Stocks in Retirement: why bother ?
- Thread starter renferme
- Start date
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.
In any case, at least I'm getting 10% return on my original investment.
A nice deal if you ask me.
Of course, I don't have all my money in stocks as I believe in diversification.
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.
In any case, at least I'm getting 10% return on my original investment.
A nice deal if you ask me.
Of course, I don't have all my money in stocks as I believe in diversification.
I would own stocks in retirement to lower my overall risk.
Risk is a funny thing. Volatility and market crashes get a lot of press and make for great conversation, but you dont hear much talk about the risk of not being able to keep up with inflation.
The latter scares me much more and IMHO, there's no better equity investment than common stocks.
Past performance may be no guarantee of future results, but what the hell else are you going to go on?
Risk is a funny thing. Volatility and market crashes get a lot of press and make for great conversation, but you dont hear much talk about the risk of not being able to keep up with inflation.
The latter scares me much more and IMHO, there's no better equity investment than common stocks.
Past performance may be no guarantee of future results, but what the hell else are you going to go on?
Mainly for diversification.
I don't believe in keeping all your eggs in one basket. To me, that means being in stocks, bonds, cash and hard assets.
What does have me concerned (re: past performance does not predict future performance) is that I think US equities are too expensive right now. I'm not uncomfortable with a higher ratio of equities because they are "riskier" but I am uncomfortable right now putting too much into an investment that I consider to be too expensive so I've recently cut back my percent allocated to Us equities.
I don't believe in keeping all your eggs in one basket. To me, that means being in stocks, bonds, cash and hard assets.
What does have me concerned (re: past performance does not predict future performance) is that I think US equities are too expensive right now. I'm not uncomfortable with a higher ratio of equities because they are "riskier" but I am uncomfortable right now putting too much into an investment that I consider to be too expensive so I've recently cut back my percent allocated to Us equities.
I own stock funds because historical studies show they improve portfolio performance over time.
I have a Value tilt and a low (35%) allocation because I suspect that the US market may drop like a brick at some point over the next few years. My personal "risk adjusted" expectations are quite low.
When the market goes on sale I will be happy to buy stocks again...and it will.
Meanwhile I would rather collect interest on MM and CD's, rather than risk a 40% spanking which would not be at all ER friendly.
And yes, I'm a self confessed long term (dirty) market timer
I have a Value tilt and a low (35%) allocation because I suspect that the US market may drop like a brick at some point over the next few years. My personal "risk adjusted" expectations are quite low.
When the market goes on sale I will be happy to buy stocks again...and it will.
Meanwhile I would rather collect interest on MM and CD's, rather than risk a 40% spanking which would not be at all ER friendly.
And yes, I'm a self confessed long term (dirty) market timer
C
Cut-Throat
Guest
One thing that I have noticed is no one likes stocks in general the last 4 or 5 years or so! - Nobody! - All the Brokerage Houses say they are overvalued, most individuals that bought in the late 1990's and got burnt, hate them! - Everyone on this forum says they are overvalued! - Even me. I say they are overvalued!
Since, everyone hates them, the sellers must have sold already. Or what would it take to get a major sell off?
So, if you ever believed in a contrarian play, this could be it. Not real estate, because everyone here LOVES Real Estate - mainly because we've had huge increases in the last 4 or 5 years.
When ever I hear that someone is waiting for the Big Sale on Wall Street. The phrase of "More money has been lost waiting for the big Correction, than the Correction itself"
Just a thought
You make an excellent point (one that is hopelessly lost on most people!). People need to learn to redefine risk. Risk should not be based on whether or not you lose your principal, because you ARE LOSING PRINCIPLE in the form of purchasing power.
Excellent post!
JLP
unclemick
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Buried within my Lifestrategy mod portfolio is a 25% allocation to Vanguard Asset Allocation Fund - investing in stocks,bonds,cash depending on their quant model - 100% stocks last time I checked.
Apparently they haven't gotten the message or - heh,heh - their quant program is flawed.
? Time will tell.
Apparently they haven't gotten the message or - heh,heh - their quant program is flawed.
? Time will tell.
cute fuzzy bunny
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
One thing that I have noticed is no one likes stocks in general the last 4 or 5 years or so! - Nobody! - All the Brokerage Houses say they are overvalued, most individuals that bought in the late 1990's and got burnt, hate them! - Everyone on this forum says they are overvalued! - Even me. I say they are overvalued!
