The Second Step In Income Investing. In one of my previous posts, I listed several stocks that had passed my screen for income producing investments. At that time, I warned that this list was not a recommended list since it takes one more step to determine whether the investment is a suitable candidate. I have selected one of these investments to illustrate the evaluation process I use. The company I selected to demonstrate the process is Fidelity National Financial (FNF). The information given here comes from Yahoo Finance, which provides sufficient statistics to begin the evaluation process.
Step One. Overall View Of The Company Business. FNF is basically an insurance company. (Not to be confused with the company that provides mutual funds and asset management for investors.) By far their dominant insurance product is title insurance, which they market directly to the real estate industry and also through other title agencies who conduct the search, closing, and escrow function and receive the lion's share of the title insurance fees. The company has a good reputation in the real estate industry. In one of my past lives I owned a title insurance agency and did business with this company. The experience was positive. It does help to have some experience with a company your investing in but it is not required.
Step 2. Basic Financial Information. This information will give you an idea of the the relative size of the company and the average volume of shares traded on a daily basis. FNF has an overall market cap of 3.11 billion and an average of 2+ million shares per day are traded. This means that the company falls into the medium category in terms of size and a sufficient number of shares trade per day that it is unlikely that you would have any difficulty in liquidating your shares should you need access to your funds right away. This is an obvious advantage over a long-term CD or annuity which would cost you a substantial early surrender charge. Commissions for the sale of 1000 shares at a discount brokerage house could be as low as $7.00, virtually negligible compared to CD's or annuities.
Step 3. Some Important Statistics. These are things you should know about just about any company you buy. 1. Price/Earnings Ratio. (P/E). This company sells for 10.3 times earnings. A relatively low ratio. I believe this indicates that the company is not over-valued relative to its ability to produce revenue. 2. Price to sales ratio. The annual sales of this company are almost twice the market value with a price to sales ratio of .55. 3. Price to Book Value. The company sells for less than its net worth with a ratio of .9. All these ratios indicate that the company MAY be a bargain. These low ratios also indicate that the market opinion of the growth prospects for the company is low. This is pretty much to be expected since the company growth prospect is pretty much tied to the real estate industry which is disarray right now.
Step 4. Financial strength. In view of the dim prospects for the real estate industry, it is important to have some idea of the ability of the company to continue operating in an unfavorable environment. 1. Cash. The company has cash assets of almost $338 million as opposed to long and short term debt of $802 million. This combined with annual sales of 5.9 billion appears ample to fund dividend payout and operating expenses. 2. Debt to Equity Ratio. The total debt of the company divided by the shareholder equity is 23.2%. This is an indication of good overall financial health. 3. Current Ratio. This ratio is the ratio of short-term debt divided by short-term assets such as cash and other assets that can be liquidated easily to produce cash. This value is .39, Again relatively low for the industry. From these statistics you can determine that the company has the ability to sustain operations in a relatively hostile environment. If you believe that the current environment will stay the same or improve over the next 5 years, this is a relatively favorable situation.
Step 5. Dividend Sustainability. Since your objective is a stable income stream, this is the most important step in determining if the investment is right for you. The most important factor here is the payout ratio which is the dividends paid divided by the reported earnings. FNF has a ratio of 49%, a figure below 50% is relatively healthy and a figure above 100% indicates you might look for a dividend cut sooner rather than later. You might also look at the dividend growth history. Many investors believe this is more important than the current dividend yield; however, if you need income to pay the bills today, this isn't the case. FNF has a negative dividend growth rate. They cut it from $1.20 per share in 2007 to $.60 per share in 2008. This is a negative factor; however, the fact that they have already began to increase it again to the current level of $.72 is an indication that management believes they should have little trouble in maintaining it at that level. My opinion is that these factors are overall positive for the sustainability of the dividend.
Overall Opinion. This is a suitable investment for my portfolio. I believe they can maintain the current dividend. I also believe there is a potential for future price appreciation and dividend increases. All this will depend on a rebound in the real estate industry. I believe that will happen gradually even if the economy doesn't rebound a great deal. The fact that there are few properties being built means that the supply will eventually tighten resulting in an improvement in the supply demand ratio.
Caution. Remember, I said that this is a suitable investment for my portfolio, not yours. Just about any investment is suitable for some portfolios. Whether or not is suitable for yours depends on a number factors such as age, other assets you own, and your current cash flow situation.
