Stocks in Retirement: why bother ?

[Mr._johngalt]

ed_teach and *****.............where are you now that
we really need you? Please come back.
Arrrrrrrrrrrrgh!

JG

 

[laurence]

LOL!

 

[brewer12345]

Tony, at best, you are a naive "investor" who has eaten up what the annuity salesman told him and has no clue what the hell he is talking about. More likely, you are a paid shill who is intentionally glossing over unpleasant facts or simply lying. As a case in point, you claim you "paid no fees" in purchasing annuities. You sure did pay something, specifically a big, fat commission to the salesman. Since it was taken out of your end implicitly rather than implicitly, you are under the impression that you did not pay it, but trust me, you did pay it.

You also conveniently forget a big variable in your plan: the performance of your annuities. You do not know for certain that whatever insurance company/companies you bought annuities from will be around to actually pay your benefits. Think this is a joke? Some of the highest payouts are offered by some of the shakiest annuity companies.

I think you'll find that the posters on this board are pretty open-minded and interested in new ways of getting to where they want to be. However, most of us also take exception to being spammed. Drop the repetition and start actually conversing with us and you might get a warmer reception. Otherwise, kindly drop dead.

 

[peteyperson]

I own stocks, in particular, stocks that pay dividends.
Own stocks in companies that are likely to increase their dividends yearly or almost every year.
For example :  if I buy a stock for $100 that pays a 5% dividend, that's $5 / year return.
If the company raises it's dividend 50 cents per year for ten years, then the dividend increases to $10 total.
That's a 10% yield on my original investment.    And if things go well for the company, the stock should be worth more than the $100 that I originally paid for it.

A nice deal if you ask me.
Of course, I don't have all my money in stocks as I believe in diversification.

Yield on the original investment is a meaningless piece of information. Sorry, but it is. Some of the writers at the Fool also make this mistake.

When deciding to retire one does not consider the value of your original investment, but only the present value of your individual holdings. Ditto yield. You look at the yield today on the value of your holdings today. You judge the income you will receive set against the portfolio value, not based on anything that happened before. Not only is a present yield on a past purchase price meaningless, but when one does not adjust the original purchase price for inflation since purchase, it is even less than worthless!

Petey

 

[peteyperson]

Tony, at best, you are a naive "investor" who has eaten up what the annuity salesman told him and has no clue what the hell he is talking about.  More likely, you are a paid shill who is intentionally glossing over unpleasant facts or simply lying.  As a case in point, you claim you "paid no fees" in purchasing annuities.  You sure did pay something, specifically a big, fat commission to the salesman.  Since it was taken out of your end implicitly rather than implicitly, you are under the impression that you did not pay it, but trust me, you did pay it.

You also conveniently forget a big variable in your plan: the performance of your annuities.  You do not know for certain that whatever insurance company/companies you bought annuities from will be around to actually pay your benefits.  Think this is a joke?  Some of the highest payouts are offered by some of the shakiest annuity companies.

I think you'll find that the posters on this board are pretty open-minded and interested in new ways of getting to where they want to be.  However, most of us also take exception to being spammed.  Drop the repetition and start actually conversing with us and you might get a warmer reception.  Otherwise, kindly drop dead.

The only pension plans offered in the UK then must be converted to an annuity later. The 3rd largest insurance company had to float a $3Bn bond issue because they lacked enough liquity after overinvesting in stocks in the tech peak. To make matters worse, the UK regulatory body after noticing many insurers falling below liquidity limits setup to protect investors from insurers continuing to manage and sell policies, decided to halve the liquidity limits these insurers were now required to meet. In other words, they moved the goalposts when the **** hit the fan!

This is the same type of pension/annuity managers who cut back their stock allocations in a "prudent" move after stocks had declined 40+%. Buffett noted in the late 70s that pension providers in the US also did the same thing and in the depth of the bear market there, let allocations to stocks fall to a record low approx 13% of the portfolio. As Buffett noted, future expected returns were excellent because yields were so high and prices were so cheap. The herd-like investors had run away but would return and when they did they pushed the market P/E up to 15 a decade later. A run-up the insititutional investors did not benefit from!

