I watched an "expert" on a network show this morning going through the kind of interest ordividend reurns people could expect from bank CD's or Credit Unions, and I was appalled she never once even considered equities!Suggesting that people put their money solely into instruments that pay returns of 0.50 percent to as "high" as 2.0 percent if they leave money in there for FIVE YEARS! They would lose some of their returns if they wanted to move it out of there sooner!? Are you kidding me?As I've posted many times before, I've managed my own IRA for several years. I make a lot more than 2.0 percent by buying (and sometimes selling) and usually holding equities that pay dividends.Just four examples:GE is now at $16.46 and paying 3.70 percentB&G Foods (BGS) is now up to $23.52 and paying 4.00 percentIntel Corp (INTC) is now at $25.01 and paying 3.40 percentAT&T (T) is now at $29.15 and paying 5.90 percentThese are all good companies, frankly, and have paid dividends for many years, so why not put SOME money there? Why be satisfied with 0.5 to 2 percent? (And there are MANY more good companies to invest in, too.)"Safety"? Come on...Vermonter
Hi Vermonter --Part of it may be risk and the need to diversify within dividend payers to protect your income stream. It makes a ton of sense, but it's hard to get the point across in an actionable way in a 30 second sound byte.Take your first example:GE is now at $16.46 and paying 3.70 percentGE slashed its dividend in 2009, and while it has partially restored it, today's dividend is still about half what it was prior to the cut. When the dividend got cut, so did the share price.An investor who relied on GE for income prior to the diviend cut would have lost a significant share of that income with the cut. Since the price dropped along with the dividend cut, that investor wouldn't have had a reasonable way to quickly "make it back" elsewhere. Granted, with a diversified portfolio of dividend payers, it would have been possible to ride out the GE storm (or at least, that's what my experience was -- http://www.fool.com/investing/dividends-income/2011/11/23/ho... ). But building that type of portfoio is a complicated, in-depth discussion, not a 30 second TV blurb.-ChuckInside Value Home FoolDisclosure I own shares of GE & rode 'em throughout the roller coaster.
I bought after the dividend cut and price fall at $7.60. The annual dividend was 40 cents for a 5.26% yield. Dividend has risen 50% and the price is more than double. I believe the price leaves room for a lot of appreciation in the coming years. Dividend should rise too.
But you still have people out there who know stories of losses from the Great Depression reinforced by our series of major crashes in recent memory.They are uncomfortable investing in stocks of any sort because they think they are high risk.One would hope that participants on Motley Fool are more sophisticated than that, but convincing the risk averse to try something new can be next to impossible. Regardless of yield. Regardless of total return.
GE slashed its dividend in 2009...Other exampmles, BAC cut theirs to $0.01. BP totally eliminated theirs for awhile.IMHO, when someone talks about a "safe" investment, they are talking about something that you CAN'T lose principle. EVRYTHING outside of CDs can lose principle.True, you can get higher returns with bond and equities, but you're adding risk.Depends on what is your objective.JLC
EVRYTHING outside of CDs can lose principle.True, you can get higher returns with bond and equities, but you're adding risk.You can lose principle if you own actual bonds ? (not bond funds)
You can lose principle if you own actual bonds ? (not bond funds) Yes, companies and governments can default. Ask former GM bond holders and current Greek bond holders how things are going.JLC
It is not just a matter of a default. Bonds tend to go down when interest rates go up. Sure, you may get the face value of the bond when it matures, but that could be 10-20 years, and in the meanwhile, if you need money you may have to sell at a loss.Of course, you may have bought it at less than par, in which case if you hold to maturity, you will have a capital gain.Or, you could have paid more than par for your bonds, in the case of a bond paying (on the face value) a higher interest rate than the current one when you bought.
You can lose principle if you own actual bonds ? (not bond funds) Yes, companies and governments can default. Ask former GM bond holders and current Greek bond holders how things are going.JLCTrue, but you can find relatively safe bonds. For instance, you can get Treasuries or Agencies, currently backed by the government. If they go bust, we'll all have bigger things to worry about.
It is not just a matter of a default. Bonds tend to go down when interest rates go up. Sure, you may get the face value of the bond when it matures, but that could be 10-20 years, and in the meanwhile, if you need money you may have to sell at a loss.If you've invested in maturities for 10-20 years, you should have a cash source for earlier periods. Yes prices to go up and down, but the one thing you can count on is getting $1,000 for each bond at maturity. What you have to be satisfied with, is the return you lock in when you buy the bond. Of course, you may have bought it at less than par, in which case if you hold to maturity, you will have a capital gain.And this is bad because? Or, you could have paid more than par for your bonds, in the case of a bond paying (on the face value) a higher interest rate than the current one when you bought. This of course means you get to count a portion of each interest payment as return of principle, thus reducing the amount taxed.
