Selkirk

[DOGS THAT BARK]

Got a question I don't think has ever been hit on here and at some point in time will be pertinent to most of us--some sooner than others like myself.

If you were going to retire tomorrow--where would you put your money?

What do you feel would be best bang for buck on return and safety--and what % would you still keep invested in stocks,if any, provided you did not need it all in income to live.

I know lots of variables like what amount is in 401-SEPS ect would come into play but was just curious-- and thought others might be---of your thoughts in general.

 

[dawgball]

Sorry for the hijack, Wayne, but I am going to ask a similiar follow up question that pertains to my situation. This will probably be more information than I should provide here, but it is hard to get real advice from a "professional" who is trying to get you to invest with him.

My situation:

My son's great-grandmother recently passed, and she skipped our generation but was generous over the last two years and gave him $20K over two years. We set up a trust for him where he can take control of the money at 21.

What are your suggestions (anyone welcome to comment) on providing this nest egg the best opportunities?

I am completely against mutual funds. If this style of investing is what is best, then I will invest the money personally in ETFs broken up in the same fractions (avoiding the high management fees).

Thanks

edited to add: My son is currently 16 months old

 

[worm44]

Dawg-If I may--Since the trust is basically valid for about 20 years-I would set it up a lttle different than what i did for my first child-(educational investing).......I personally would invest half in gold certicates-(I have talked to many pros in this area and 20 years down the line gold will be unreal-and basically the risk is very small)......I would take the other half and go bonds and T-bills.......If you wanted to go the equity route-There would be only one sector i would go near for a 20 year run--and that is utilities...........

 

[selkirk]

an interesting and complicated question. sorry for the long response.

this issue in a way was brought up my monthly shareclub meeting last friday.

each monthly meeting last 2 hours and there is a lot of ground to cover, options, technical investing, and general reading.

there was a member who believed stocks that increase their divdends over time is the best way to invest. He is 84 years old, half his money is in equities and the other half is in bonds.
He and his wife rely on the income from the bonds and equities to supplement their income.

his arguement is that many of the bank stocks he bought less than 10 years ago, today now yield 15%+ (todays div, compared to intial invested), he even uses CIBC (CM) which has been by far not the best performer of the big 5 (in Canada, on World basis they would not make top 50).

as profit grows the dividends grow over time, which is a great hedge against inflation.

the other side was brought up and one share club member believed it was a good idea to have bonds in the portfolio. also it was not a fair comparison. simply put the banks (cdn.) have had an incredible run for 10 years, and even 15-20. they often beat the broader index.... what if the run is over. also there has been some large companies in Cdn. and the US that you would consider blue chip that have blew up and quickly.
Nortel, Bombardier, Worldcom, Enron, ect. many more that went down.

also on the side of the bonds. most of the investing public (myself included) have not seen the worse of the bear markets that can happen in the past 100 years. it is one thing to see equity market drop 20-25% however they have come back for the most part in a year or two.

some bear markets can last years.
I feel both points (arguments) are valid however most people do not have enough bonds in their portfolio, (including myself).

Portfolio 20 years for someone who want to retire.

cash I often have little cash in my major accounts. often feel there is a trade an investment that can make me more than 3%. however often it would be ideal to always have some cash, you never know when a sell off is going to happen.

cash 5%-20% for most would keep this around 10%-15%, if they want a to balance a portfolio in safety. this would be cash and 1yr. T-bills and GIC/CD would fit in this catergory.

Bonds hold very little bonds myself. last large amount of bonds bought was Telus(posted here) and that was because sure they were not going broke. and a safter way to play the company than the stock. so it was more of a trade. believe it made 30% the stock made much more, still worked out.

would have the bonds more for income. also with rising intrest rates, and maybe more inflation, bonds may sell off.

so would start to build a portfolio slowly, and also would limit most of the bond portfolio to 10 yr. or less. longer bonds more risk, and would wait to increase this portion if ever.

you can buy the bonds one at a time, or buy an index that tracks them.

AGG yield 4%, .20 MER 5 yr. maturity.
LQD yield 4.8% corporate bonds 6.5 maturity.
SHY 1-3 tbill fund .15MER 1.7yrsmaturity.

IEF 7-10yr. tbills .15mer 4.5% 6.5 years

TLT 20 yr tbills .15mer 5 % wait to buy go shorter term for now.

TIP Treasury inlation notes index. would also wait.

now you can buy a few bonds and maybe some of these funds, or whatever way you prefer.
be careful of bond mutual funds the higher the mer, the less you will make.

some bond fund charge 1% mer hard when you have a coupon bond of only 5%.

bonds 15%-40% depends on how safe you want the portfolio. sometimes nice to see the bonds hold up after a sharp sell off in the equities.

though these bonds especially the shorter term ones will make 5%, not 10-20% what you can get in the markets in a good year.