Last Post of 2010. I have been writing this blog since 2006. More than 4 years. If you are one of my new readers, I might recommend you look at some of the older ones. You may find some ideas that benefit your financial situation. Would be glad to hear from you if you do. I plan to continue this blog through next year if my health holds out. Here is to a successful year for all of us.
Wednesday, December 29, 2010
Tuesday, December 21, 2010
A CHRISTMAS WISH, WRITTEN WITH SARAH TEAGUE
A Wish For My Friend. There are a lot of opinions about facebook. Most folks consider it a place devoted to superficial conversations. That was pretty much my opinion until I read a post by Sarah Nell Teague. It was well written and aroused my curiosity. I contacted her and, before long, I was made aware that she had an obsession that had dominated her life for more than 15 years. Before you jump to conclusions let me tell you what happened to Sarah.
Her First Born Daughter, Heather, Has Been Missing Since 1995. Picture yourself in that situation. You told your daughter goodbye on a hot summer day not knowing it would be the last time. Would you be willing to let go and get on with your life after a few days? A few months? A few years. Would you assume that she is dead and her body hasn't been found? Would you cling to the hope that some day she might turn up alive? How many scenarios could you imagine under which you might find her again either dead or alive? Would you feel guilty that perhaps you weren't protective enough? Did you put her at risk because of the people you brought into her life? Can you give up and try to get more out of your life without the daily torture of deciding what else you can do? I know my answer. I would be forced to do the same thing Sarah has done for the past 15 years. Stop a minute and think about it. What would you really do? If I do that, those thoughts quickly become way too hard to allow to continue.
A Few Facts. This post is about the present and the future and not about the facts surrounding Heather's disappearance. You need to know a quick summary to have a reasonable understanding. 1. A man has claimed to have witnessed Heather's abduction. 2. There are other reports that have resulted in identification of a suspect. 3. That suspect committed suicide when an attempt was made to arrest him. 4. After the suicide, few attempts were made to search the suspects property. 5. The suspect's wife took the fifth amendment when questioned about the case. 6. Over the years there have been several leads about the case, some of which reported that Heather is still alive. 7. Sarah has attempted to run down each lead with negative results. 8. The only person arrested and brought to trial has been Sarah (for harassing the suspect's wife and she was found not guilty). A note of caution. I have not thoroughly investigated these facts and some may not be 100% accurate.
My Christmas Wish. Here are some things I would like to see done. 1. I am not sure that the Kentucky State Police (KSP) has done all that can be done to determine exactly what happened to Heather. Perhaps a full time investigator could interview witnesses, talk to the suspect's wife and offer her immunity to testify so she couldn't claim she needed silence to avoid incrimination. 2. Heather's story needs to be told. I wish an investigative reporter would investigate the situation and arrange publication so that the story would receive much wider publicity ( I am not an investigator nor a journalist and don't have the skills to undertake such a venture. 3. The most important of my wishes is for Sarah to have a repreive from all the anxiety. It would be a great time to enjoy her devoted family and many friends. Think about the Christmas miracle and the beautiful world we live in. I will offer a prayer and beg everyone who reads this to do the same. You take a few days off, Sarah.
Here Is An Unedited Paragraph in Sarah's Own Words.
