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The biggest mistake made by "retirement" investors is one of strategy -- they think in terms of "all in." They hear so much polarizing advice: to be in the market, or to be out. The average investor must read and interpret these arguments. Too often, they get it wrong.

The Yield Quest Series

I am organizing a series of articles around the theme of "The Quest for Yield." While this resonates with retirement investors, the series actually should have a more general application. When I consider a client's needs, the concept of retirement is a sliding scale. Many in the boomer era are not sure when to retire. The themes of needs, current assets, risk tolerance, and opportunity are universal -- not just questions for retirement investors.

I appreciate the many helpful comments to my first article in this series. My plan is to write an additional part of the series every week, but please forgive me if I skip a week from time to time. I want to keep each article focused on a specific point. The first installment addressed my approach -- emphasizing total return. While I welcome all comments, I need to keep focus on a specific topic each week.

Strategy Allocation

There is so much advice online that it can be confusing. I realize that my readers are very sophisticated and knowledgable. I know that many readers are colleagues in the investment advisory business. For the purpose of this series I invite you to join me in thinking about the world as it appears to the average investor. There is a cacophony of opinion:

  • Warren Buffett is adamant about stocks versus bonds. This via Colin Barr:

Buffett, speaking Tuesday at Fortune's Most Powerful Women Summit in Washington, said it's "quite clear stocks are cheaper than bonds" now. He added that he "can't imagine" the rationale for adding bonds to your portfolio at current prices

There is a lesson in all of this. There will always be a wide range of opinions. When we have the ability to look backward, we know what would have worked. When doing serious planning about our futures, we need to prepare for differing outcomes.

Here is the key point:

Learn to distinguish between market commentary and specific investment advice!

When Warren Buffett (or Jeff Miller) provides a market commentary, it is not intended as investment advice. It is a general market observation. Anyone who starts by saying that "he got me out of the market in 2008" or "he got me invested in 2009" is making a mistake. This is not the right way to think about your future.

Your investment program should be like a made-to-measure suit -- just for you.

The Strategic Components

For retirement clients I consider five different strategies.

  • A bond ladder -- near-term instruments roll off and we go out to the end of our time frame, currently eight years. This leaves us less sensitive to increasing rates. this is very important right now.
  • Dividend stocks. I emphasize the stock-picking part of this. Buying a poor stock with a good yield is not the answer.
  • Covered calls. Writing calls against stock positions adds to income. If you do a good job of picking the stocks and which calls to write, this can be a major boost to yield. I have a method combining fundamental and technical analysis. It is not just a matter of finding the highest premium.
  • Stocks. Yes, stocks belong in the portfolio of nearly everyone. You are never too old to own a great growth stock.
  • ETFs. A disciplined ETF strategy should be part of nearly every portfolio. There is a need to establish rules and to follow them.

I plan to write an article on each of these components. I'll talk about why, when, and how. Others may use different building blocks. Fire away in the comments. I'll consider additions.


The most important takeaway from this article is the need to consider and to balance various strategies. For those who rigidly adhere to one strategy, please consider the following examples:

If you have all of the money you need -- good retirement, provision for heirs, etc. -- you should be absolutely certain to set aside enough to guarantee what you have already earned. There is nothing sadder than needless risk.

For others -- and that is most of us -- it is a balancing act.

  • If someone has a rigid formula about stocks versus bonds, regardless of the relative valuations, that is a mistake. Let's get serious. If bond yields right now were 15% or so, the way they were in the 70's, many of us would lock in and sit back to enjoy.
  • If option volatility is really high, why wouldn't we want to enjoy the benefits of selling some option premium?
  • If corporate bond yields are especially attractive compared to Treasuries and stocks, it is time to move.

There are no absolute answers. You should consider multiple strategies, your own needs and your own risk tolerance. Find the balance that is right for you!