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I am very close to retirement. And have just started to invest. I am interested in starting with high-yield dividend funds. Since my needs for income is great.

Any help/information would be appreciated.

Bob
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No. of Recommendations: 2
I'm not familiar with "high-yield dividend" funds.

For income you could do a portfolio of preferred stocks. My list of these is here--

https://spreadsheets.google.com/ccc?key=0ArC7PlrDoTbpdFFqbTh...

But note my list is not all inclusive and has not been updated in a while.

Before buying any of these, you will want to do a bit of research. In particular be aware that most are callable at $25/sh or $10/sh. So be careful of those issues priced just over those numbers. They can be called from under you at a loss. You can get more information on each of these on QuantumOnLine.com and they have links to the original prospectus, which will fully explain details of call provisions, etc.

Also be aware that you probably want issues rated BBB or better. Below that are considered junk bonds. Yields are higher, but risks are higher. And note that ratings in my spreadsheet may be out of date. Check them out on QuantumOnLine.com for current info.

You can buy these preferred stocks from a discount broker (at low commissions) in whatever quantity you like. Starting with as little as $25. Usually you want more than that to keep commissions low. They are thinly traded and usually should be purchased with limit orders. Rather than put all your funds into one of these, you probably want a portfolio of at least five issues.

Note these usually do not pay qualified dividends. Hence, the income if fully taxable at ordinary income tax rates.

As to high dividend stocks, I would name a couple in my list: Suburban Propane (ticker SPH), and Amerigas (APU). These are propane distributors currently paying 5.7 and 5.3% respectively.

You will find quite a few high yield bond funds. Right now people worry about the future of munipical bonds. With reduced income some may default on their bonds. Nuveen Select (NQS) and Blackrock (BLE) are two that I like. Prices have fallen due to concerns and they are now paying near 8%, and most of that is Fed Tax Free.

I will defer to others on corporate bond funds. Suffice it to say there are many. Higher yield ones invest in junk bonds and are riskier.

Another strategy you may find interesting is stocks with a long record of increasing dividends. The renewed tax law extends favorable treatment of qualified dividends. Up to $68K agi for a married couple they are tax free. Some companies have a long history of increasing their dividends. If you buy one of those paying say 4%, over time the increase in dividends will help your income keep up with inflation. In time they can become lucrative.

I hope that gets you started. If any of this needs more explaining, feel free to ask.
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No. of Recommendations: 43
I am very close to retirement. And have just started to invest.

Uh oh.

I am interested in starting with high-yield dividend funds. Since my needs for income is great.

Most "funds" have a cost of between 2-3% per year. Even great dividend payers are paying between 4-5%, so you are giving up half of your income to the fund managers. (There are a very few stocks paying 6% or better: AT&T and Altria, for instance. But those are exceptions, and not without risk.)

You might want to visit the Dividend Growth Investing board, where such things are discussed. Don't be afraid to page backwards through time, but I wouldn't go more than a year or two back since things do change.
http://boards.fool.com/dividend-growth-investing-116719.aspx...

My IRA portfolio is structured to produce income, and includes:

(Stock / Dividend / PE ratio)

Pfizer 4.6% with a P/E of around 18 (that's high)
AT&T 5.9% with a P/E of around 12.5
HJ Heinz 3.8% with a P/E of around 16
Alliant Energy 4.5% with a P/E of around 12.5
Campbell Soup 3.1% with a P/E of around 14
Chevron 3.6% with a P/E of around 9
Clorox 3.6% with a P/E of around 15
Coca Cola 3% with a P/E of around 17
Con Edison 4.9% with a P/E of around 14
*Dow Chemical 2.6% with a P/E of around 15.5
Dupont 3.6% with a P/E of around 14.5
Duke Energy 5.6% with a P/E of around 13 (about to merge)
GE 2.8% with a P/E of around 15
GlaxoSmithKlein 4.8% with a P/E of around 17
*Kimberly Clark 4.2% with a P/E of around 13
Eli Lilly 5.3% with a P/E of around 8.3
*McDonald's 3.1% with a P/E of around 16.5
Mercury General 5.4% with a P/E of around 15
Piedmont Natural Gas 3.8% with a P/E of around 19
Kraft Foods 3.7% with a P/E of around 15

*(I will note that I bought these a year ago, and a few of them have over $100,000 in combined 'profits' and are now in the 'sell' category, for me (See Mike Klein's charts explanation, below). Except I'm having trouble figuring out what to buy instead, so I'm going through the process all over again. At the time I bought them I refused to consider any financial companies/banks because of the financial crisis. I might allow them in, now.)

