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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76079  
Subject: Re: help -retirement investing plan Date: 6/4/2011 2:28 PM
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First advice: beware most advice, including this.
It's really easy to end up with something a bit more risky than you can afford.

A couple of random thoughts.

Much to be said for cash. If you're thinking of stocks, I would tend
not to buy them now. Wait till just after the end of the next
bear market before even thinking about investing in stocks; prices are
not low enough these days to make it a case of shooting fish in a barrel.
(there is actually a brutally simple indicator intended to identify
those points suitable for entering a very long term stock position,
as a big bad bear market is ending, called the "Coppock indicator".
It's not perfect, but it's sure better than a dart board. It was
invented in the early 60's and has had a very nice success rate).

The best single security I can think of right now for current income
is Wells Fargo Preferred Series L shares, ticker WFC-PL or something like that.
You buy them like shares. They cost $1077 each right now. The price
can go up and down with market conditions, but they will usually always
trade in the same range. They have a constant payout of $75 a year.
So, that's a current yield of 6.96% right now.
They are perpetual---you don't have to worry about them expiring.
They are callable, but not unless Wells Fargo stock goes up by some
gigantic factor from today's price, so it won't happen (if at all)
for a Looooong time. If the company falls on hard times for a while
they can suspend the dividend for a while, and they don't pay you
for the ones skipped when dividends are resumed. ("non cumulative").

A nice portfolio is lots of cash to cover expenses for the next five
years, and the rest invested in something that will do very well but
you have no idea when it will pay off. Berkshire Hathaway is an
excellent example right now---unusually undervalued, and certain not
to blow up, and certain to beat the broad market in the next 10-20 years.
No dividend though, and market prices can be too low for five years
at a time, so it can't be relied on to provide anything towards
the next five years of expenses. That's the reason to keep a cash pile.
Never worry about a cash pile not generating enough income. If the
cash is eventually deployed on something during one of those rare times
that everything gets really cheap, like March 2009, then in the end the
cash had a really nice return. It's like a free option.
The hard part is knowing to deploy it when the time comes.

Having been invited over to this thread from the Mechanical Investing
board, if you really want to have some fun with a few stocks, I strongly
recommend a method there known as YldEarnYear. In a nutshell, buy
some dividend paying stocks on a certain list, hold them for a month,
and repeat. This particular method was devised in June 3003, based on
a back test to 1986. It has continued to beat the S&P by 18%/year
since it was invented in 2003, very similar to the original back test result.

A final thought about expenditure planning: most retirees have a
"U" shaped spending pattern---fairly high at first as you catch up
on travel and leisure, lower as you settle down, and higher again
later on if/when health expenses rise. Something to keep in mind.

Jim
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