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Profitable Investing Tips has been a member since April 20th 2008, and has created 158 posts from scratch.

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Solid Investments for Retirement

As investors approach their retirement years it is important to modify their investment portfolio. Risky growth stocks may provide impressive earnings for a younger investor. But a retiree cannot bear the risk of losing part of their portfolio just when they need it the most. Solid investments for retirement should always include dividend stocks but more importantly stocks with long term intrinsic value. Here are a few thoughts on the subject.

Investments for Income in Retirement

A substantial part of any investment portfolio in retirement is typically in dividend stocks. While a person may have reinvested dividends over the years, they will typically take the dividends during retirement. Well-chosen companies with dividend stocks have been paying dividends for decades and steadily increasing the dividends as well. The ability to keep doing this is a measure of the financial health of such an investment.

Healthy dividend-paying companies are not growing rapidly but are generating healthy profits. Passing these on to the stockholder is a way of making up for slowed growth. Some of the highest and most reliable dividends come from utilities which have slow growth, are stable and are financially solvent.

Companies that have been paying dividends for more than a century include the likes of Coca Cola, Exxon Mobile, Procter & Gamble, Colgate Palmolive, and Eli Lilly and Company.

Solid Investments for Retirement

Although dividend stocks are a mainstay of a retirement portfolio, they are not the only stocks you should have. The Motley Fool suggests buying these 3 stocks if you are retired.

While there are thousands of stocks available on the market, not all of them are well suited to help you preserve your retirement savings. But there are also some stocks that are great picks for retirees. If you’re retired, three stocks you should consider buying are Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Brookfield Infrastructure Partners (NYSE:BIP), and Welltower (NYSE:WELL).

These are solid investments for retirement and their reasoning in choosing these three is sound.

Alphabet, Brookfield Infrastructure Partners, and Welltower are very different companies that operate in very different industries. But all three stocks share a common denominator that retirees should look for in any stock that they buy. That common denominator is a strong business model that is built for the long term.

Thus these stocks have long-term intrinsic value and will provide income and growth during retirement. As they point out in the article, Alphabet does not pay dividends but the core company (Google) is a cash cow and the various offshoots that Alphabet is working on such as self-driving cars and artificial intelligence are likely to be winners down the line.

 

Solid investment for retirement include Alphabet, the parent company of Google.

Alphabet (Google) Logo

 

Brookfield Infrastructure Partners owns infrastructure assets in the USA and around the world. They are solvent with a sound business plan and pay a healthy dividend of 5%. For the pros and cons of infrastructure investing read our article.

Welltower is a real estate investment trust (REIT) that stands to benefit from the demographic trend of more seniors with greater health care needs. Investopedia explains requirements for REITs.

  • Invest at least 75% of its total assets in real estate, cash or U.S. Treasuries
  • Receive at least 75% of its gross income from rents from real property, interest on mortgages financing real property or from sales of real estate
  • Pay a minimum of 90% percent of its taxable income in the form of shareholder dividends each year
  • Be an entity that is taxable as a corporation
  • Be managed by a board of directors or trustees
  • Have a minimum of 100 shareholders after its first year of existence
  • Have no more than 50% of its shares held by five or fewer individuals during the last half of the taxable year

Equity REITs buy and own income producing properties and make money through management fees and rents. Mortgage REITs provide financing for property owners and operators and their income is derived from the interest rate spread between their cost of funding and interest rates paid for the properties. And, there are hybrid REITs the do both.

Because REIT rules require a diverse ownership, investors are protected from the actions of a handful of investors who might not have everyone else’s interests at heart!

Diversification is Wise

As much as you may be impressed by Alphabet, Coca Cola, Procter & Gamble, or any other investment for retirement, it is not wise to limit your retirement portfolio to one stock. On the other hand, it is also not wise to have a hundred stocks in your portfolio. Smart investors go into retirement with enough stocks to be diversified and a small enough number that they can easily carry out periodic fundamental analysis. You may not change anything in your investment portfolio for years and years but it is wise to make sure that your portfolio does not contain a General Electric which everyone loves but does not grow, or an Eastman Kodak whose business model has become extinct!