Equities

now you say you do not need the money, most of my money is in equities. also have options which we will not go into, which in most cases lower (or hedge ) my risks.

would have 40-70% in equities.

some people would say anything over 50% or near 70%. is to high for someone near or ready to retire.

still you stated you did not need the money, so if there was a downturn for a year or two you could survive.

would invest in for the most part blue chip companies. there are stocks to avoid, would make sure they have a history of raising div, increasing earings. and performing well compared to the market.

also would invest some money that would track some major indexes. hopefully your indivual selections would do better than the indexes but many investors do not.

_________________________________________
another point which is one depends on where you live. for example a Cdn. should have a portion in international markets.

now most should be in your own currency that is where you live, however sometimes you can make good money of foreign companies.

you know this through some of the China stocks you followed (follow). for instant EWC (I shares tracks cdn. index (investments), increased over 25%. great return compared to most US investments.





thanks
selkirk

 

[selkirk]

you must watch and investigate some of these "indexes". some have one or two large companies. so if a company or two make up 30-50% of the index you must know your risk. and realize you are only investing in a few stocks.

at one time cdn. index made up 30% of Nortel which blew up, that is your risk. now the cdn. index is 25% energy great when oil/gas go up bad if it tanks.

would keep this portion to 10%-15%. this number depends on how much an investor know about a certain market.

by in large would keep the majority(40-60%) in equties, this would change the more you would need the money.

believe chances are you will have more money in equities over 20 yrs. than bonds and cash.

thanks
selkirk

 

[selkirk]

Dawgball your child is young and can live through a bad bear market, probably would not know it existed.

so would go almost 80% equities, 5% cash, 15% bonds.
maybe more in bonds, sometimes they outperform stocks.

still dividend paying stocks and revinvest the divdends.
also a few etf that track a major index or two.

also make sure the child is in more than one sector.
for instant the hottest sector is where many people invest long term.

have heard of many parent investing most of the money for their children in energy. in 1999 it was techs.
be in different sectors.


worm44 has brought up some good points concerning safe portfolio. gold is a good insurance for a portfolio. I do not hold any gold for now, however it may have a good year next year.

believe it will not hit 1000 like some gold bugs. if the US dollar implodes and the economy crashes and burns, gold would be great. however hope that day never comes.

utilities have been good investments, I mainly follow Fortis, enbridge (ENB), and TransCanada Pipelines. good stocks but would wait for a pull back.

investors have bid these companies up looking for yield and safety.

thanks
selkirk

 

[DOGS THAT BARK]

Thanks Kirk
No prob Jason--and sorry about your great grandmother.
Something you might consider on your sons trust is giving him a % at 21 and % at age 25 and remainder at 30. My reasoning is how many of us at age 30 look back when we were 21 and say "jeez if I had it to do over I would---"

 

[dawgball]

The trust's rules were set by my wife's grand-mother when she stroked the first check. I don't have any say-so (technically) because Mary is the executor (sp?), but I have been put in charge of investing it.

Hell, I would hold the whole thing until he is 25 if it was up to me because we plan on paying for all of his under-grad college if that is the route he chooses.

 

[redsfann]

Great topic here, gentleman, and I'd like to toss a few things out if I may.

Dawgball, I share your dislike of MOST mutual funds as the fees they charge to mirror the major indices(at best) are much too high. But you are forgetting most investors don't have the large, lump-sums to get into ETFs.It is not cost-effective to invest 100 or 200 dollars a month or paycheck in ETFs as the brokerage fees would kill you.

If you are employed and trying to save for retirement, putting whatever you can into an employer-sponsored plan at work--thereby never getting your grubby little fingers on that money-- that would be your best chance at actually saving some coin for when your working days are over.

Most 401(k) plans are a rip-off as they don't offer choices from Vanguard or T Rowe Price or even TIAA-CREF mutual funds--and these are just 3 of several very low annual fee mutual fund companies that, while a bit higher than the costs of ETFs, they are still much better than most 401(k) offerings.

I am very diversified in my SEP IRA using ETFs, and my wifes company is in the process of changing their 401(K) plan to offer self-managing of the plan, which includes a brokerage option--meaning as soon as the plan is set up and we have control over it, the just into 6 figures that is currently in her 401(K) account will be parcelled out into ETFs of OUR choosing.

I think your idea for your son's money is a great one. One thing I have found in managing our money in my SEP account is to really make sure you are NOT trading frequently. Just because the fees attached to ETFs are miniscule, if you are an active trader, the brokerage fees could end up costing you more than the management fees might if your money was sittting in a passive mutual fund account somewhere.

I satisfy my need to gamble in the markets by maintaining an account at Scottrade that never has more than 5k in cash/stocks in it, so if I manage to lose it all trading, its no different to my bottom line than losing a few bets on sporting events is.