Market Place Blinders

January 5, 2015

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My bride and I are basically retired and living off a combination of income streams. We both have small pensions and collect social security. Since we have no major debts, we could probably make do on that.

However, we both saved in company sponsored 401K programs while we were working and did some other investing as well. The dividends of those savings are adding to our retirement income and providing the money we need to continue to live more comfortably. We can buy gifts for our children and grandchildren and we can travel. We’re far from living in the lap of luxury, but we have enough. (More people should learn to be happy with ‘enough’!)

Our investment plan has been fairly simple. We bought stocks, bonds, and mutual funds that all pay quarterly dividends. Until we fully retired, we let the money grow through dividend re-investment programs. From a psychological standpoint, it made following the market rather interesting. It’s always comforting to see the value of your investments going up. But, come quarterly dividend time, it’s fun to see the value go down – that means your re-investment will result in a greater number of new shares. Thus, your next dividend payment will be that much larger!

We continued to let things grow until we no longer had regular paychecks. Then we quit the re-investment programs and now have the dividends automatically deposited in our bank account. So far, it is working great! And that bothered me.

It bothered me because none of the experts I follow, nor the publications I read, recommend doing such a thing. In fact, while they are saying that bonds are not a good investment at this time, people our age should be moving more of our assets into bonds. Go figure! They have all sorts of fancy formulas, but none of them make sense. Why should I put 50 to 60% of our retirement nest egg into something that the experts are saying to avoid?

I read an article this morning in Money Magazine. It was talking about the problems of going after high-yield (translate that into dividend paying) stocks. Their take was that as the price of the stock went up, the yield (translate that as the amount of the dividend payment as a percentage of the price of the stock) went down – unless the company increased the amount of the dividend.

For example, let’s say you buy 100 shares of Jim’s Journeys for $100 per share and I pay you $5.00 per share per year in dividends. The yield is 5%. Now, if everyone wants a piece of the action and the price of my stock doubles to $200 per share and I continue to pay the measly $5.00 dividend, the yield is now a mere 2.5%. On the other hand, if the market dives (through no fault of my blog) and my share price dips to $50 per share, your yield is now a whopping 10%.

Thus, looking through the “Market Place Blinders” unless you buy the shares at $50, it may not be a good deal. But the financial planners and experts fail to see it any other way. They only see values at the time of the transaction. If you are not currently buying or selling, they are not paying much attention. Yields, to them, are nothing more than the percentage of the selling price.

In truth, I can’t tell you how much we paid for individual shares along the way. I really don’t care. The only thing that concerns me is the size of the quarterly checks.

So, if I was your financial adviser, I’d tell you to do what I did. Spend a month examining every company that pays dividends. The questions I asked were: How much do they pay per share? Has that amount increased over the years? What sort of business are they in? (I avoided any company that did not manufacture something. Mortgage companies, banks, and holding companies all pay handsome dividends, but they’re the companies that had to be bailed out and were saved only because they were “too big to fail”.)

As to our dividend income payments, my only regret is not taking advantage of this methodology sooner in my life. I watched our nest egg grow for about ten years before we began to reap the benefits. Had I begun the process much earlier, the nest egg would have grown more substantial and we would now be living in the lap of luxury. But then again, we’re more than happy with enough.

Hopefully the time it took me to write this article will pay dividends for the person who takes the time to read it.

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Preparing for Another of Life’s Milestones

May 14, 2013

In a few months, my bride will retire from her job and I will change my status from “semi-retired” to “fully retired.” In the past I’ve written about “Rites of Passage” and this is one for which we’ve been preparing for many years, but it’s a bit more frightening than all the previous stages of my life.

In the first place, there are the retirement savings accounts. My oldest account was started more than thirty years ago. It saw me though a long period of unemployment when I had to borrow from it to pay my bills. I’ve managed to repay those loans and add to it. But in a few months, I will stop adding to it and, (GASP!) begin withdrawing from it.

At the same time, we will transfer my bride’s 401K to a dividend paying mutual fund and virtually end the growth of that account. Hopefully, the dividends we collect from our retirement accounts will supplement our Social Security payments so we won’t have to move in with our kids… for at least a little while.