Another year without our Heather (written by Sara Teague)........How have we survived another year without knowing where our Heather is? I would say two things: by the grace of God,and like my grandmother used to say...'by the barely'. And God knows this is not contradictory. He knows how every day has been spent in prayer and in belief that 'today could be the day that Heather comes home'. He knows the heart ache and the tears that are daily also. He knows the 'someone that knows' the truth and He knows that someday every question I have asked of Him will be answered. Every one of them.I know that He chose me to be Heather's 'mommy'. I know that He also prepared me for this tragedy in many ways. It was on the third week of searching for my first born daughter, Heather Danyelle Teague, that I realized how much He loves me. Precious gifts in the form of three boxes were brought to me. On this day, I had climbed up an oil tank in search of Heather. Down below were a few searchers...some old friends, some new ones. As I climbed up this oil tank, I heard a familiar voice saying..'Heather is small enough that she could fit in that opening'...'Oil does preserve a body'....I envisioned before I opened that tiny lid that I would find Heather...her hair floating in this tank...I would have Heather back.She was not on the beach, in the woods, hurt, as I had hoped for days. Heather was not in that empty refrigerator. Heather was not in Illinois and she had not had an abortion. Heather had not been in the well that I almost fell in. And Heather had not been near that old grave...no...that 'thing' that looked like a finger, was not a bone at all. So...surely, this search would be over and Heather would be here. The 'me' that had been afraid of heights, went right up to the top of that oil tank. The 'me' that had been so afraid to find Heather....not alive...was praying for strength to just open this lid and to be able to look down. I remember being at the top of this oil tank and right before I opened it, it was as if the heavens opened up to me. I whispered, 'Help me, Lord'. And he did.Not only did he help me, he sent me gifts for my braveness. Under the full moon that night; I looked through boxes that had been delivered to me. I had just told the searchers/friends that we were 'playing hard ball'. ( Even by the third week, I knew something just wasn't right). Standing at the door, was a young man with Heather's ball glove in his hand.Oh, I had so longed for something of Heather's. I grabbed it and I thanked him. He said, 'You haven't seen anything yet. I have three boxes that were left in the attic where you used to live'. I asked everyone to leave me alone with these treasures. In these boxes were precious, precious gifts: one red and blue little shoe that Heather had worn on her first Christmas, some of her baby teeth, a dress that I had made with'HEATHER' in ricrac, ( I smiled as I thought to myself..'I actually let her wear this?'). In the bottom of one of the boxes was a journal that I had written to Heather when she was 23 months old. An entry dated August 25, 1974read, 'I am so afraid a big man will someday take my Heather away'.The reality of 'my reality' startled my very breath...On August 26,1995,when Heather was 23 years old, that is what we had just been told had happened. I felt God's love! I felt a strength and a purpose that God knew I needed. I knew that I had not only been chosen to be Heather's' mommy'; I had been chosen for this search also. Oh, how He loves us~So...today, 15 years and almost 4 months later...I am standing on His Word..Matthew 10:26, which says that there will be nothing hidden that won't be revealed.Every word in my vocabulary has been changed and rearranged. I have confidence in the progress of this search. I have many documents that have been revealed to me through the years. I have taped conversations that are so damaging to the story we were told that hot and blurry Saturday...And this I know: What we were told happened August 26, 1995 on Newburgh Beach in Spottsville, KY. is not what happened at all.
Her First Born Daughter, Heather, Has Been Missing Since 1995. Picture yourself in that situation. You told your daughter goodbye on a hot summer day not knowing it would be the last time. Would you be willing to let go and get on with your life after a few days? A few months? A few years. Would you assume that she is dead and her body hasn't been found? Would you cling to the hope that some day she might turn up alive? How many scenarios could you imagine under which you might find her again either dead or alive? Would you feel guilty that perhaps you weren't protective enough? Did you put her at risk because of the people you brought into her life? Can you give up and try to get more out of your life without the daily torture of deciding what else you can do? I know my answer. I would be forced to do the same thing Sarah has done for the past 15 years. Stop a minute and think about it. What would you really do? If I do that, those thoughts quickly become way too hard to allow to continue.
A Few Facts. This post is about the present and the future and not about the facts surrounding Heather's disappearance. You need to know a quick summary to have a reasonable understanding. 1. A man has claimed to have witnessed Heather's abduction. 2. There are other reports that have resulted in identification of a suspect. 3. That suspect committed suicide when an attempt was made to arrest him. 4. After the suicide, few attempts were made to search the suspects property. 5. The suspect's wife took the fifth amendment when questioned about the case. 6. Over the years there have been several leads about the case, some of which reported that Heather is still alive. 7. Sarah has attempted to run down each lead with negative results. 8. The only person arrested and brought to trial has been Sarah (for harassing the suspect's wife and she was found not guilty). A note of caution. I have not thoroughly investigated these facts and some may not be 100% accurate.
My Christmas Wish. Here are some things I would like to see done. 1. I am not sure that the Kentucky State Police (KSP) has done all that can be done to determine exactly what happened to Heather. Perhaps a full time investigator could interview witnesses, talk to the suspect's wife and offer her immunity to testify so she couldn't claim she needed silence to avoid incrimination. 2. Heather's story needs to be told. I wish an investigative reporter would investigate the situation and arrange publication so that the story would receive much wider publicity ( I am not an investigator nor a journalist and don't have the skills to undertake such a venture. 3. The most important of my wishes is for Sarah to have a repreive from all the anxiety. It would be a great time to enjoy her devoted family and many friends. Think about the Christmas miracle and the beautiful world we live in. I will offer a prayer and beg everyone who reads this to do the same. You take a few days off, Sarah.