I can buy and sell with impunity from taxes in this account because it is an IRA. We have other investments in our regular joint account, and those are structured for growth, rather than dividends. They include non-dividend payers like Berkshire Hathaway, as well as stocks we have held for a very very long time (on which we have significant gains) and which are still OK, so we hold them rather than sell and pay the taxes on them. Those would include Johnson & Johnson, Walgreens, WalMart and a few others. While those pay dividends, they are smaller and don't really impact us at tax time.

In the IRA I have about 20 stocks, each bought with about 50k. I have so many to minimize risk; when GE went in the dumper the stock price dropped (ouch) and the dividend was cut (double ouch) but because it was only 5% of that portfolio the effect was quite small. Spreading risk - especially at retirement time - is crucial. Note: buying 20 good paying energy companies is not "spreading risk" because if the whole sector goes in the crapper, they all go down at once, capiche? (Think if you had bought a whole bunch of financials for their dividends in 2007, get it?)

I go through a less-than-rigorous selection process. (I used to do a lot more, but the reality is that I'm not going to read every footnote on Page 342 of a company's annual report, nor do I trust them to tell me everything anyway.) So I use a screener for dividends. Schwab has a simple one in their "Research" section, you can find them elsewhere, including on the BMW Board where they regularly post "Dividend Achievers" and "Dividend Aristocrats", companies which have a habit of increasing dividends year after year, an indication that management is righteously protective of their dividend stream. [Didn't stop GE from from slashing it, but life happens, eh?] An example:
http://boards.fool.com/mr-goodbuy-jan-9-2011-29015458.aspx

After I come up with good dividend candidates, I pull a Value Line report on each of them. A quarterly on-line subscription is cheap, and contains a wealth of information all neatly packed into one page. It gives the Value Line ratings for "Timeliness", "Safety", and "Technical". Of particular importance is "Safety", obviously. You can get free ValueLine reports on the Dow 30, so print a couple to get familiar with them, assuming you're following so far:
http://www3.valueline.com/dow30/index.aspx

Finally, I use Mike Klein's [free] charts (originated from the BMW board, I believe).
http://invest.kleinnet.com/bmw1/stats16/index.html
The methodology seems complicated, but the theory is simple. People buy stocks of companies which are profitable. They pay more for companies which are more profitable, and if you chart the company's profits against the stock price, you will see that the general trend is that as a company becomes more profitable, the stock price increases too. But like the daily temperature reading, there are "wobbles" all over the place. In Summer the temperature gets generally warmer, but that doesn't mean that every day is warmer. Hence the wobbles in Mike's charts: sometimes stocks become "more popular" (like Apple, right now) and sometimes less popular (like, well BP after the oil spill.) If you can buy a company which is under the growth line - and can explain why and think it will come back - then that is a good stock to buy. Companies go through cycles. You want to catch them during a bad cycle, but make sure they're going to have a good one again. McDonald's went in the dumper a few years ago, then came back strongly.

The time to buy Apple was 5 years ago, probably not now. The time to buy gold was a few years ago. In a funny way, it's like Beanie Babies: there is a period of "too much popularity" followed by a period of "not much." You want to get stocks before they become "too popular", otherwise you are overpaying.

If you buy an overheated stock, even with a good dividend, you will make 5% on the dividend and lose 10% on the stock price: not such a good play. Obviously there are times when the lines don't mean anything: new companies (the shortest duration for Mike's charts is 17 years, and most are longer). Also companies in industries where things are rapidly changing. You didn't want to buy Kodak when digital photography was coming out, no matter how great their profits, because with a little thought you could see that they were going to get creamed. Likewise Barnes & Noble today (e-books), likewise the music companies, likewise, well, you get the idea. You have to apply your brain and common sense to the numbers, but after all of that you should come up with a selection of reasonable candidates.

Finally, I'll say there are "funds" called "ETFs" (Exchange Traded Funds) which act sort of like a mutual fund, except the costs are much much lower. They are basically a "basket" of stocks which mirror one particular segment depending on how they are structured. It could be "Chinese companies" or "drug companies" or "energy companies" or "foreign currencies" or even "dividend paying stocks" or whatever. That spreads the risk, but also includes some dogs, since the fund managers are not paid handsomely to buy lots of research. Some people swear by them. I don't, but maybe that's just me. Ask around about them.