Solid investments for retirement include AAA bonds from the likes of Microsoft or Johnson & Johnson

AAA Bond Rating

It is also wise not to limit your retirement portfolio to one asset class. Typically, retirees will hold part of their assets as stocks, part as bonds, part to be actively managed, and part in an ETF or two with passive management. Our article about how to invest without losing any money is a good resource for part of your retirement portfolio. US Treasuries, AA bonds, or AAA bonds can be laddered in such a way that a retiree can have more cash available for necessities and not just have to rely on dividends and interest payments.

Is any Risk Allowed in a Well-Designed Retirement Portfolio?

Pure speculation with your retirement savings is frankly dumb! But, if you have expertise in a given area and can spot investments with a strong potential, it would be a waste talent not to put a small percentage of your retirement portfolio to work on the potential for dramatic growth. In the end, solid investments for retirement are those with a good business plan and strong intrinsic value. If you can spot that in a small startup, it probably belongs in your portfolio.

How Do You Choose the Right Time to Buy an Investment?

Stocks seem to be recovering from the end-of-2018 correction. Is this the start of a new upward trend or are we still in for continued volatility? When you believe that a stock, real estate investment opportunity, or any investment is about to go up in value, how do you choose the right time to buy an investment? Although there are a few seasonal predictors of stock prices, choosing the right time to buy or sell typically has to do with intrinsic value versus current market price. Now that stocks are recovering a bit, what are the factors to watch for?

How Do You Choose the Right Time to Buy an Investment? Wait for a recovery like this.

S&P 500 end of 2018 to January 2019

 

How Do You Choose the Right Time to Buy an Investment?

The best long term predictor of increasing stock value is a good business plan that generates increasing earnings year after year. Earnings are what drove stock prices higher in the years since the 2008-9 market crash and subsequent financial crisis. And decreased earnings are what hurt stocks like the FANG tech darlings in the later part of 2018.

Thus, the prospect of increased earnings makes an investment attractive. Investor’s Business Daily thinks this is currently the case for the FANG stocks.

Despite a sharp drop in the four FANG stocks last year, the outlook for the year ahead looks strong, with Amazon in the best position, said a Wall Street analyst Tuesday.
Canaccord Genuity analyst Michael Graham also maintained a buy rating on the FANG stocks – Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google-owner Alphabet (GOOGL).

The analyst is most excited about Amazon.com earnings prospects and expects the stock to go up by a third in the coming year. His opinion of Facebook is that recent losses have made it easier to post impressive gains next year. He predicts a twenty percent price jump in 2019. Netflix has raised US prices and the analyst expect a fifteen percent increase by the end of 2019. And, he is also positive on Google, expecting a ten percent increase in the coming year.

You should do your own fundamental analysis before buying back into these stocks but, if your analysis matches his, this is the right time to buy into these investments.

How Long Do You Expect to Hold the Investment?

If we look at the 2008-9 stock market crash and going forward we see a spectacular rise in the S&P 500 from a low of 770 to 2618 today. Ideally, an investor with the value of spectacular hindsight would have cashed out at 1561 when the market peaked on October 12, 2007. But this has more to do with when to sell an investment. Either way the S&P 500 as nearly doubled or nearly tripled in value since that time. We cannot go back in time to change our investments of a decade ago. But, we can learn from experience and come to appreciate how in long term investing the hills and valleys are averaged out and simply by investing in stocks with strong intrinsic value, we can expect to win over the years.

 

How Do You Choose the Right Time to Buy an Investment? If you hold the right stock for a long time you will profit no matter when you buy it.

S&P 500 All Through January 2019

So, whether you are still in the market now, or sitting on cash after having sold in October of 2018, how do you choose the right to buy an investment now? The point of this exercise is that if you believe that Amazon.com or any company will continue to generate profits over the years, it is time to buy. Ideally, this is after a downturn when the price is a bit more attractive. If you are going to hold onto this stock for a long, long time, the precise time you buy it will be less important.