I would not trust my money to these guys even though I would get a tax break on gross salary invested directly rather than net salary I can manage myself. I feel safer investing less in a careful, diversified manner, paying attention to valuations and not running with the herd, than crossing my fingers & hoping, putting more money to work poorly.

Petey

 

[Stephen_C]

Peteyperson says:
"When deciding to retire one does not consider the value of your original investment, but only the present value of your individual holdings. Ditto yield. You look at the yield today on the value of your holdings today. You judge the income you will receive set against the portfolio value, not based on anything that happened before. Not only is a present yield on a past purchase price meaningless, but when one does not adjust the original purchase price for inflation since purchase, it is even less than worthless! "

Agreed, however I thought the point being made was that owning a dividend paying stock offered the potential for upside (increase in dividend/capital gains) vs a fixed income instrument where change in value factors may be more limited (eg change in issuer credit risk/change in interest rates). A view that I generally agree with - but both stocks and fixed return have a place in a portfolio, I believe.

Steve

 

[Mr._johngalt]

I pretty much agree with Steve and Petey. I guess I see
the chance of a stock ownership downside as not worth the potential upside.
I am quite intrerested in history, but don't necessarily
believe it will repeat; or if it does, perhaps not in time to
help me. I accept SWR theory but would rather accept less of a more certain income stream than bet on
dividends and the S&P, DJIA, etc. I will confess that
in my younger days I made small bets on individual stocks. Probably a wash overall. This does not impact
my thinking now. Once I got to FI, I wanted to be as
sure as possible I would never slide back into the workplace. I can cut my lifestyle. Returning to work
is not really a viable option.

JG

 

[unclemick]

Hmmm

Some random thoughts.

Going into 12 years of ER (1993, age 49) - looking at going toward 100% stocks. Caveat: core is a non cola pension plus early SS (was div stocks). NFB forum has convinced me to push the div/div growth stream harder.

Accumulation phase is different than distribution. I care much less about the value of my portfolio(market fluctuation) and a LOT more about the income stream it produces. "The other end of the stick" from someone saving for FIRE.

By the end of this year - potential income streams:

24% - pension
30% - SS
33% - IRA(switch from Lifestrategy to Target Retirement)
13% - dividend stocks

Since I'm a cheap SOB - some IRA will go to beef up dividend stocks and continue a series of partial Roth conversions - tax brackets willing.

 

[brewer12345]

The only pension plans offered in the UK then must be converted to an annuity later. The 3rd largest insurance company had to float a $3Bn bond issue because they lacked enough liquity after overinvesting in stocks in the tech peak. To make matters worse, the UK regulatory body after noticing many insurers falling below liquidity limits setup to protect investors from insurers continuing to manage and sell policies, decided to halve the liquidity limits these insurers were now required to meet. In other words, they moved the goalposts when the **** hit the fan!

This is the same type of pension/annuity managers who cut back their stock allocations in a "prudent" move after stocks had declined 40+%. Buffett noted in the late 70s that pension providers in the US also did the same thing and in the depth of the bear market there, let allocations to stocks fall to a record low approx 13% of the portfolio. As Buffett noted, future expected returns were excellent because yields were so high and prices were so cheap. The herd-like investors had run away but would return and when they did they pushed the market P/E up to 15 a decade later. A run-up the insititutional investors did not benefit from!

I would not trust my money to these guys even though I would get a tax break on gross salary invested directly rather than net salary I can manage myself. I feel safer investing less in a careful, diversified manner, paying attention to valuations and not running with the herd, than crossing my fingers & hoping, putting more money to work poorly.

Petey

Petey, very high allocations to stocks is a peculiar feature of UK insurers. In the US, the regulatory framework makes it virtually impossible for life insurers to hold much equity, so they are primarily invested in bonds (typically 90% or so of invested assets). This means that their balance sheets are more stable, but they are pretty far from the efficient frontier and tend to bump up their ROEs by being more leveraged.