Last, beware of your "costs." Going through a high-priced broker will severely crimp your returns. If you put $500 in and he takes $75 just to make the trade, you're a lot worse off then going with Schwab or Ameritrade or whoever at $9 a shot. Mutual funds have lots of fees, so read the prospectus carefully. They like to break them up and say "1%" but say it in 3 different places, so it's really 3%. Beware.

Time for you to bone up and do some studying. It's never too late, and you can't get a lot of experience quickly, but you can learn from folks here at the Fool. Good luck.
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I am very close to retirement. And have just started to invest.

---

These two terms don't exactly go hand in hand. Most people here define retirement as when one's assets, withdrawn at about a 4%/yr rate, will support our desired lifestyle for 30+ years.

If you think you're going to stop working in the near future, and haven't accumulated significant assets, I significantly doubt you'll be able to do that unless you have incredibly modest needs, a paid off house, and no family requirements.

Retirement nest eggs are a marathon that take decades to build, conventionally.

Recommend you find a fee-based financial planner using www.napfa.org and get some professional advice.
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Welcome Bob!

Although you have been registered since 2000, it appears this is you first post.

I would point out that as you review replies you get, please consider the 'rec count' that each reply gets. That is the fool communities way of saying "I agree with that".


Thanks,

Mark
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I've been tempted to buy some individual stocks. I only use cheap broad besed ETFs for my entire stock portfolio.

I suggest to goofyhoofy the following: use a super low-cost broad-based ETF (i.e. VTI or SCHB) as a "placemarker" for when you want to sell a stock but don't quite have the substitute buy in mind.

Right now, 3 of your sells could be sold now and replaced with VTI.

Remember, there are no called strikes in stock picking. Using VTI as "placemarker" will give you the disciple not to "swing" unless you are very confident you can hit your next pick out of the ball park.
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I am interested in starting with high-yield dividend funds. Since my needs for income is great.

Most "funds" have a cost of between 2-3% per year.


2-3% per year? Nice try. While estimates of averages vary, most funds do not charge 2-3% per year.

http://www.icifactbook.org/fb_sec5.html

http://mutualfunds.about.com/od/mutualfundglossary/g/expense...

http://www.ehow.com/list_6654817_average-mutual-fund-expense...
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2-3% per year? Nice try. While estimates of averages vary, most funds do not charge 2-3% per year.

Fair enough. I should have said most actively managed funds (you know, the kind the brokers like to sell) charge 2-3% per year. Some are higher. Heck, the Motley Fool fund has a gross fee of 2.30%, although they're subsidizing part of that fee until the end of February to entice people in.

I was thinking of the Morgan Stanley funds, Merrill Lynch funds, and other name funds which have high expense ratios. You can find lower cost funds, particularly index funds, but then you are still giving up return (in return for something: usually diversification and therefore safety.)

(I note your links talk about "expense ratios", but in my experience the fund managers often lard other costs on top of that: marketing fees, commission and so on. And even so-called "no-load" funds start you out with a large back-end load penalty if you withdraw early, so I can't really see how that can reasonably be called "no expense.")

A new study profiled in The Los Angeles Times shows that investors can lose up to half of their contributions to fees when they're in high-cost mutual funds.

Syndicated financial writer Kathy Kristof reports that a self-help portfolio management group called MarketRiders has found the typical investor who puts $4,000 annually into an IRA can lose 54 percent in fees alone each year.

The takeaway here is simple: Don't buy your investments through full-commission brokerage houses or an insurance agent.

http://www.clarkhoward.com/news/personal-finance-credit/inde...
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Goofyhoofy,

Lots of good advice. One other thing to mention is that your entire portfolio may drop 50% in value in a short period of time. Historically the market turns up the next year after a drop, but it may take several years to recoup the loss. And the market was down each year for three consecutive calendar years in the early 1970's, giving the exception to the historical precedent of a recovery commencing the next year after a drop.

I see that you do not have a fixed income aspect to your portfolio. But what is a safe "fixed income position" today other than low interest CDs and cash itself? I am wrestling with the problem of whether to buy more dividend stocks or hold on to the cash awaiting better interest rates or a buying opportunity (assuming I would recognize a buying opportunity if it bit me on the tush).

Pretty gutsy to reveal your positions, too. I wonder how your selections match up against the Motley Fool Income Investor portfolio, or SDY, the S&P 1500 Dividend Aristocrat ETF. Should be a close match to either.
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I see that you do not have a fixed income aspect to your portfolio. But what is a safe "fixed income position" today other than low interest CDs and cash itself?

