Monday, October 10, 2011

One year later: How has my rollover IRA performed? Not bad, considering

A year ago I reinvested my 401(k) nest egg out of my employer-based plan into a self-directed Rollover Individual Retirement Account when I went from full-time wage earner to semi-retirement. Those of you who read this blog, know that my investment strategy is heavily weighted to dividend-paying U.S. based blue chips. I've made those investment decisions based on my faith in American capitalism and the strength of American corporations, nimble enough to stay ahead of the competition, foreign and domestic. It is time for an annual review. What was my over all performance in the past year. Who were my winners and losers?
First let me explain that I merged two 401(k) money accumulated over 26 years of full-time work in the newspaper business and a separate Individual Retirement Account. Both chunks of money went into a new self-directed rollover IRA at Fidelity Investments.
As a long-time investor and market watcher, as a business news reporter and someone with an entrepreneurial Idaho cowgirl view of life, I thought I could do as well as or better than any broker that I've worked with. That saves money management fees and commissions and gives me the comfort of knowing all the mistakes are mine, but so are the rewards.
In my new semi-retired life, I watch markets daily, check regularly on my investment portfolio and try to not over react to the latest sky-is-falling world economic news. Lately, that's been tough to do.
I'm working as a freelance business and energy writer, I write for and do a weekly business news broadcast snippet on KXL-FM 101.1, a Portland, Ore. radio station. I occasionally lead workshops for women on money, investing and retirement planning. I am on a regional advisory board to Umpqua Bank where I recently refinanced my mortgage.
It's a full life that also includes more travel and visits to my 96-year-old mother who taught me everything I know about investing. (Well almost)
The good news is that my part-time freelance work is helping me avoid tapping my tax-deferred retirement investments while they continue to earn money.
Signing up for Medicare this month cuts my monthly health insurance cost from $400 to $195. I'm generating some cash flow from my 20-acre farm from pasture rental and I hope to log and sell a few trees before the end of the year to supplement that income.
How have I done in the past 12 months since moving my nest egg from my former employer's investment program to one totally under my control? Last spring my answer would have been, "sensational." Now, with the market downturn of the past few months, I'd have to say, "OK" considering what's been going on.
Overall, my combined rollover IRA is up in value year over year about 5 or 6 percent, depending on the day. That's despite having a substantial part of my portfolio in an S&P 500 index fund with a modest 2 percent value increase from a year ago and down 5 percent from January.
My rollover IRA investments are diversified around the table using a combination of index funds, individual blue-chip dividend stocks and a bond fund that so far have kept me above water.
Better performers have been:
- Coke-cola (KO) with a share price increase of 20 percent in the past 12 months and an annual dividend of 2.85 percent.
- Bristol Myers Squibb, (BMY), up 20 percent with a dividend of 4.08 percent.
- Johnson & Johnson, up 15 percent with a 3.6 percent dividend.
- Of course past performance of these stocks does not guarantee future performance. But the experts are recommending blue-chips with good dividends as an alternative to certificates of deposit, which pay zilch. The bond market is looking iffy if interest rates go up....but the Federal Reserve pretty much guaranteed that wouldn't happen until 2013. What about those European banks? They could screw things up.
In addition to the individual stocks mentioned above, I'm big into utilities...companies that market power in the form of electricity, oil and natural gas to the world. Among my holdings are Duke Energy Corp. (DUK) with share price growth of 12 percent and a 5.05 percent dividend and Dominion Resources (D), up 9 percent with a dividend of 3.9 percent. Money also went into a telecommunications and utilities index fund through Fidelity that has seen a share increase of 6.9 percent and a bond fund, up 5.2 percent.
There also have been some losers, most of them from investments prior to October 2010, made through my separate IRA account. Those losers are Cisco Systems, down 10 percent, Macy's up 13 percent in the past 52 weeks, but down still from when I bought it almost three years ago in my IRA and PMI Group, a mortgage insurance company that looked like a good buy three years ago at $17 but has since slid to less than $1 share. I keep that stock to remind me how bad it really can get.
The good news is that I don't have to live on my 401(k) earnings but instead am relying on Social Security monthly benefits and part-time work. I have to keep those earnings below $14,500 a year since I am not yet at my full retirement age of 66.
So what's next?
Would I change anything about my portfolio? I keep reading that bond funds are at risk if interest rates go up or banks default, so I took some money out of my bond fund and put it in the S&P stock index fund. Over the summer it was hard to see the value of that fund drop by 11 percent and I hate those big daily market swings. There are doom-and-gloomers out there that warn that we could be in for a bad new recession that would push equities down a lot more. But where is there to go? Most experts say to sit tight.
If anything, I'm going more into utility stocks which have low volatility (beta rates) and pay a good dividend of 3 percent or better. The experts see utilities are a good place to be, even in a weak economy.
Banks remain in the dog house. So there's a contrarian part of me that says this might be the time to buy some banks. Citigroup, anyone? Maybe not yet.
Despite the Occupy Wall Street crowd, I still believe in American capitalism. I'm gratified that Ford Motor Co.and General Motors are profitable and selling cars, again. We are still the biggest economy in the world. Some of the wealth we thought we had never really existed. But our over all population continues to grow, unlike Japan and some countries in Europe. That will drive economic growth.
Meanwhile, baby boomer like me are retiring and living on less household income. I'm spending less. I'm guessing others like me are doing the same. That will be a negative. But hey, I'm going to keep traveling, eating out, gardening and driving my car. New tires for the Frontier are on my to-do list this month.
Generally, I'm happy with my self-directed portfolio management strategy. Would I do it the same way again? Yep.
For more on investing in a difficult economy.
"How to invest in tough times," click here.
"Retirement plans to savers: Sit tight., click here.
"Seven Investment Strategies for Tough Times, click here.

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