etc.
 

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About half the MER for one thing.....That may require Blackrock to stop gouging! Once again, Vanguard comes in for fee rescue. Love or hate Vanguard, but it has single handedly been responsible for causing Blackrock and BMO to lover fees over time.

Not sure there is any other real difference albeit it appears Vanguard may more actively manage VRIF to be closer to a continuous 4% yield.adjusted for CPI. Time will tell.
The fee reduction is very good so the competitive pressure is nice. I've come close to suggesting XTR because it really does provide large payments, so it's basically a balanced fund with auto-withdrawals. Some people want that.

The main difference from XTR that I see is the lower fee plus an explicit target of 4% as per SWR.

It will be interesting to see how well they manage this. I suspect that it will underperform a passive (couch potato) equivalent. The other alternative for an investor is to just use VBAL and take dividends, interest, plus withdraw/liquidate to generate 4% themselves.

But we know that people hate selling shares to generate income, which is why VRIF and XTR eixst :)
 

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But we know that people hate selling shares to generate income, which is why VRIF and XTR eixst :)
Yeah, I suppose these securities sell the share's for you, so you don't have to see what's behind the curtain. They work out great as long as they can supply the desired cash flow, but when they can't there's always ROC, and then eventually they would have to reduce the payout.

I detect that you feel these securities are illaudable, but what's the alternative? If someone doesn't want to sell shares, these seem like a good idea to me.

ltr
 

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I detect that you feel these securities are illaudable, but what's the alternative? If someone doesn't want to sell shares, these seem like a good idea to me.
If someone absolutely refuses to sell shares on their own, these are good options. The person just has to be aware that they are paying a premium/fee for the "service".

Generally I think someone is better off holding Mawer Balanced / VBAL / VCNS / XBAL and selling units themselves.
 

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We have supposedly savvy, experienced and knowledgeable investors here who get mental blocks over selling invested capital such as shares (deer in headlights?) as part of their withdrawal plan, and that suggests to me more investors could be better served having that decision process taken away from them for some 20-30 basis points of arm's length management.

In retirement, one is is SUPPOSED to be withdrawing from their portfolio at some withdrawal rate that for most, is likely more than the investment income yield of their portfolio. Do we really need to have this conversation for the 15th (or 150th) time?

Added: Behind paywall but Rob Carrick discusses VRIF today. He makes no judgement on it but has a few generalized comments
A big question with RRIFs, and it’s more pressing than ever, is what do you stick in your account to generate income to live on in retirement? We have an aging population of investors who are going to be saddled with low interest rates for a long time. Dividend-paying stocks are going to be essential, but how do you pick the ones that will provide reliable income rather than grief to investors?
<snip>
You could build and manage a portfolio of individual ETFs or stocks and bonds to accomplish the same total-return approach of VRIF, but some exacting work is required to ensure you get the income you need.
<snip>
If you’re a retiree managing investments to produce income, ask yourself this: How have you found the challenges of the past year, and how confident are you that you can navigate the next 12 months? If you’d like help, it’s now at hand. Expect competing products shortly.
Rob doesn't recognize as James did that XTR does a somewhat similar thing but without necessarily the same rigor.
 

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I have a very noob question (and forgive my noobiness) : if you have a portfolio of this new ETF on your TFSA account, would the income generated be tax free?
 
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