Actually, I pretend that doesn't exist. You're right, I should have mentioned it. We have four years living expenses sitting in CD's, which aren't paying any interest at all. They are, however, FDIC, so that's why.

We have another two years in a bond fund, which isn't really a bond fund but a fund-of-bonds. (They don't trade, they merely buy bonds and use the coupons to fund redemptions. It's paying almost 5%, at the moment (with entirely high grade bonds). The payout keeps going down as older bonds mature and they are forced to buy newer ones. It's in a 401(k), and yes, if there were a sudden run they'd have to cut the payout, but so far at least (30 years) that's never happened. Having such a long time frame gives them the ability to purchase high quality long bonds at decent rates and then forget about them. In a declining interest environment (as we have been in for much of recent history, those locked-in rates are far better than I can find on the open market.))

I wonder how your selections match up against the Motley Fool Income Investor portfolio, or SDY, the S&P 1500 Dividend Aristocrat ETF. Should be a close match to either.

I have no idea. The portfolio is up about 10% since I bought it in early 2010 (coming out of cash where I dashed just before the big swoon), not including dividends, so it's probably more like 14% overall. I'd say that's about average, maybe a tad above or below. Dunno, really. I haven't paid that much attention. There's a reason for that: I'm not trying to "get rich." I'm trying to "stay rich". After years of spreadsheets and reading the back pages of company reports and doing all sorts of (boring) financial gymnastics, the reality is that we've retired. The portfolio (and other income sources) provide more than enough for our lifestyle, and I don't need to try to eke out every penny (nor do I need to check the price of eggs at the supermarket), so it's enough.

I wasn't posting that to say "This is the way to do it." I was saying "This is what I have done (recently), and maybe it will give somebody some suggestions on a way to think about it, too." There are lots of other options: low cost funds, ETF's, etc. none of which I use. And when I say "recently", that's because our investment style has changed several times across the years. In the 70's I got whacked a couple times on individual stocks. In the 80's it was mostly funds, and not particularly good ones, just what came easily through the 401(k) and a broker. In the 90's I became a momentum investor and profited nicely on the soaring valuations. And - luckily, I guess - got out in about 2000 before it all came back to earth. Now I'm into rock-solid, (mostly) long time well capitalized dividend payers, looking for income.

Anyway, that's the deal. I don't think posting my IRA portfolio is such a big deal. Other people do it on these boards, too. Here's one that a fellow puts up "for ridicule and comment" (but then tends to be dismissive of any ridicule or comments ;)
http://boards.fool.com/jeff8217s-portfolio-for-ridicule-comm...

In addition to the CD's and bond fund, I guess I should mention that we have an income producing property (rental condo), but what we do not have (and what an advisor told us we should have) is commodities (oil, wheat, gold, etc.) or more exposure to emerging markets. Those are for balance, as they are said to move opposite the markets. Doesn't seem to be true at the moment, but whatever....

Thanks for the comments.
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Goofyhoofy,

I like your methodology in putting together your portfolio. I have to admit that I am doing something similar with my investments. I have gone from one plan to another over the years, with few results worth bragging about. But thirty years compounding, even at low rates, has created a nice nest egg that, forestalling enormous medical expenses, will last my life span with something left over for the kids. I guess I just don't want to do something stupid by either making too risky investments or through leaving too much on the table by being too conservative.

I have enjoyed "talking" with you. Your 2010 investment returns are something to be proud of.
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2-3% per year? Nice try. While estimates of averages vary, most funds do not charge 2-3% per year.

Fair enough. I should have said most actively managed funds (you know, the kind the brokers like to sell) charge 2-3% per year. Some are higher. Heck, the Motley Fool fund has a gross fee of 2.30%, although they're subsidizing part of that fee until the end of February to entice people in.


It's even a huge exaggeration to say that most actively managed funds charge 2-3% per year.

(I note your links talk about "expense ratios", but in my experience the fund managers often lard other costs on top of that: marketing fees, commission and so on. And even so-called "no-load" funds start you out with a large back-end load penalty if you withdraw early, so I can't really see how that can reasonably be called "no expense.")

Yes, some funds carry loads, and some "no-load" funds have a back-end load penalty, but it's unusual. However, it is extremely common for annuities to carry surrender charges.

In any case, this has nothing to do with your claim.
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