Last week we told you about three new 'managed payout' mutual funds from Vanguard, which promise an up-to 7% yearly payout with minimal reduction of initial investment principle. The funds will be marketed to retirees who want a steady stream of income.
The Wall Street Journal reports on eleven new funds from Fidelity aimed at those same investors.
Fidelity's new funds build on the success of the company's target-date funds, says Boyce Greer, president of asset allocation at the company. The Income Replacement funds are also portfolios of Fidelity stock and bond funds, with a mix that grows more conservative over time.
But instead of building toward a target date -- like retirement -- these funds make payments to you until a date you choose. The 11 funds range from Income Replacement 2016 to 2036.
How much do you get? That changes every year. The company will figure your monthly payments as a percentage of your annual account balance. If your portfolio grows, so will your payments.
The percentage of money you get also rises closer to your horizon date.
At 20 years out, you get 6.4% of your balance spread over 12 monthly payments; by the time you're 10 years away, you'll be getting 10%. In the last year, the fund pays 100% of what's left."
The Fidelity funds are structured to behave more like annuities than the new Vanguard funds in that Fidelity's funds are basically giving investors back their own money over a period of time (along with the underlying investment returns). The payouts of the new Fidelity funds are more aggressive than the Vanguard funds but can erode the principal more aggressively as well.
Fidelity's New Funds Give You Your Money Back
Last week we told you about three new 'managed payout' mutual funds from Vanguard, which promise an up-to 7% yearly payout with minimal reduction of initial investment principle. The funds will be marketed to retirees who want a steady stream of income.
The Wall Street Journal reports on eleven new funds from Fidelity aimed at those same investors.
Fidelity's new funds build on the success of the company's target-date funds, says Boyce Greer, president of asset allocation at the company. The Income Replacement funds are also portfolios of Fidelity stock and bond funds, with a mix that grows more conservative over time.
But instead of building toward a target date -- like retirement -- these funds make payments to you until a date you choose. The 11 funds range from Income Replacement 2016 to 2036.
How much do you get? That changes every year. The company will figure your monthly payments as a percentage of your annual account balance. If your portfolio grows, so will your payments.
The percentage of money you get also rises closer to your horizon date.
At 20 years out, you get 6.4% of your balance spread over 12 monthly payments; by the time you're 10 years away, you'll be getting 10%. In the last year, the fund pays 100% of what's left."
The Fidelity funds are structured to behave more like annuities than the new Vanguard funds in that Fidelity's funds are basically giving investors back their own money over a period of time (along with the underlying investment returns). The payouts of the new Fidelity funds are more aggressive than the Vanguard funds but can erode the principal more aggressively as well.
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See also: Vanguard’s 7% Forever Funds