Here Is An Unedited Paragraph in Sarah's Own Words.
Another year without our Heather (written by Sara Teague)........How have we survived another year without knowing where our Heather is? I would say two things: by the grace of God,and like my grandmother used to say...'by the barely'. And God knows this is not contradictory. He knows how every day has been spent in prayer and in belief that 'today could be the day that Heather comes home'. He knows the heart ache and the tears that are daily also. He knows the 'someone that knows' the truth and He knows that someday every question I have asked of Him will be answered. Every one of them.I know that He chose me to be Heather's 'mommy'. I know that He also prepared me for this tragedy in many ways. It was on the third week of searching for my first born daughter, Heather Danyelle Teague, that I realized how much He loves me. Precious gifts in the form of three boxes were brought to me. On this day, I had climbed up an oil tank in search of Heather. Down below were a few searchers...some old friends, some new ones. As I climbed up this oil tank, I heard a familiar voice saying..'Heather is small enough that she could fit in that opening'...'Oil does preserve a body'....I envisioned before I opened that tiny lid that I would find Heather...her hair floating in this tank...I would have Heather back.She was not on the beach, in the woods, hurt, as I had hoped for days. Heather was not in that empty refrigerator. Heather was not in Illinois and she had not had an abortion. Heather had not been in the well that I almost fell in. And Heather had not been near that old grave...no...that 'thing' that looked like a finger, was not a bone at all. So...surely, this search would be over and Heather would be here. The 'me' that had been afraid of heights, went right up to the top of that oil tank. The 'me' that had been so afraid to find Heather....not alive...was praying for strength to just open this lid and to be able to look down. I remember being at the top of this oil tank and right before I opened it, it was as if the heavens opened up to me. I whispered, 'Help me, Lord'. And he did.Not only did he help me, he sent me gifts for my braveness. Under the full moon that night; I looked through boxes that had been delivered to me. I had just told the searchers/friends that we were 'playing hard ball'. ( Even by the third week, I knew something just wasn't right). Standing at the door, was a young man with Heather's ball glove in his hand.Oh, I had so longed for something of Heather's. I grabbed it and I thanked him. He said, 'You haven't seen anything yet. I have three boxes that were left in the attic where you used to live'. I asked everyone to leave me alone with these treasures. In these boxes were precious, precious gifts: one red and blue little shoe that Heather had worn on her first Christmas, some of her baby teeth, a dress that I had made with'HEATHER' in ricrac, ( I smiled as I thought to myself..'I actually let her wear this?'). In the bottom of one of the boxes was a journal that I had written to Heather when she was 23 months old. An entry dated August 25, 1974read, 'I am so afraid a big man will someday take my Heather away'.The reality of 'my reality' startled my very breath...On August 26,1995,when Heather was 23 years old, that is what we had just been told had happened. I felt God's love! I felt a strength and a purpose that God knew I needed. I knew that I had not only been chosen to be Heather's' mommy'; I had been chosen for this search also. Oh, how He loves us~So...today, 15 years and almost 4 months later...I am standing on His Word..Matthew 10:26, which says that there will be nothing hidden that won't be revealed.Every word in my vocabulary has been changed and rearranged. I have confidence in the progress of this search. I have many documents that have been revealed to me through the years. I have taped conversations that are so damaging to the story we were told that hot and blurry Saturday...And this I know: What we were told happened August 26, 1995 on Newburgh Beach in Spottsville, KY. is not what happened at all.
Sunday, December 19, 2010
SAMPLE INCOME PORTFOLIO.
Sorry I Missed Last Week's Post. Trying to tie up loose ends and traveling from Colorado to Texas kept me relatively busy last week so I missed that post. I will post at least once more before Christmas and another before January 1 to wind up the year.