Dollar Cost Averaging

Many investors take money out of their salary for investing on a routine basis. A reasonable approach is to simply invest when the money is available. This approach guarantees that you won’t spend it before you choose the right time to buy an investment. The approach is called dollar cost averaging and is described by Investopedia.

Dollar-cost averaging (DCA) is an investment technique which involves buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. As a result of the approach, the investor ends up purchasing more shares when prices are low and fewer shares when prices are high.

The first advantage of this approach is that it removes fear and greed from investing. Thus you will be less inclined to buy excessive amount of stock at high prices and will naturally buy increased amounts of stock when prices are attractive. This approach may not be as profitable as excellent market timing but, the vast majority of retail investors are not really good at market timing so this approach is a huge plus.

Storm Clouds on the Investing Horizon

Over the long term well chosen-stocks using an intrinsic value approach are one of the most effective vehicles for building wealth. But, there are times when external events can greatly change the ability of a company to make money from its business plan. For example, when China cut off soybean imports as a move in the trade war, investments in agriculture, soybean farmers, grain elevator operators, and shippers were in trouble or in danger of going out of business. When the trade war threatens to become permanent, companies from Boeing to Harley Davidson lose substantial parts of their business.

There is always static in the markets as prices are bid up and down. And, there is commonly a melodramatic quality to analysts bidding for your attention and offering hope of obscene profits or threats of devastating losses. Most of this can be ignored over the long term. But, there are factors that change the face of investing such as world wars, basic changes in the world of technology, or shifts in social and political opinion. A current example is this. Who could have predicted the mess that the Brexit has become? But, now that it is unfolding, very badly, investments in British stocks may be bad choices for years and years to come. Kodak was solid gold until digital cameras arrived. And, if someone does not get control of the mad man in North Korea, all bets might be off.

The only way to deal with choosing the right time to buy an investment when such uncertainties exist is to diversify sufficiently that a single bad event does not destroy your investment portfolio.

When Should You Sell an Investment?

The stock market had a tough time of it at the end of 2018. Despite a partial recovery the tech darlings that led market gains for years have investors worried. If you have ridden the bull market for gains over the last few years, is it time to consider some changes in your investment portfolio? For most investors, the question is whether the market will come back or not this year. But there are a number of reasons to consider getting out. So, when should you sell an investment? Here are some thoughts on the subject.

When Should You Sell an Investment?

The first question really is why did you invest in the first place? Yes, we invest to have more money. But, is there a specific reason besides simply wanting to have more? Please forgive us for stating the obvious, but here are ten reasons why we invest.

  • Increase your wealth
  • Saving for retirement
  • Reach a financial goal
  • Take advantage of employer matching 401(k) program
  • Increase returns from pre-tax dollars
  • Increase the rate of return on your money
  • Start your own business
  • Take care of family or contribute to a charity
  • Reduce your taxable income
  • Invest in and be part of a new business venture

The point is that when you should sell an investment will depend in part on why, and how, you invested in the first place. Here are a few examples.

No Longer a Good Investment

We have written about Kodak several times. George Eastman and his company invented camera film and the personal camera. They were the leader in the industry for a hundred years. Then digital cameras were invented and Kodak’s business plan no longer worked. When should you sell an investment when its business plan is obsolete? The answer is, sell it now. Do not try to time the market. Get out because the direction of the investment will be downhill until the end.

There are situations in investing that are obvious, like Kodak and, perhaps today, Sears as well. Sears was a pillar of the retail world for about as long as Kodak dominated the world of cameras. And, although online shopping has greatly hurt department stores, there are still retailers making a profit. But, Sears is not one of them. When should you sell an investment that is not keeping up with its peers? Again, the answer is, sell it now.

