Income
Retirement planning isn’t just about tucking money away for retirement and hoping it lasts. It’s about replacing your main source of income once you retire with other sources of income; preferably with those that continue to generate income. Life doesn’t stop at retirement; neither should your investment strategies.
Retirement income can come from three different sources: social security; pension; and investments. A long-term approach to retirement investing produces income, wealth creation, and capital growth.
For the most part, Social Security was never supposed to be the sole source of retirement income. More of a starting point; and a very basic starting point at that. The average American can look forward to an annual retirement benefit of less than $15,000 a year; or roughly $1,230 a month. While social security is guaranteed, the income from it isn’t very much.
At the same time, fewer and fewer Americans have pensions to look forward to.
Since the average American cannot count on social security or a pension to carry them through retirement, it’s essential they find other sources to generate recurring income. As an investor, it’s important to be comfortable with and knowledgeable about both the equities you’re interested in and the potential rewards and risks.
If you’re just starting out in the work force, you can afford to be involved in riskier high-yield investment. If you’re nearing retirement, you’ll want to minimize your chances of loss by looking into lower risk, low-yield equities.
For those investors looking for higher returns and willing to take on a little bit of extra risk, they should look into high-yield investments like penny stocks and options. That said, high-yield investments are not for everyone.
Keep in mind; when you are looking for high-yield investments, your risk will be much greater than conservative investments like government bonds. But then again, a basic rule of investing is that high risk translates into high reward.
If you’re nearing retirement, you might want to consider blue chip stocks that offer regular, quarterly dividends. There are a large number of solid, publicly traded companies that have been providing regular dividend yields that significantly outstrip government bonds.
While there are no easy answers for retiring in comfort, investors do have retirement options that can help increase income and reduce market risk.
How to Profit from Fed’s Easy Money Mistake
By Moe Zulfiqar for Daily Gains Letter | Nov 19, 2013
The Federal Reserve has been very accommodative. Its goals are very simple: it wants economic growth in the U.S. economy. As a result, the Federal Reserve is taking extraordinary measures, printing $85.0 billion a month and using it to buy U.S. bonds and mortgage-backed securities (MBS). The hope is that the money will go to the banks, which will lend it to consumers who then spend it, leading to economic growth.
Sadly, the problems continue to persist in the U.S. economy, leaving economic growth still far from sight. The techniques used by the Federal Reserve aren’t working: the unemployment rate continues to be staggeringly high, troubling trends have formed, and the inflation continues to be low—threats of deflation loom.
Given all this, one would assume there might be something else that the Federal Reserve can do. Unfortunately, instead of using different measures to fight the problems in the U.S. economy, the Federal Reserve is planning to keep on doing what it has been doing for years now. I believe the techniques used by the Fed will continue on for some time.
Here’s my reasoning: in a testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, the newly nominated chairman of the Federal Reserve, Janet Yellen, said, “We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession. Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been … Read More
Top Four Overlooked Stocks for Income-Seeking Investors
By John Whitefoot for Daily Gains Letter | Nov 15, 2013
The 2014 Winter Olympics in Sochi, Russia may be just around the corner, but when it comes to breaking records—for better or worse—Wall Street remains the gold-medal champion.
Thanks to the Federal Reserve, interest rates are at record lows, and will stay there for the foreseeable future. The U.S. national debt is at a record $17.1 trillion, while at the other end of the scale, the S&P 500 and Dow Jones Industrial Average recently posted record highs.
This is in spite of economic indicators that suggest the markets should be moving in the opposite direction: high unemployment, high debt, weak consumer confidence, a record 47.6 million Americans—one-sixth of the population—receiving food stamps, etc.
Under this umbrella, the markets have been going higher, in spite of an increasingly large number of companies warning investors they are not going to meet projections—and, in fact, have been revising earnings-per-share (EPS) guidance lower all year.
In the third quarter, a record 83% of S&P 500 companies revised their EPS guidance lower. How about the fourth quarter? So far, 83.5% of reporting companies on the S&P 500 have issued negative EPS guidance. In October, analysts lowered earnings estimates by 1.5%, below the one-, five-, and 10-year averages for the first month of a quarter.
Again, in spite of the record number of S&P 500 companies revising their EPS guidance lower and weak October analyst expectations, the S&P 500 continues to notch up fabulous gains—roughly 25% year-to-date and 4.5% in October alone.