Since, everyone hates them, the sellers must have sold already. Or what would it take to get a major sell off?
So, if you ever believed in a contrarian play, this could be it. Not real estate, because everyone here LOVES Real Estate - mainly because we've had huge increases in the last 4 or 5 years.
When ever I hear that someone is waiting for the Big Sale on Wall Street. The phrase of "More money has been lost waiting for the big Correction, than the Correction itself"
Just a thought
Everyone hates them but they still own them. The burn in 01-02 wasnt severe or long lasting enough.
Without looking, I think the 5 year s&p 500 appreciation through 12/31/04 is still high single or double digit negative returns though? Apparently theres a good reason to hate stocks.
The real key right now is that I havent heard a single "expert" make a credible presentation that our current high earnings will continue a lot longer. Rates are on the way up so the easy money economy will slow. P/E's at these nosebleed levels are well above historic norms.
If you wave the "history repeats itself" flag, and most people here do...these above norm prices will need to be offset by some below norm prices to bring us back to the mean.
Which would be ugly, ugly, ugly. Bill Gross's Dow 5000...
unclemick
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Heh, heh, heh
I hope my pants don't split - pretty much 50/50 balanced index(counting her portfolio) ala Ben Graham.
A foot in both camps with the hope the computors in Valley Forge at Vanguard rebalance their little hearts out when the break comes.
Still, holding a fair amount of cash and poking around for value has a long and storied history. If I weren't balanced index - I'd kinda be there - heck - I sorta am there in dividend stocks - putz wise.
I hope my pants don't split - pretty much 50/50 balanced index(counting her portfolio) ala Ben Graham.
A foot in both camps with the hope the computors in Valley Forge at Vanguard rebalance their little hearts out when the break comes.
Still, holding a fair amount of cash and poking around for value has a long and storied history. If I weren't balanced index - I'd kinda be there - heck - I sorta am there in dividend stocks - putz wise.
C
Cut-Throat
Guest
Um-Hmm. - That's everybody's stratedgy.
Just to put my two cents in on the overvalued vs. undervalued idea: I have never met or read about anyone that has made a pile of cash making market predictions. I think market strategists are overpaid and useless.
As far as individual stocks go I think you can always find individual stocks that are selling for good prices. You just have to turn over enough rocks.
As far as individual stocks go I think you can always find individual stocks that are selling for good prices. You just have to turn over enough rocks.
Joe Dominguez (author of "Your Money or Your Life") argued that stocks are not right for a Retire Early portfolio because you need a predictable income stream to replace the paycheck you are giving up. I'm not willing to give up the long-term growth potential associated with stocks, so I don't go along with Dominguez on this one. I think he is right, though, that volatility is a real concern when you are counting on the income stream from your investments to pay the bills.
My answer is to alter the extent of my investment in stocks as the valuation level for stocks changes over time. The historical stock-return data shows that almost all of the big hits to a stock portfolio come at times of extreme overvaluation. Invest heavily in stocks only at times of low valuation and moderate valuation, and you greatly diminish the risk of taking a hit bigger than you can handle.
My answer is to alter the extent of my investment in stocks as the valuation level for stocks changes over time. The historical stock-return data shows that almost all of the big hits to a stock portfolio come at times of extreme overvaluation. Invest heavily in stocks only at times of low valuation and moderate valuation, and you greatly diminish the risk of taking a hit bigger than you can handle.
So what's your prediction for end of cy 2005? I'm gonna predict the DOW north of 11,000.
I take it most of the forum thinks DOW will be south of 10,000. Maybe way south.
Anyway, I think it will do what it always does. Up, then down, Sideways a little, up, then down, with grade slowing rising. Doesn't the market always do this? I realize that one major event, such as terrorist attack or oil hitting 75 bucks could derail this upward trend. I've heard this "the market is overvalued bit" for a long time, but then, so is most everything else, including good real estate. I'm hanging with Index Funds, staying diversified, and hoping that Coffeehouse Credo and Vanguard Diehards are correct. The fact that other than REITs I don't like Real Estate could have something to do with this.
I take it most of the forum thinks DOW will be south of 10,000. Maybe way south.
Anyway, I think it will do what it always does. Up, then down, Sideways a little, up, then down, with grade slowing rising. Doesn't the market always do this? I realize that one major event, such as terrorist attack or oil hitting 75 bucks could derail this upward trend. I've heard this "the market is overvalued bit" for a long time, but then, so is most everything else, including good real estate. I'm hanging with Index Funds, staying diversified, and hoping that Coffeehouse Credo and Vanguard Diehards are correct. The fact that other than REITs I don't like Real Estate could have something to do with this.