I did not mean to say that anything was particularly good or bad. Just listing some of the possibilities. Personally, I stay away from bonds because it is very difficult to time the buy point correctly. It is best to buy when interest rates are high, and about to go down. But if this is the case, it is also time to buy stocks, which generally rally when interest rates are lowered. Generally, the stock trade makes more money in my experience.
Just looked at my stats for the year:My self directed IRA YTD 1 YRS&P Index
Just looked at my stats for the year, according to my IRA company: My self directed IRA: YTD +7.3%, 1 year +16.39% S&P Index YTD +1.3%, 1 year + 8.09%Barclay Bond Index YTD +6.76%, 1 year + 5.09% Dow Jones YTD +5.45%, 1 year +10.39%NASDAQ YTD +1.93%, 1 year + 8.10%Dow Jones Total Index YTD +0.55%, 1 year + 8.05%Not bad for an amateur, it seems to me!Vermonter
Nice job, Vermonter. I've beaten the indexes 11 of the last 13 years thru 2010. Not so sure I'm going to do it this year but I'll be close.I've always managed my own money. Figure if someone is going to blow it, I might as well do it myself instead of paying an investment advisor to do it.
billjam:Nice going yourself! I wish I hadn't had to withdraw some now and then all year, but c'est la vie! I tend not to be a slave to the 4 percent (or any percent number), preferring to take what I need, when I need it, within reason, and then work at trying to build it back up again as much as I can!Dividend stocks help. As I have said, stocks like INTC, BGS, GE, and T provide decent returns, and having SOME in some hot ones like AGNC and NLY jazz things up, with returns in the teens, but I never, ever have a lot in those, and I'll be ready to abandon them fast if I see signs that interest rates are about to start rising!Peace -- and hope 2012 doesn't smash us too badly!Vermonter
So what is your return over 10 years?Just random luck can create 7% in a year like 2011.I read that since January 1, 2001 the S&P annual growth is something like 1.4%.GordonAtlanta
FWIW I measure my portfolio two ways.1. Against a benchmark of 50% Vanguard World fund and 50% Total Bond Market.2. Against my allocation on December 31 of the previous year.The first tells me if risk is paying off. And, it's fairly easy to benchmark it long term.The second tell me if the changes I've made in the course of a year have been worth it. I at least equal it by doing nothing.Hockeypop
RV and Chuck, I also rode GE throughout the melee which transpired from 2008 on, and am glad I did. Donna (who like RV, will eventually rely on dividend income for my "extras", but will not change from reinvesting divies until I am about 69 or 70 - now 67.)
Personally, I stay away from bonds because it is very difficult to time the buy point correctly. It is best to buy when interest rates are high, and about to go down. But if this is the case, it is also time to buy stocks, which generally rally when interest rates are lowered. Generally, the stock trade makes more money in my experience. True, but one way to look at bonds is that you're buying a yield for your portfolio. You have to decide that say a 5% yield is enough for a portion of your portfolio over a 10 year period. At that point, you stop worrying about the price of the bond as it will go up and down. Held to maturity will always get you that yield. Then there are various strategies you can follow in bonds. For instance, you can buy callables and get 4-6% yield for a short period as it likely will get called as rates go down or remain flat. If it doesn't get called, that yield is not bad for a portion of your portfolio.I agree that you can make more money in equities, but at some point you may want to protect your principle and have some certainty in income streams with a bond allocation.
wow - I am impressed!!!!!!!!!!!!!! Can you share what holdings you have in your IRA?
ltangel:Yes, I can share what is in there now, but please remember that it changes periodically. Please remember also that I am strictly an "amateur", dabbling with my own money only. I am NOT an expert, I do NOT recommend that anyone follow blindly whatever I buy or sell, and I do NOT recommend that anyone put too much into any one or two investments. I also suggest that anyone trying to manage his or her own funds or investments very carefully watch what they do, research carefully before making moves, and be ready to act if things seem to be headed to anything disastrous! However, it's also best not jump in or out of these precipitously, and, obviously, watch out for commissions that can eat up trades!That said, I currently have some money in the following:GEBGS (B&G Foods) INTC (Intel)T (AT&T)AGNCCIM NLYFAGIX (Fidelity Mutual Fund)AGNC, CIM and NLY are rather risky, but currently pay handsome dividends. I am careful not to put much in those, and am ready to sell quickly if inflation starts to heat up, because I understand their returns could drop fast if and when that happens.Good luck to you.Vermonter
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |
BATS data provided in real-time. NYSE, NASDAQ and NYSEMKT data delayed 15 minutes.
Real-Time prices provided by BATS. M