Investing For Income A few weeks ago I blogged about the difficulty of trying to eliminate all risk from your investment portfolio. I talked about a couple with a modest $200,000 portfolio who had confined their investment activity to certificates of deposit and how their income from those CD's had dropped from $20,000 per year to virtually zero over a 20 year span. At this point they are often forced to withdraw principal in order to survive. This means they are in danger of running out of money before they run out of life. This is one of the reasons why the 65-70 age group is the fastest growing bankruptcy group in the country. I promised you that I would soon post a sample portfolio that produced spendable income without excessive risk. To produce this sample portfolio, I used the screener provided by the organization I use to buy stocks for my own portfolio (Options Express). There are numerous others since virtually all online companies have a program for screening stocks. I entered the following perameters. 1. Dividend yield, at least 4%. 2. Daily Sales Volume, at least 250,000. 3. Price/Earnings Ratio, Not to exceed 20. The search returned 65 companies. From this list I selected 10 properties. They are listed as follows in no particular order:
1. Ameron Corporation (AEE). A utility company selling at 28.55 paying 1.54/year dividend. 600 shares would cost $17130 and pay a dividend of $924 per year.
2. Bristol Myers Squibb (BMY). A well known drug company, selling at 26.26 and paying 1.28. 700 shares would cost $18380 and pay $896 per year.
3. Duke Energy (DUK). A well-known utility company selling at 17.54 per share and paying .98 per share 1100 shares would cost $19300 and pay $1098 per year.
4. Lockheed Martin Company (LMT). A company that makes aircraft and defense items. It sells at 68.22 per share and pays a $3.00 dividend. 300 Shares would cost $20460 and pay $900 per year.
5, Medical Properties Trust (MPW). A company investing in properties for lease to the medical industry. It sells at 10.12 per share and pays .8 dividend. 2000 shares would cost $20240 and pay $1600 dividend.
6. AT&T (T). A very well known company in the communications industry. it costs 29.21 and pays 1.68 dividend. 600 shares would cost $17526 and pay a dividend of $1176.
7. Health Care Properties (HCP) A company that invests in nursing homes, assisted living centers, rehabilitation centers and conventional medical use properties. It sells for 32.52 and pays a dividend of 1.86. 600 shares would cost $19512 and produce income of $1116.
8. Kinder Morgan Energy Partners (KMP) A company that owns pipelines for the transportation of petroleum and natural gas properties. It sells for 69.25 per share and pays a dividend of 4.44. 300 shares would cost $20,775 and produce income of $1332.
9, Fidelity National Financial (FNF). A title insurance company operating nation wide. It sells for 13.98 and produces a dividend of .72. 1400 shares would cost $19,570 and produce income of $1008.
10. Windstream Corp. A wireless communications corporation selling for 14.14 per share and paying a dividend of 1.00 per share. 1900 shares would cost $26860 and produce income of $1900 per year.
Summary: The total investment would be $199,755 and the income would be $11950. This portfolio has the following advantages: 1. A much higher income than a bank CD or an annuity. 2. You can sell all or a fraction and have your money in 4 days with no penalty or surrender charge like a CD or annuity. 3. Often these companies may increase the dividend so there is upside in the income. 4. Potential for increase in share prices. 5. A preferential tax rate on income and capital gains. There are disadvantages such as 1. Potential for losses if you have to sell at a time when prices are low. 2. Dividends are subject to elimination or reduction if the company does poorly. 3. You need to check on prices, earnings, and company news at least twice a month.
A Word of Caution. This represents a cursory evaluation. In order to select one of these stocks for my portfolio or one of my clients, I would need to spend 20 to 30 minutes finding out more about the company including factors like book value, earnings, potential for earnings growth, cash flow, and growth trends. Perhaps I can do a later post to describe the due diligence process in selecting a company for investment. I will continue to monitor this portfolio on a monthly basis and report the results. At the end of the year, we can compare portfolio performance to the overall market, CD, and annuity returns. Should prove interesting.
