TAKING STOCK: All professionals are not created equal

Dear Mr. Berko:

I am moving my $520,000 IRA portfolio (enclosed) to a discount broker because in the past three years, under professional management, it has declined nearly $40,000 in value, and I haven't taken any income from the account. I am 50 and hope to be able to work until 67 and then live on my investments, my Social Security and the ridiculous pension provided by my employer, which wouldn't support a dog.

I know you prefer a professional money manager, but my results have been lousy, and I think I can do better picking stocks with a little help from investment sources like Morningstar, Standard and Poor's and brilliant financial experts like you who have done so well in the past few years. Please help and tell me how you would invest this money for me.

EH in Syracuse, N.Y.

Dear EH:

How sad that your professional is such a schlemiel, but in every profession, there are lousy, average, better than average and darned good professionals. Your first clue to this bonehead's portfolio skills was his purchase of the 20 high-load mutual funds comprising 100 percent of your portfolio. This guy is a failure going somewhere to happen, and before he skunks other investors, he should be sentenced to watch C-SPAN eight hours daily for the rest of his life and required to work the night shift at the Mud Lake (Mississippi) roach paste factory.

I will not recommend individual issues for your $520,000. I won't do it because I don't have the time. And I can't do it because I do not have the personal and financial information necessary to design a portfolio to meet your short-, medium- and long-term goals. But I'll recommend seven investment sectors that, if you can select the right issues, should generate an above average long-term total return.

Using about 14 percent of your funds, select 10 dividend growth stocks from Standard and Poor's roster of "dividend aristocrats." This is a compendium of high-class dividend payers that have increased their dividends for at least 25 consecutive years. Reinvest all dividends.

Then invest 14 percent of this money in the SPDR Dow Jones Industrials (DIA-$129). This is an ETF that corresponds to the price and yield of the 30 stocks in the Dow Jones Industrial Average. Reinvest the 2.38 percent dividend.

Then place 14 percent in selection of "high yield convertible bonds/preferred and deep discount corporates." You need to keep an eye out for these and pay close attention to my column, which is published three times a week. Over the past 10 weeks, I recommended several attractive high-yield convertibles that have performed quite well. And at least a half a dozen times a year, I'll recommend convertibles or deep-discount bonds that look attractive.

Next select a dozen or so "oil and gas pipeline issues." Merrill Lynch and several other brokerages publish a comprehensive list, many of which yield in excess of 6 percent and most of which increase their dividends annually. Reinvest all dividends.

Then invest 14 percent of this money in the "tobacco, food and restaurant group." A few no-brainers are PepsiCo, Yum Brands, Heinz, Kellogg, Clorox, Campbell Soup, Phillip Morris, etc. A few of these are included in the DIA, but their long-term promise argues well in favor of additional shares.

Put 10 percent in a selection of "growth utilities'': telephone, gas, electric and water. Of course, ATT as well as Verizon must be included in this mix. Reinvest all dividends.

Finally, place 20 percent in a variable annuity with a 5.5 percent guaranteed return. Think of this as a guaranteed 5.5 percent bond in which you can reinvest the dividends. At age 67, $100,000 is guaranteed to grow to $260,000, providing a minimum annual $15,000 income stream.

Then be patient and let those investments work their compounding magic. Be mindful that you can't spend market value, but you can spend income, so the aggregate dividend and interest income are more important to you than market value.

Finally, you must not depend upon Social Security, which will soon become means tested. Congress wants to reduce payments to those whose assets or incomes exceed a threshold amount. This is gaining currency among some financial columnists, economists and members of the administration.

Some observers believe Congress may pass enabling legislation permitting the Social Security Administration to reduce monthly checks by 2019, plus reducing Medicare benefits for about 6 percent of Americans.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2012 Creators Syndicate Inc.

Published: Fri, Mar 23, 2012