Why isn’t the spending policy rate applied to the fund’s market value each year?
ANSWER The net spending rate is applied to a “blended market value,” which is an average of market values over a five-year period. The blending calculation smoothes out market upswings and downturns, and spreads out investment returns over five years. It also allows for full-value growth from new contributions. In order to prevent the blended market value from deviating too far from the actual market value, the blended market value is collared between 80% and 120% of the actual market value. The combination of these calculations enables the fund to generate relatively stable spending amounts regardless of market fluctuations.
Related Questions
- What happens to a money market fund’s per-share market value if a credit ratings agency downgrades securities held by the fund?
- What financial events can cause a fund’s per-share market value to rise above $1.0050 or fall below $0.9950?
- Why isn’t the spending policy rate applied to the fund’s market value each year?