Investing For Income A few weeks ago I blogged about the difficulty of trying to eliminate all risk from your investment portfolio. I talked about a couple with a modest $200,000 portfolio who had confined their investment activity to certificates of deposit and how their income from those CD's had dropped from $20,000 per year to virtually zero over a 20 year span. At this point they are often forced to withdraw principal in order to survive. This means they are in danger of running out of money before they run out of life. This is one of the reasons why the 65-70 age group is the fastest growing bankruptcy group in the country. I promised you that I would soon post a sample portfolio that produced spendable income without excessive risk. To produce this sample portfolio, I used the screener provided by the organization I use to buy stocks for my own portfolio (Options Express). There are numerous others since virtually all online companies have a program for screening stocks. I entered the following perameters. 1. Dividend yield, at least 4%. 2. Daily Sales Volume, at least 250,000. 3. Price/Earnings Ratio, Not to exceed 20. The search returned 65 companies. From this list I selected 10 properties. They are listed as follows in no particular order:
1. Ameron Corporation (AEE). A utility company selling at 28.55 paying 1.54/year dividend. 600 shares would cost $17130 and pay a dividend of $924 per year.
2. Bristol Myers Squibb (BMY). A well known drug company, selling at 26.26 and paying 1.28. 700 shares would cost $18380 and pay $896 per year.
3. Duke Energy (DUK). A well-known utility company selling at 17.54 per share and paying .98 per share 1100 shares would cost $19300 and pay $1098 per year.
4. Lockheed Martin Company (LMT). A company that makes aircraft and defense items. It sells at 68.22 per share and pays a $3.00 dividend. 300 Shares would cost $20460 and pay $900 per year.
5, Medical Properties Trust (MPW). A company investing in properties for lease to the medical industry. It sells at 10.12 per share and pays .8 dividend. 2000 shares would cost $20240 and pay $1600 dividend.
6. AT&T (T). A very well known company in the communications industry. it costs 29.21 and pays 1.68 dividend. 600 shares would cost $17526 and pay a dividend of $1176.
7. Health Care Properties (HCP) A company that invests in nursing homes, assisted living centers, rehabilitation centers and conventional medical use properties. It sells for 32.52 and pays a dividend of 1.86. 600 shares would cost $19512 and produce income of $1116.
8. Kinder Morgan Energy Partners (KMP) A company that owns pipelines for the transportation of petroleum and natural gas properties. It sells for 69.25 per share and pays a dividend of 4.44. 300 shares would cost $20,775 and produce income of $1332.
9, Fidelity National Financial (FNF). A title insurance company operating nation wide. It sells for 13.98 and produces a dividend of .72. 1400 shares would cost $19,570 and produce income of $1008.
10. Windstream Corp. A wireless communications corporation selling for 14.14 per share and paying a dividend of 1.00 per share. 1900 shares would cost $26860 and produce income of $1900 per year.
Summary: The total investment would be $199,755 and the income would be $11950. This portfolio has the following advantages: 1. A much higher income than a bank CD or an annuity. 2. You can sell all or a fraction and have your money in 4 days with no penalty or surrender charge like a CD or annuity. 3. Often these companies may increase the dividend so there is upside in the income. 4. Potential for increase in share prices. 5. A preferential tax rate on income and capital gains. There are disadvantages such as 1. Potential for losses if you have to sell at a time when prices are low. 2. Dividends are subject to elimination or reduction if the company does poorly. 3. You need to check on prices, earnings, and company news at least twice a month.
A Word of Caution. This represents a cursory evaluation. In order to select one of these stocks for my portfolio or one of my clients, I would need to spend 20 to 30 minutes finding out more about the company including factors like book value, earnings, potential for earnings growth, cash flow, and growth trends. Perhaps I can do a later post to describe the due diligence process in selecting a company for investment. I will continue to monitor this portfolio on a monthly basis and report the results. At the end of the year, we can compare portfolio performance to the overall market, CD, and annuity returns. Should prove interesting.
Sunday, December 05, 2010
SENIOR CITIZEN BANKRUPTCY.
An Alarming Situation. Our elders (Omigod that includes me) are filing bankruptcy at an alarming rate. I recently announced this via a facebook post but I have continued to think about it since. Large credit card bills, prescription drug costs, uninsured medical expenses, increasing energy costs, and trying to support children who have not yet learned to care for themselves are among the most common reasons. The magnitude of this problem is illustrated by the fact that bankruptcy filings for those under the age of 55 has steadily dropped over the years but it has steadily risen for those over 55. Bankruptcy for those in the 75-84 bracket has risen over 400% since 1991. One bankruptcy attorney I talked to told me that he seldom had a client over 65 when he started his practice 30 years ago, now they represent the majority of his practice with his oldest client being over 90.
