Sunday, October 3, 2010

Where my "nest egg" is going. I like stocks.

"Do you want a sugar-free frappucino with caramel?"

"Yes," I said with confidence. "No whip."
Multiple choices on the Starbucks' reader board could have plunged me into the chaotic complexity of indecision. You've got to have the lingo down before you step to that counter.
My "smart phone" with its little screen gives me the same complexity: voice mail, e-mail, the Internet with instant updates, a camera, GPS services, apps (applications) for viewing night-time constellations and, oh yes, a telephone most everywhere I go. Modern life is complicated. Right now, I'm a Facebook dropout. But I'm hanging in there with Twitter. With the whining out of the way, let's talk about my mission over the past several months to invest my retirement nest egg. It's the money I've saved up in a 401(k) over 26 years of full-time work. After an early retirement, I've moved ahead with my plan to shift from wealth accumulation to budgeting for retirement without full-time work, I've been rather petrified about blowing it.
It just takes time
Like everything else, the research and learning process just takes time. Over the past several months, I've spoken with investment advisers, personal friends, a banker or two and one young woman with one of the largest national investment brokerage and investment firms. After lots of questions and answers, I am on the verge of moving my money out of my employer's 401(k) plan to a new account where my choices are greater and the management fees appear to be less costly.
Here's what I know.
- I have a long horizon. My mother is 95 and only now seems to be slowing down.
- My risk tolerance is somewhere in the middle. I like a good return better than the inflation rate but I want to see a long-term successful track record before I put my money on the line.
- I like stocks and have bought and sold stocks for most of my life. (My mother's good training).
- I don't trust brokers who are motivated by commissions.
- I don't understand annuities and believe that if you don't understand something, you don't buy it.
- Emotion is something that all investors must fight against. I've learned that the hard way.
- I have enough money to retire. For a long time I really worried that I'd not saved enough. Now I truly believe that if I'm careful, my money will last as long as I need it. Yes, I could have and should have saved more. I wonder how many women I know will make it in retirement.
So what am I going to do? I'm sticking with equities.
In late 2010 with markets well into a recovery, with interest rates at historic lows and the global economy showing promise, my view is that individual stocks and stock index funds are where to be. I'm going to avoid bonds because if interest rates do go up (and they will) bond fund values will drop. I'm not ready to deal with that. Besides bonds are boring.
The transition starts tomorrow
So beginning tomorrow, I'm launching the transition from saver to retiree. That's someone who lives on the income from a life time of savings. What's my mix? Some combination of a Standard &Poor's 500 stock index fund with an annual management fee of 0.5 percent and a selection of high-quality individual stocks that pay a good dividend. Yes, I pay a fee to buy them, but that's it.
According to an article in Friday's Wall Street Journal, there are plenty of them including Johnson&Johnson with a 3.3 percent return, Microsoft, 2.6 percent, Exxon, 2.8 percent and ADP, 3.2 percent.
WSJ writer Dave Kansas also mentions these: AT&T with a 6 percent return; Southern Co., 4.9 percent, Merck, 4.1 percent and Altria, 6.3 percent.
My work as a business news journalist and finance columnist has given me a nearly daily opportunity to think about investing and understand markets and the economy. My mother's investment success also offers me a path forward, although I won't have it as easy. So what's the lesson.
Embrace retirement planning as a learning project. No one cares more about your money than you do. Ask questions about anything and everything. Also ask how much something will cost. Keep it simple. Don't buy something or invest in something that you don't understand. Brokerage firms want your money and your business so they don't particularly want you to feel confident about doing it yourself. But guess what, you can! Even if I make mistakes, I'd rather have them be my own mistakes.
It's a bit like ordering at Starbucks -- somewhat complicated unless you know the lingo and have studied the reader board in advance.

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