Many people who retire, do little more than sit in front of the TV and wait for the final curtain. I doubt if my bride could ever do such a thing, which means she won’t let me do it either. That’s one of the reasons we bought our new toys.

Our new travel trailer.

Our new travel trailer.

Our new tow vehicle

Our new tow vehicle

Some retirees go out and buy a two seater sports car and drive off into the sunset – stopping at fancy hotels along the way. Lu and I prefer to travel more frugally, and also hope to be able to take a few grandkids along with us to some of our as-yet-to-be-planned destinations.

To give those grandkids and their parents something to think about… our potential destinations include Tybee Island, Georgia, various parts of Florida, Ohio, Pennsylvania, Yellowstone National Park, Illinois, Colorado, Oregon, Washington, New Jersey, Texas, and a number of Canadian provinces.

In 1984, I dragged my first wife and our four children on a cross-country camping trip. That was done with a pop-up camping trailer and an 8-passenger van. We saved a lot of money by staying at camp grounds, but strained a lot of relationships by having to deal with a daily allotment of chores, dirt, flat tires, dead batteries, lost pieces of the trailer, and spartan meals. I think I’m the only one who absolutely loved the adventure, but, then again, it was my idea. I had to love it!

That 1984 trip was carefully planned almost down to the number of miles to be driven each day.

Now, we’re looking at a trip that has no definite destination and no detailed advanced planning. However, technology has advanced significantly over the last 29 years. We now have cell phones, GPS navigators, Wi-Fi computers, and 29 years of experience in the art of living. We also have a better financial picture and hope to keep that improved picture by keeping our travel expenses as low as possible.

Some of my readers may take that last statement to mean “We’re coming to visit you and expect you to house and feed us for some period of time.” I promise you that we won’t stay long. So don’t worry.

In 1984, I had to estimate how many bills would be delivered in our absence, and how much we would owe. I paid most of the bills in advance and wound up with credit balances on most of them. Today I can review my bills on line and pay most of them by simply making a few keystrokes on the computer. Hopefully, our bank account will not run out on us.

Needless to say, even with all the advancements in technology, our additional knowledge and wisdom that comes with age, and all the other assets in our possession, our future remains a vast unknown and leaving home is a somewhat scary proposition.

Fortunately, we have family, friends, and neighbors who we can count on to drive by the homestead from time to time to let us know that things are OK, but I’d hate to be in Timbuktu when we learn that a tree has fallen on the house. Perhaps that is why many RVers sell their homes and take to the road on a permanent basis.

Perhaps that will be our next significant rite of passage.


It Beats the Alternative – I Think!

April 23, 2009

My father finally retired when he was sixty-nine years old. He was able to collect Social Security, but there was no such thing as Medicare in 1960. Of course, medical costs were far smaller back then, so it wasn’t really a problem.

The reason I mention this is because I am fast approaching the age of sixty-five, and it would be impossible for me to overlook that magic number. For the last month I’ve been bombarded with offers to buy supplemental policies. Naturally, every one of them has a deal that is better than any other.

And that leaves me wondering where I can get true unbiased advice. To be honest, I don’t even know if I can trust some government employee to steer me in the right direction.

If I’d received all sorts of mailings prior to my twenty-first birthday and had to make a decision based on that age, I wouldn’t have thought twice about asking Uncle Sam. Now that I’m a lot older and have seen enough to make me distrustful of bureaucrats, I find myself in a dilemma.

There are two reasons I distrust government employees. In the first place, many of them are ill trained for the job they are supposed to be doing. We’ve all heard the horror stories about the inept IRS employees – call twice with the same question, talk to two different employees, get two completely different answers.

Secondly, considering how many times we hear about dishonesty, how can I be sure the bureaucrat I’m talking with isn’t getting kick backs from some fly-by-night insurance company that he or she highly recommends?

As for AARP, the group that claims to be looking out for us, it seems that they have sold out to the highest bidder. The only insurance company that carries their seal of approval is the same company rated lowest for claim processing.

