Overview of Schwab’s Monthly Income Funds
Schwab has three monthly income funds, each designed to pay out income while maintaining or growing your principal amount.
The funds accomplish this by using a “fund of funds” concept, where your money is allocated across numerous other stock and bond funds, and the allocation is changed as the fund manager deems appropriate. The fund may lower the payout amounts during times of poor interest rate environments, and in general, will pursue lower payouts rather than dipping into principal.
This strategy has the highest probability of success over long periods of time. If you pull your money out when the fund goes through a period of time with lower payouts, you will be unlikely to experience the results the fund is intended to provide for you.
Schwab provides a range of expected payout amounts, showing you how the income amount could change depending on whether we are in a low or high interest environment. Those ranges are shown below.
Basics of the Monthly Income Funds
- Minimum Investment: $100
- Expense ratios: .55 - .70
- No front end sales charge. You may incur a contingent deferred sales charge of 2% if you sell the fund before you have owned it for 180 days.
Funds in Schwab’s Monthly Income Fund Series
Moderate Payout Fund
- Targeted payout rate: 3-4%, which means about $250 - 330 per month, per $100,000 invested
- This fund has the lowest amount of current income and highest growth potential.
- Low interest rate environment payout range: 2-4%
- High interest rate environment payout range: 3-5%
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Enhanced Payout Fund
- Targeted payout rate: 4-5%, which means about $330 - 415 per month, per $100,000 invested
- This fund has a moderate amount of current income and moderate growth potential.
- Low interest rate environment payout range: 3-5%
- High interest rate environment payout range: 4-6%
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Maximum Payout Fund
- Targeted payout rate: 5-6%, which means about $415 - $600 per month, per $100,000 invested
- This fund has the highest amount of current income and lowest growth potential.
- Low interest rate environment payout range: 3-5%
- High interest rate environment payout range: 5-8%