Learning to assess intrinsic stock value is essential for a long term investor. If your goal in investing is to increase wealth over the long term, you need investments that will reliably generate income over the years. These investments have intrinsic value in excess of their current price. When that is not the case and is not likely to be the case, over the long term, it is time to sell.

When should you sell an investment? Sell when you will need money soon and the market looks like this!

VIX Last Six Months 2018

Market Too Volatile for Your Investment Time Frame

If you are investing with the goal of sending children to college or for the business you have always dreamed of, you may not have the luxury of waiting for each of your investments to ride out a recession and a down market. And, like most normal investors, you may not be all that successful at timing the market.

If the market starts getting volatile, like it did the last few months, when should you sell an investment? The answer is that you should sell at least part of your investment as soon as possible on the next up day in the market.

In fact, if you are nearing retirement, getting close to when you will need money for college, or close to what you need to start your new business, it will be wise to re-balance your portfolio to reduce risk from your most volatile investments. Part of such a portfolio should contain cash or its equivalents. We have written about how to invest without losing any money. In that article we note that the safest investments include US Treasuries but only if they are held to maturity. When the markets, interest rates, and other factors become volatile, use a ladder of short term bonds or treasuries to provide safe investments and ones that will not be swept up in the market volatility.

A Multipurpose Investment Portfolio

Even if you are putting away money to send the kids to college, you are, or should be, saving for retirement as well. Thus, when you should sell an investment will depend on the purpose for which you are investing each portion of your portfolio.

Additionally, money in your 401(k) at work or your IRA(s) should remain there until retirement or at least as long as you will not be penalized for early withdrawal.

The mix of investments in a portfolio is typically more growth stocks early in the game and more value stocks and bonds later on. This mix can be modified for each portfolio segment so that when it comes time to sell investments and get ready to use one portion of the portfolio, the other portions remain untouched.

When should you sell an investment like Coca Cola? Sell when you need cash for college, retirement, or a new business.

Coca Cola

When Should You Sell an Investment before You Expected to?

US News published an article about when it’s time to sell a stock.

Other than cash flow needs, “The only reason you would sell would be when the future expectations are below your target.”

Thus, you are routinely doing fundamental analysis on your portfolio and the fundamentals have changed on one or more of your investments. This should be a routine chore over the long term. Or, the time has come to cash out an investment to start paying college tuition. When should you sell an investment outside of this time frame? It is when you cannot make an intelligent assessment because of market volatility. It may be the trade war, interest rates, or social and economic unrest offshore where you have foreign direct investments. It does not matter why it happens but when you cannot make an informed decision it is time to get out. This advice follows that of Warren Buffett who says he throws out 95% of his potential investments as too hard to call. Buffett, in fact, held a strong cash position going into the dot com crash because he said the market made no sense!

When Should You Sell an Investment? PPT

Practical Gold Investments

December 2018 was a tough month for the stock market. In fact, the S&P 500 started falling in October of 2018. An aging bull market, a trade war that could be long term, higher interest rates, and falling profits are all indicators that the long run up in stock prices is over. When a bear market is on the horizon, one of the options for an investor is to take profits from stocks and look for some practical gold investments. The key here is the word “practical.” There are inefficient and difficult ways to invest in gold and then there are practical gold investments. Here are some thoughts on why and then how to invest in gold.

Why Invest in Gold?

A true “gold bug” believes that in the end all paper (fiat) currencies will become worthless and that gold will hold its value. These folks buy gold bullion with the intention of holding it forever. Others jump on the bandwagon when gold is going up in price, only to sell when the price of gold corrects. Why you would want to invest in gold can vary and depending on your reason there may be different practical gold investments for you.

Investopedia writes about 8 reasons to own gold. Here are their 8 reasons.

