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With my home building projects, I used to gain a tremendous sense of visual accomplishment from completing 90 percent of the job. Paying a professional to do the last ten percent would have been an ideal option if I’d had the money, but alas and alack. Instead, I would just stop noticing after awhile that the door jambs didn’t have moldings, and I would only get around to finishing them about the time my parents or in-laws were coming to town.

In somewhat the same vein, there’s a Home Depot alternative to the managed payout funds that are back in the news as the major mutual fund companies struggle to provide retirees with stable income in retirement while preserving assets and protecting against inflation.

Managed payout funds basically invest money with the objective of being able to generate regular monthly income amounting to 4 percent per year while still preserving the asset base. Unfortunately, about a year after most payout funds came to market, they were hit by the 2008 deluge and suffered a 40 percent collapse of value. The latter was only temporary, but the experience shook the confidence of early investors (and fund managers, for that matter) who really believed that they had found some Holy Grail for retirement income. Therefore, as a test of the concept, managed payout funds were considered a failure and the companies offering these products all retreated and reduced their offerings. Sales have been lackluster.

After a sustained bull market, setting aside the past few weeks, these products are once again considered to be viable alternatives for someone tempted to just “set it and forget it,” They offer new wine in old bottles, however, with some tweaking of underlying investments to include so-called “market neutral” funds that sell short to protect against downturns. In addition, there are investments in commodities that tend to offer performance that is inversely correlated to overall market moves. Finally, there are bonds that also do tough duty to help protect against a repeat of 2008.

Costs of these managed payout funds tend to be steep. In most cases, they approach 1 percent, so once again, the financial services industry is paying itself 20 percent of the gross income they expect to collect from the management of the money in these plans. Do the math. If they can pay out 4 percent and collect 1 percent themselves, the gross annual income stream before fees is 5 percent.

A do-it-yourself approach is not that complicated if you consider a 50/50 mix of low-cost stock and bond funds that focus on dividends from stocks and relatively high interest from bonds. For the stock side, look for index funds or ETF’s (Exchange Traded Funds) that invest in companies whose dividends average about 3 percent. On the bond side, consider a heavy concentration of high yield corporate bond funds mixed with actively-managed bond funds. This will generate close to 4-5 percent interest on the bond portion.

The total cost for management should come in at a combined fund average of around 0.25 percent per year (one quarter of one percent.). If that sounds low, consider that stock index funds and ETF’s with expense ratios as low as 0.10 percent will bring down the total annual cost for managing the entire portfolio. Therefore, you get to spend most of what would have been paid to the financial institutions. In simple terms, you get to spend the 4 percent they were going to pay plus most of the other 1 percent that they were planning to charge. The do-it-yourself approach just increased your income by almost 25 percent --- from 4 percent to 4.75 percent. Your nest – egg remains intact. In fact, it’s growing to keep pace with inflation thanks to the half that’s in stocks.

What about a so-called “Black Swan” event where the stock market drops by 50 percent? The mix I have just described had reduced capital value of only 25 percent back in 2008 and snapped back the following year. The dividend and interest stream continued unabated. If such a thing happens again, to a greater extent, there is always the option of some course correcting. Recalculate the dollar amount of the 4.75 percent based on the lower account balance. Your higher payout in the first place more than compensates for the short term reduction of the account balance which still leaves you ahead of where the “experts” would have had you. It’s the Home Depot approach to providing your own managed payout fund and having more money to spend. (So, where’s my orange apron?)