I think they need to quit lending their name to any company willing to buy that name, quit glamorizing the youthful appearances of celebrities in their magazine, quit trying to get the government to pay for everything – it is our tax dollars the government is spending – and recognize that not all retirees can afford the homes and vacations they think we should be taking with our grandchildren.

With few other options remaining, this morning I decided to learn some things on my own. I went to medicare.gov and downloaded their ‘convenient’ handbook. It is one hundred twenty-eight pages long. I’ve read about a third of it and still have no idea what it is all about.

Getting old is not pretty, and our government doesn’t make it any easier. We’ve all heard that getting old beats the alternative – dying young – but sometimes I’m not so sure. If dying means I can go to heaven and never have another health problem and never have to decide which insurance plan to purchase, that might not be so bad.

However, as long as I have a shadow of doubt in the back of my mind, I’ll stick it out here for as long as I can.

Now, if you’ll excuse me, I’m going back to studying about plans A, B, C, and D. I hope there are no more than that.


Doom and Gloom

April 3, 2009

I didn’t vote for Obama. Had there been a decent alternative, I wouldn’t have voted for McCain either. To my way of thinking, most of our politicians are liars and crooks… regardless of their political affiliation.

They are supposed to represent the people who elect them. However, their number one priority is to get re-elected. That means the congressperson who is serving a two year term is basically spending the bulk of that time campaigning rather than trying to do what is right for our nation.

The next priority is to represent their party. If a Democrat introduces legislation, the Republicans will fight it… without taking the time to read and understand it. The same is true in reverse; a Republican bill will be resisted by the Democrats. Case in point – the Fair Tax which would eliminate many of the fiscal problems being faced today.

The third priority of our elected officials is kowtowing to the special interest groups who make huge donations to their re-election campaigns.

Sometimes, if it doesn’t conflict with their first three priorities, they’ll step in and do something for the taxpayers who elected them.

If any of them knew how to earn an honest living, they would not be in politics. There is much more money to be made in private business.

No, wait, I’m wrong. If that were the case, a representative to congress could never afford multiple million dollar homes. Somehow, a politician can use millions of dollars of other people’s money to get a job that pays less than $200,000 per year and live like Bill Gates. Go figure!

On the surface, our newly elected President is leading our nation into deficit spending beyond anything he complained about during the campaign, and the only public outcry is from the conservative talk shows. Why are the Republicans saying so little?

Personally, I think they are being careful not to say or do anything that might stop them from being re-elected. If Obama and the Democrats are right and their spending plans (including the earmarks that Obama promised to stop) succeed, anyone who loudly objected would have problems at the voting booth.

Perhaps it’s better to let things go. If the plan works, the Republicans can claim part of the credit. If it fails, they’ll blast the Democrats and claim they tried to stop it but were steamrollered by the party in power.

In other words, they have no better solution and they’re afraid to speak up.

What we need is a “Do nothing” government. Let these things work themselves out. It might hurt in the short term, but taxpayer money won’t be sucked down the drain with the rest of the corporate losses.

By the way, how can anyone hope to run a successful business by paying millions of dollars to get employees to stay with the company – even when those employees are so inept that the company is losing millions of dollars a day?

When I was with IBM, if a salesman lost an account, he or she had to repay the commission that was paid for the original sale. If AIG had been using that method of compensation, I’d bet I wouldn’t have anything to talk about today.

To be honest, I’d rather not use this space to discuss political issues, but after watching much of my retirement savings melt away and seeing no relief in sight, I had to speak my mind.

One final note. I recently received an email suggesting a solution to our problems that would cost the tax payers a lot less money.

The person who created the plan states that there are 40 million Americans over the age of fifty. The plan calls for each of those 40 million people to be given one million dollars.

Those older Americans would then be expected to quit their jobs (eliminating the unemployment problem), buy a new car (saving the auto industry), and either pay off their mortgage or pay cash for a new home (fixing the banking problem).

On the surface, it sounds great. However, the math doesn’t work. If there truly are 40 million Americans in that age group, a million dollars each would equate to 40 trillion dollars.

Oh well, I guess my full retirement will have to wait.