  1. Gold holds its purchasing power over the decades and centuries.
  2. When the dollar weakens gold bugs believe that process will continue and they buy gold.
  3. Gold is seen as a hedge against inflation.
  4. The purchasing power of gold also rises during periods of deflation such as the Great Depression.
  5. Gold is a refuge during periods of geopolitical crises.
  6. New gold supply is dependent on new mines dug deeper and deeper so there are supply concerns.
  7. Gold goes up when the stocks and the dollar go down so it is a way to hedge risk in stocks and cash positions.
  8. The combination of all the above factors makes gold a good (but limited) part of any investment portfolio.

Your reasons for buying gold will determine what to buy, how long to hold, and other factors. Thus practical gold investments for one investor will differ from the practical gold investments of another.

Practical Gold Investments

Gold Bullion

Let’s assume that you are a true “gold bug” and believe that the only thing that will hold its value over the decades and centuries is gold. You will probably want to buy gold bullion. Years ago we wrote about how to buy gold for investment. We wrote about buying gold bullion at that time. The issue with gold bullion is storing it in a secure place. If you periodically buy a few gold coins from the US mint, your bank safe deposit box will do just fine. If you are routinely buying 12.4 kilogram “Good Delivery” gold bars, you will quickly need more safety deposit boxes or will need to pay to have your gold stored in a secure vault. If you want to sell any of your gold you will need to have it removed from storage and shipped to the buyer. This is an extra cost.

And, while your gold is sitting there during a stock market rally, it is not appreciating in value or gaining interest. Gold bullion is an ultimate hedge against societal and economic collapse but is commonly not a good investment. We wrote that you might want to avoid gold as an investment back in 2012 when the price was peaking. In that article we noted the increase in gold prices in the 1970s and the fall of gold prices in the early 1980s. It might be noted that while the price of gold was $1,700 an ounce when we wrote that article, it is $1,290 today! Folks who sold their gold in 2012 and bought an S&P 500 index fund did just fine, thank you very much.

Flexible and Practical Gold Investments

The best time to buy gold is when nobody else wants the shiny stuff and the best time to sell is when the whole world cannot buy enough. Buying and selling gold, instead of buying and storing it, requires flexibility. You can get this with an ETF (exchange traded fund) that tracks the price of gold bullion. We wrote about Gold ETFs in our article How to Make Money in Gold Investments. The good parts of holding shares of a Gold ETF are that you are not paying to store your gold and buying or selling does not require you to take or give up physical possession. You can buy and sell your Gold ETF shares just like you would a common stock.

And, speaking of stocks, there are gold mining stocks as well. A gold mining company that is well run will make money whether the price of gold is high or low. The price of the stock will be lower when gold is low and higher when gold is high. But, the price effect is multiplied with gold mining stocks. When the price of gold starts to go up, the price of a well-chosen gold mining stock will go up faster. When the price of gold starts to fall, gold mining stocks lose value faster than gold itself.

Both gold ETFs and gold mining stocks can be bought and sold rather easily and do not require a secure storage like gold bullion. These facts make them practical gold investments over time from important to individual retail investors.

Hedging Investment Risk with Gold

Many investment advisers recommend that gold be a small portion of any well-balance investment portfolio. If you choose to follow their advice, there are practical gold investments and impractical ones. You can as easily hedge risk in your portfolio with a gold mining stock or gold ETF as with gold bullion. And there is a lot less fuss and bother when you own shares instead of having gold bars costing you money for secure storage.

Practical Gold Investments PPT

Investment Risks for 2019

The stock market has been volatile and ended 2018 badly as the worst year in the last ten. Has the market gotten the jitters out of its system or is more trouble in store? What are the investment risks for 2019 and how can you prepare your investment portfolio?

Investment Risks for 2019

  • The trade war will continue and get worse.
  • Interest rates will rise excessively due to the Federal Reserve.
  • The global and U.S. economy will slow down.
  • As a result the stock market will continue to be volatile and experience losses.

Investment Risks for 2019 from the Trade War

The deficit that the USA runs with China and the world in general is not supportable. As such something needs to be done to staunch the monetary bleeding from the US treasury and pocketbooks. Likewise, the steady loss of US intellectual property and technical secrets cannot go on without the USA losing its dominant position in the world power structure.