Interestingly, this marks the seventh time in the last nine quarters that earnings estimates fell while the value of the underlying index increased during … Read More
Two Reasons Why Dividend Stocks Have Room to Run
By John Whitefoot for Daily Gains Letter | May 3, 2013
Thanks to artificially low interest rates, the Federal Reserve has taken the “income” out of “fixed income,” and made saving for retirement that much harder for the average American.
Back in the 1980s, the interest rate on a 10-year Treasury was above 15%. Investors planning for retirement could rely on their fixed incomes providing them with solid, reliable profits; they knew what their annual returns would be, and could budget and spend accordingly.
Today, the 10-year Treasury interest rate is less than two percent. That’s not much for the average American to bank on when it comes to retirement investing. In fact, low interest rates have essentially eliminated the chance for Americans to earn a decent income from fixed equities.
In an effort to eke out as much income as possible from their retirement portfolios, investors are turning their attention to high-yield investment stocks. On one level, it makes total sense—replacing one income-generating investment vehicle with another. At the same time, it’s important to remember that dividend stocks are still stocks—and a lot riskier than fixed-income investments.
The current challenge, some contend, is that income-starved investors have elevated dividend stocks to unsustainable levels. Once interest rates begin to rise, investors will pour out of dividend stocks and into the safety of government equities, at which point, dividend-yielding stocks—and their once reliable income—will tumble.
While it is true that dividend-yielding stocks are more popular than ever before, that does not mean they will fall out of favor once the economy rebounds.
Companies are sitting on cash. You need cash to pay out dividends, and companies have been hoarding cash. According to … Read More
Three Ways to Have a Company Return Its Wealth to You
By John Whitefoot for Daily Gains Letter | Apr 9, 2013
When it comes to the stock market, there are three ways a profitable, publicly traded company can reward its investors: 1) pay a dividend; 2) initiate a share buyback plan; or 3) invest it back into the company. All three of these are aimed at building shareholder wealth, though some are more popular than others.
1. Dividends
Investors looking for capital gains and an income stream in today’s economic climate can’t go wrong with fundamentally strong companies with a good history of paying out quarterly or monthly dividends.
In light of low interest rates, many dividend-yielding stocks outperform the historical avenues for investment income. Most banks begrudgingly doll out just 0.5% interest, while 30-year Treasuries come in near a mere three percent.
Investors hoping to maintain a comfortable retirement need to find better income streams—and for many, it’s in high-yield dividend stocks. Consumer goods company Altria Group Inc.’s (NYSE/MO) share price is up almost 200% since the beginning of 2009, and it currently provides an annual dividend of 5.1%. And business equipment provider Pitney Bowes Inc. (NYSE/PBI) provides an annual dividend of 10.1% and is up 35.5% since the beginning of 2013.
Getting quarterly checks from a company for simply being an investor is a great way to generate additional income. But are there any downsides? Cutting or eliminating a dividend can significantly impact a company’s share price. Paying out dividends decreases the amount of money a company has, meaning it may not be able to operate as efficiently if an unforeseen situation arises—like one did in 2008, when the markets crashed. Companies that didn’t have enough cash to operate … Read More
Three Smaller Firms with Reliable Dividends
By John Whitefoot for Daily Gains Letter | Apr 4, 2013
Just because the S&P 500 and Dow Jones Industrial Average are in record territory, that doesn’t mean the overall stock market is worth looking at. At the same time, it would be a mistake for investors to consider reducing their positions in equities in favor of cash or bonds, Treasuries, and certificates of deposit (CDs).
Banks provide interest rates barely above zero percent; bonds are near three percent, and jumbo five-year CDs yield returns of just 1.5%. In a nutshell, investors looking to buy bonds are basically saying they are happy locking their hard-earned dollar into negative inflation-adjusted returns. They’re okay using an investment vehicle that loses money.
In light of the ill-begotten euphoria on Wall Street, investors looking to increase their retirement fund nest egg just need to be more discerning when looking at stocks. It would be a mistake to think that big stocks are the only place to make solid profits. At the same time, it’s important to remember that investors cannot earn income without taking some risk.
Right now, there is an increasing number of fundamentally and technically strong smaller companies offering regular, high dividend payouts that trump the paltry interest rates offered through other investing channels.
In the past, dividend-hungry investors had to turn to big banks and utilities. But now, regular payouts are being offered by smaller companies in less conventional sectors.
The joy with some smaller companies is that they tend to outperform their larger peers during an economic recovery. And because smaller companies can experience faster growth, patient investors get paid to wait for both capital gains and a dividend yield.
On … Read More
