What I've been doing

So, I am 60 years old and pretty much retired. For many years I have been a “buy and hold” type investor, and an MF subscriber (Rule Breakers and Stock Advisor). Over the last few years, I’ve modified my strategy to not necessarily hold as long as MF typically advocates holding, as well as to do a lot more of my own due diligence. For the last year or so, I’ve been focusing on high growth companies, many of which are discussed on this board.

My investment results have improved significantly over the last few years. As a result, I find myself now in a position where I would still like to “grow” my net worth, but am becoming more concerned about looking to preserve the wealth I’ve accumulated. I feel pretty comfortable that, barring some unforeseen catastrophe, what I have accumulated up to now should last me the rest of my life so, realistically, growth is not an absolute necessity for me.

As a result, what I’ve been doing over the last several months is to put cash when I have it into index funds (small cap, large cap, and mid cap), and recently purchased shares of an index fund with a focus on dividends…my thought being that when this bull market cools off, reverses, or whatever, the income will, to a certain extent, balance things out.

I am not invested in bonds or bond funds, and I am reluctant to invest in them because of the insanely low rates of return. I know there are many on this board who steer clear of bonds including, as I understand it, Saul himself. But I also know that many “professionals” advocate having at least a certain percentage in them, especially if you are in my age group.

So, what I’m wondering, for whoever is inclined to chime in, is whether I should keep doing what I’m doing, ie- gradually segue from individual stocks to index funds and dividend paying funds so I can devote less time to individual stock picking- or preserve a percentage of my “wealth” by investing in bonds or bond funds. Thanks in advance!

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Hi Speedy, I’m sure you’ll get some good answers here but you’ll get a much more focussed response if you ask the same question on the MF Retirement board where this type of question fits right in with the subject of the board. Here’s a link to a whole category of MF Retirement boards:

http://discussion.fool.com/retirement-discussions-10054.aspx

Best of luck with your plans. You are a smart guy and you’ll work out what makes you most comfortable.

Saul

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Thanks Saul. My intent was not to be off topic. Rather, it was to see what others on this particular board think about bonds and/or bond funds as a “hedge” to a portfolio of high growth stocks. Most of the retirement boards don’t include growth stock posts, and my mindset is vastly different than theirs is.

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Hey Speedy,

I’m in my late 30’s but my father is in his late 60’s. He managed accounts for other people in town for about AUM of 30 mil. He did well investing for his retirement. But when he sent out notices to everyone he was retiring, he also decided to retire his effort and focus on life. He could have kept at it but his decision was to reduce risk, reduce volatility, and project out a safe annuitized forecast based on ETF’s and other ‘boring’ investments. My father is now happy with other pursuits having earned enough capital to run on cruise control without reviewing MSNBC every, darn day.

I hear there’s a lot of good literature out there for people deciding on when is a good time to switch speed and start living off the nest egg.

Good luck!

As for me, I’ve find Saul’s method very educational as a wage earner still building my portfolio.

~Scott

I would only say that great danger is attached to investing in broad market ETFs now. Two things are uniquely modern in powering the S&P to these levels: the massive institutional momentum trade, instantly reversible, (you can be sure all the preparations have been carefully made not to be around when the music finally stops) and the extraordinary popularity of private-investor broad market ETF investing based on a myth: that you can do well investing in the market whenever you buy, including averaging in at expensive prices (ever-more expensive prices for many people who I fear will come badly unstuck. Both have and are seriously distorting the market by indiscriminately carrying the moderate and mediocre up with the good. Both strategies have obviously owed their success to artificially-low interest rates and artificial market stimulus (which may stop, or end up being revived in an ever madder world).

You are faced with the problem of nearly everything being overvalued, including that old standby, consumer staples. My own view is that active management is on the cusp of a remarkable come-back. For those who choose not to invest themselves, the problem is manager selection and what is managed.

Managers will need to work and think far harder than in the past however; as will we. To be light on your feet used to be a recipe for poor results in times past; now it may be essential. Tax will become the bugbear of the private investor and only after-tax results will be valid or interesting.

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Hi there, az5,

Got ya beat. I’m 64 and going the opposite way. I’ve always had dividend payers among my holdings and looked around one day and asked myself why? I would like to build up a bigger war chest before official retirement (I’ve been retired since 2000 when I retired like so many “by accident.”)

As far as bonds go, I think it behooves us to ask ourselves why they promote bonds? What’s in it for THEM? I know what’s in it for us–nothing.

If you get a chance, pick up the book by AAII’s outgoing CEO and founder (can’t think of his hame right now) titled Level 3 Investing. He thinks (and I’ve always thought) that bond holding has been one of the biggest draws on portfolio returns for the majority of investors since the beginning of public corporations.

If you’re set on payouts (don’t blame you a bit for that) I would concentrate on dividend payers. Yes, they’re expensive right now, but so is everything else. You could (and experts would say should) buy in monthly so you don’t get swamped by any market back-flow when the tide goes out. In a few years you should be set up so you never have to touch your ports again unless someone shows signs of lowering their divvies or appear capable of going just plain belly up.

I don’t have all the answers, that’s for sure. But to talk me into buying bonds would take a better salesman than I’ve ever met to date and a brand new spiel with most likely 99.9% hubris. My first questions: “What’s your commission, and when do you get it?”

Now if you could find a longstanding and trustworthy ETF that paid well … come back and let me know!

Return = Stability + Risk. Methinks high fixed-income returns, especially now, are the very definition of risk.

Good luck!

Dan

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