Thus the USA should not give in easily in order to resolve trade negotiations with China. A few months ago we looked at what happens to your investments if the trade war becomes permanent. As we noted in that article, China wants to move to a more dominant and secure position on the world stage. They have bitter memories of having been forced “inward” during the period of European colonial expansion. And, the Chinese Communist Party intends to stay in power, for which they will need to maintain economic growth and social stability.

The key to this situation is that neither side wants to give way. As such the trade war may be protracted and economically damaging. This is one of the distinct investment risks for 2019 and beyond. A slower global economy with effects on both China and the USA could damage investment prospects across the board.

Investment Risks for 2019 from a Too-aggressive Federal Reserve

When the markets tanked in 2008 and 2009 the USA and the world were on the brink of another Great Depression. Two of the measures that saved the day were instituted by the U.S. Federal Reserve. First of all they dropped interest rates to almost nothing. Second, they instituted quantitative easing in which the Fed purchased U.S. Treasuries and corporate bonds with their own funds. This was equivalent to printing money and served to inject funds back into the financial system to replace part of the $7 Trillion or so in value that was lost in the real estate and stock market crashes.

Back when we wrote the article there was concern about the Fed tapering off their quantitative easing campaign too quickly. They are, in fact, steadily reducing the size of their bond and treasury portfolio by letting the bonds expire. And, the Fed has been slowly but steadily bringing interest rates back up to more normal levels as justified by economic growth. The concern for 2019 is that the Fed will be too aggressive and with an extra rate increase or two cause a recession.

We recently looked at how higher interest rates will affect your investments. The affect will be three fold. First, the value of your bonds and treasuries will go down as rates go up. Second, you will gain a higher interest rate on bonds and treasuries in the future. Third, the steadily increasing cost of servicing the huge American debt will choke off investment, infrastructure improvements, and the US economy.

Investment Risks for 2019 from an Economic Slowdown

The driver of the stock market for the last decade has been continually impressive earnings. But, how can earnings continue to go up when people start saving their money instead of spending it. We just saw how the market reacted to Apple announcing that iPhone sales are slipping in China. Intrinsic stock value is dependent on forward-looking earnings. Whether it is Apple selling iPhones or the Chinese industrial complex churning out products for the world, the production of products needs to match the size of the market. And the ability of the market to pay for these products need to keep up. Otherwise, prices or production need to fall. This is why markets tend to have boom and bust cycles. Other factors like the trade war and interest rates aside, investment risks for 2019 include an aging bull market and economic boom in need of a reset.

Risks Associated with a Volatile and Falling Stock Market

There will be two risks this coming year associated with both volatility and a falling market. One is that if you don’t get out of investments soon enough you will lose a lot of money. The other is that if you get out of good long term value investments as the market falls and do not get back in, you will miss out on long term profits as the market recovers!

If you are worried about investment risks for 2019 look at long term trends instead of short term.

Three Stock Market Perspectives

Preparing Your Investments for the Storm in 2019

If you are a true long term value investor who looks only at the big picture, you may simply choose to ignore what you consider to be the static of a volatile and falling market in 2019. You will continue to use fundamental analysis in picking and tracking your investments. The only investments that you will sell will be those that do not promise profits over the long term and not necessarily those with weak prospects in the short term. Market jitters, interest rate concern, and the normal ebb and flow of markets are generally not a concern for a true long term investor. But, long term mega-trends are real and should be considered. This where the trade war is not just a short term issue. Rather it is a symptom of a global power struggle that will last a long, long time. To the extent that the USA and China, or the USA and Russia, can come to amicable terms, compete without working to wreck long term damage on the other, the current trade war and other such issues will be temporary. To the extent, that the major powers see this as an existential struggle for survival, it will redraw the economic, political, and military map of the world and that will not be good long term investing or prosperity.

When you consider investment risks for 2019 and beyond consider what products will still be selling in the decades to come.

Coca Cola

Investment Risks for 2019 PPT


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