Failure To Plan? The old cliche says that most people don't plan to fail. Instead they fail to plan. My experience is that many seniors are in serious financial condition despite the fact that they have been very conservative in their planning. In fact, those who have insisted on low risk investments are often in the most serious condition of all. In 1989, it was possible to invest $200,000 6-month certificates of deposits and receive 10.4% interest or $20,800 a year. While this isn't a lot, when combined with $12,000 or so a year in social security, frugal retirees could live rather well on this amount. In 2000, it was still possible to get 6.9% or $13,800 per year. Combining this with cost of living adjusted social security left the frugal retiree in reasonable shape with a minimal amount of belt tightening. Even as late as 2006, it was possible to get 5.5%. This has continued to drop until the present time, it is difficult to get 1% without extending maturity out to unreasonable levels. The only remaining alternative that most conservative investors have is invasion of principal.
Credit Card Debt. The fact that that most seniors filing bankruptcy list credit card debt in excess of $20,000 is often cited as evidence of irresponsible consumption. This may be true in some cases; however, it is often the result of using credit cards to cover living expenses during difficult times. Prescription drug costs are becoming an ever increasing expense for many seniors. Social security drug benefits provide some relief but many enter the so-called doughnut hole, in which no benefit is available, early in the year. It is not unusual for two seniors covered by medicare part D to spend more than $8,500 in a given year for uncovered expenses. Rather than go without much needed drugs, many are forced to use credit cards to cover that expense. As credit card debt piles up, the next step is to delay payment on necessary expenses such as utilities and telephone. These pile up until there is an imminent danger of shut off.
Management of Post-Retirement Finances. One of the first things financial advisers learn in the education process is reduction of investment risk through diversification. Unfortunately, most diversification techniques involve diversification of assets. This is important but not as important as diversification of income. The key issue for those nearing retirement is how to replace income from full time employment with income from other sources. If we have several sources of income we are less vulnerable to abrupt reduction in income from a single source. Those considering retirement, either voluntary or involuntary, within the next 5 years should begin income planning sooner rather than later.
How Do You Diversify Your Income Sources? In my next post, I'll give you an example of a $200,000 portfolio structured for the production of income from several different sources. Some of these may surprise you.
Failure To Plan? The old cliche says that most people don't plan to fail. Instead they fail to plan. My experience is that many seniors are in serious financial condition despite the fact that they have been very conservative in their planning. In fact, those who have insisted on low risk investments are often in the most serious condition of all. In 1989, it was possible to invest $200,000 6-month certificates of deposits and receive 10.4% interest or $20,800 a year. While this isn't a lot, when combined with $12,000 or so a year in social security, frugal retirees could live rather well on this amount. In 2000, it was still possible to get 6.9% or $13,800 per year. Combining this with cost of living adjusted social security left the frugal retiree in reasonable shape with a minimal amount of belt tightening. Even as late as 2006, it was possible to get 5.5%. This has continued to drop until the present time, it is difficult to get 1% without extending maturity out to unreasonable levels. The only remaining alternative that most conservative investors have is invasion of principal.
Credit Card Debt. The fact that that most seniors filing bankruptcy list credit card debt in excess of $20,000 is often cited as evidence of irresponsible consumption. This may be true in some cases; however, it is often the result of using credit cards to cover living expenses during difficult times. Prescription drug costs are becoming an ever increasing expense for many seniors. Social security drug benefits provide some relief but many enter the so-called doughnut hole, in which no benefit is available, early in the year. It is not unusual for two seniors covered by medicare part D to spend more than $8,500 in a given year for uncovered expenses. Rather than go without much needed drugs, many are forced to use credit cards to cover that expense. As credit card debt piles up, the next step is to delay payment on necessary expenses such as utilities and telephone. These pile up until there is an imminent danger of shut off.
Management of Post-Retirement Finances. One of the first things financial advisers learn in the education process is reduction of investment risk through diversification. Unfortunately, most diversification techniques involve diversification of assets. This is important but not as important as diversification of income. The key issue for those nearing retirement is how to replace income from full time employment with income from other sources. If we have several sources of income we are less vulnerable to abrupt reduction in income from a single source. Those considering retirement, either voluntary or involuntary, within the next 5 years should begin income planning sooner rather than later.
How Do You Diversify Your Income Sources? In my next post, I'll give you an example of a $200,000 portfolio structured for the production of income from several different sources. Some of these may surprise you.
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