Stock broker’s picks haunt this ghostwriter
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I’ll be 52 shortly and have allowed a new broker to manage my portfolio after losing a lot of money with my old broker in the tech bubble. It looks like I’ve made another mistake. I have more than 125 stocks, and it’s driving me to drink trying to figure out why my broker, who is a friend, put them in my account. I need this money to pay my living expenses when I run out of ink and collect Social Security. I’m divorced and self-employed as a ghostwriter. It pays well, but I might not work for a year between assignments. I would like a portfolio that doesn’t need a money manager.
T.E., Durham, N.C.
Dear T.E.:
Your portfolio composition makes zero sense. Though your $646,000 portfolio is substantial (you probably began with $1 million) there’s no reason to own 131 different issues. I’m familiar with 35 of the 131 issues, and I can tell you that seven of those stocks may not have long to live. Your broker should go back to torturing cats or whatever he did for a living before he became a broker.
Sell each of the 131 stocks in that mishmash portfolio and put all the proceeds into money market accounts. When all the trades have settled, collect your check and open an account with Charles Schwab & Co.
You still have some 15 years before you collect Social Security. However, it may not be available to you when you become age eligible, because your assets might exceed proposed federal guidelines. Therefore, this money must be invested as if your future depended on it; it does.
Invest $25,000 in Bank of America Corp. (BAC-$49.51), which pays a 5.2 percent dividend. Reinvest all those dividends until you’re 67. BAC has increased its dividend for 25 straight years. Invest $25,000 in General Electric Co. (GE-$40.18). The $1.12 dividend yields 2.8 percent, and GE has increased its dividend for 25 consecutive years. Invest $25,000 in Pfizer Inc. (PFE-$24.13), whose 4.8 percent dividend has increased in each of the past 25 years, then $25,000 in Rhom and Hass Co. (ROH-$53.23), whose 2.8 percent dividend has grown each year since 1982.
Then purchase $25,000 of PPG Industries Inc. (PPG-$73.67) yielding 2.8 percent; $25,000 of Kimberly-Clark Corp. (KMB-$68.34) yielding 3.1 percent; $25,000 of Leggett & Platt Inc. (LEG-$19.54) yielding 3.7 percent; $25,000 of Altria Group Inc. (MO-$67) yielding 4.5 percent; $25,000 of Chubb Corp. (CB-$51.07) yielding 2.3 percent; and $25,000 of Comerica Inc. (CMA-$53.34), which yields 4.8 percent.
Invest $250,000 in the following five mutual funds, each of which has a 10-year average annual return that exceeds 13 percent.
Invest $50,000 in Third Avenue Value Fund (TAVFX-$64.20), which is a mid-cap blend and yields 5.14 percent. Put $50,000 in Stratton Funds Small-Cap Value (STSCX-$49.12), which is a small-cap blend but yields only 0.16 percent. Then place $50,000 in Mairs & Power Growth Fund Inc. (MPGFX-$82.45), a large-cap blend yielding 1.3 percent. Invest $50,000 in the Weitz Funds Partners Value Fund (WPVLX-$22.64), a large-cap value fund yielding 0.4 percent and $50,000 in the Bruce Fund Inc. (BRUFX-$404.48) a small-cap fund that yields 2.41 percent.
Invest the remaining $150,000 as follows: $75,000 in a Met Life variable annuity with a 6 percent guarantee and $75,000 in an Equitable variable annuity with a 6.5 percent guarantee. Don’t touch these VAs until you’re 67.
This is a hands-free, no-brainer portfolio that should make you quite comfortable (without Social Security) when you run out of ink.
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