Sounds like Eagle could be a market strategists and get paid millions to be correct every once and a while. Up, down, side-to-side & trading range. You guys remember Abby J Cohen? She was labeled as a market "guru" b/c she made one good call. I don't see her in the press too much anymore with the exception of Barrons Roundtable (and I don't think she belongs either )
)I think any investment strategy should fit personal needs. If you are young, risk is likely secondary to your need to invest and accumulate $$.
If you are a skip and a jump from retirement, market "volatility" is not my idea of entertainment. There are cheaper ways to get thrills.
I don't need to shoot the lights out with every rally, but I definitely do need to avoid a potentially crippling event (like a 10 year bear).
Maybe stock valuations and profits are on a "permanently higher plateau"
Regression to the mean suggests otherwise.
NO one wants cash...maybe it's the place to be?
If you are a skip and a jump from retirement, market "volatility" is not my idea of entertainment. There are cheaper ways to get thrills.
I don't need to shoot the lights out with every rally, but I definitely do need to avoid a potentially crippling event (like a 10 year bear).
Maybe stock valuations and profits are on a "permanently higher plateau"
Regression to the mean suggests otherwise.
NO one wants cash...maybe it's the place to be?
Sounds like Eagle could be a market strategists and get paid millions to be correct every once and a while. Up, down, side-to-side & trading range. You guys remember Abby J Cohen? She was labeled as a market "guru" b/c she made one good call. I don't see her in the press too much anymore with the exception of Barrons Roundtable (and I don't think she belongs either
Yeah, I wish I were getting those millions. Even a stopped clock is right twice a day, to quote a tired cliche'. So you gonna predict? You thinking Dow about 5000/6000 by year's end?
Last I looked, which was probably in December 2004, my portfolio had a 7.something% IRR per Quicken, and I'm mostly S&P500, with a smattering of my employer's stock which has underperformed the S&P over that time period and out of which I have been diversifying. So I'd bet that the S&P's rate of return for 5 years ending 12/31/04 is actually positive 7.something%.
malakito
brewer12345
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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I'm not retired yet, but I will be holding substantial amounts of equities in retirement as part of a diversified portfolio. Nearly every study I have seen (plus common sense and mathematics) idicates that a portfolio with multiple asset classes that are less than perfectly correlated gives superios risk-adjusted returns.
FWIW, I try to avoid the overvaluation issue by buying my own value stocks, but clearly this is not for everyone. As my portfolio grows, I also find that I am adding exposures in asset classes I can't effectively manage via index funds.
FWIW, I try to avoid the overvaluation issue by buying my own value stocks, but clearly this is not for everyone. As my portfolio grows, I also find that I am adding exposures in asset classes I can't effectively manage via index funds.
C
Cut-Throat
Guest
The last few years of so, I have been suspecting of Quikens figures in this area. I know that there are bugs in their tax planner.
But I have gone further with their rate of return calculators. I have pulled a single security within one account and have gotten different answers depending on how I chose to report it. By Security or By account.
I don't trust their numbers any more.
And it looks like you have even a bigger discrepancey. I know that the S&P 500 has not yielded 7 plus percent over the last 5 years!
brewer12345
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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You could do worse than starting with the holdings of DVY.
Values that are currently in my portfolio and pay decent dividends are AF (more than doubled their div in the past 5 years and steady as a rock) and STON (more speculative, but cheap).
Spanky
Thinks s/he gets paid by the post
I general, if your non-stock portfolio is large enough to provide the necesary withdrawals for the rest of your life, why bother with taking on more risks?
For example, if you have a $5M portfolio with only T-bills or short-term treasury (say 4% yield) and a withdrawl of $100,000 + 3% inflation per year, it will take 72 years before you run out of money.
However, for smaller portfolios:
$3M = 37 years
$2M = 24 years
$1M = 10 years
The bottomline depends on the size of your portfolio and the amount of withdrawals.
Spanky
For example, if you have a $5M portfolio with only T-bills or short-term treasury (say 4% yield) and a withdrawl of $100,000 + 3% inflation per year, it will take 72 years before you run out of money.
However, for smaller portfolios:
$3M = 37 years
$2M = 24 years
$1M = 10 years
The bottomline depends on the size of your portfolio and the amount of withdrawals.
Spanky
