The Simple Retirement Portfolio That Spanked The S&P 500

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Includes: AAPL, BKH, CINF, CWT, DVY, EMR, FSITX, FSIVX, FUSVX, HDV, HP, HYG, JNJ, KO, MCD, MMM, MO, NNN, NWN, O, PEP, PFF, PG, SDOG, SPHD, SWK, SYY, TGT, TLT, UVV, VCLT, VIG, VVC, VYM, WMT, XOM
by: ColoradoWealthManagementFund

Summary

Retiring investors have more than enough on their plate without taking on more risk and lower yields.

Returns over the last year on the retirement portfolio I’ve suggested in several articles demonstrates much stronger performance.

Beating the S&P 500 can be challenging for many investors, but I’ve been happy with emphasizing safety.

Investors seeking to remain retired need to plan their portfolio to control their level of risk. The portfolios I suggest are usually selected on the basis of strong dividend histories and decent yields. Low or negative beta is another very appealing aspect for holdings. The goal with this kind of portfolio is to outperform the S&P 500 by emphasizing less risky investments.

A Few Good Mutual Funds

Below are three of the mutual funds I'm using in one of my retirement accounts:

(MUTF:FSITX)

Fidelity Spartan® U.S Bond Index Fund

(MUTF:FSIVX)

Fidelity Spartan® International Index

(MUTF:FUSVX)

Fidelity Spartan® 500 Index Fund

Click to enlarge

As you might guess, the account holding these funds is a Fidelity account. The account has substantial restrictions about which investments it is permitted to hold, but these are some of the lowest cost options that Fidelity makes available to many investors. If an investor wants a diversified portfolio that resembles a target date fund, they can create their own using allocations across these three funds. The bond index fund is very conservative.

It is worth pointing out that FSIVX has had very weak performance over the last calendar year, but that can also be said about pretty much any index fund focused on international exposure.

Individual Stocks

The following list of individual stocks has been a staple for suggested exposures. I can't say that all are attractively priced at the moment, but I see quality companies in this list. The "Years" column is the number of consecutive years with dividend increases:

Company

Ticker

Years

Northwest Natural Gas

(NYSE:NWN)

60

Procter & Gamble Co.

(NYSE:PG)

59

Emerson Electric

(NYSE:EMR)

58

3M Company

(NYSE:MMM)

57

Vectren Corp.

(NYSE:VVC)

55

Cincinnati Financial

(NASDAQ:CINF)

55

Coca-Cola Company

(NYSE:KO)

53

Johnson & Johnson

(NYSE:JNJ)

53

California Water Service

(NYSE:CWT)

48

Target Corp.

(NYSE:TGT)

48

Stanley Black & Decker

(NYSE:SWK)

48

Altria Group Inc.

(NYSE:MO)

46

Sysco Corp.

(NYSE:SYY)

45

Black Hills Corp.

(NYSE:BKH)

45

Universal Corp.

(NYSE:UVV)

44

Helmerich & Payne Inc.

(NYSE:HP)

43

Wal-Mart Stores Inc.

(NYSE:WMT)

42

PepsiCo Inc.

(NYSE:PEP)

43

ExxonMobil Corp.

(NYSE:XOM)

33

McDonald's Corp.

(NYSE:MCD)

39

National Retail Properties

(NYSE:NNN)

26

Realty Income Corp.

(NYSE:O)

22

Apple

(NASDAQ:AAPL)

4

Average

44.61

Click to enlarge

Overall this portfolio is designed to be more defensive than a broad market ETF.

ETF Options

The following is a list of some of the ETFs I've found to be fairly interesting over the last few years.

Ticker

Name

Expense Ratio

(NYSEARCA:VIG)

Vanguard Dividend Appreciation ETF

0.10%

(NYSEARCA:VYM)

Vanguard High Dividend Yield ETF

0.10%

(NYSEARCA:DVY)

iShares Select Dividend ETF

0.39%

(NYSEARCA:HDV)

iShares Core High Dividend ETF

0.12%

(NYSEARCA:PFF)

iShares U.S. Preferred Stock ETF

0.47%

(NYSEARCA:SDOG)

ALPS Sector Dividend Dogs ETF

0.40%

(NASDAQ:VCLT)

Vanguard Long-Term Corporate Bond Index ETF

0.10%

(NYSEARCA:TLT)

iShares 20+ Year Treasury Bond ETF

0.15%

(NYSEARCA:HYG)

iShares iBoxx $ High Yield Corporate Bond ETF

0.50%

(NYSEARCA:SPHD)

PowerShares S&P 500 High Dividend Portfolio ETF

0.30%

Click to enlarge

A Very Simple Portfolio Strategy

I ran a historical sample using InvestSpy. It is one of the quickest ways I've found to run the historical regressions to assess returns, volatility, and correlations. (I have no relationship with the site)

The following table demonstrates the returns on a very simple equal weight portfolio as well as several risk characteristics. Near the bottom of the table you'll find the numbers for the entire portfolio and for the S&P 500.

Ticker

Portfolio Weight

Risk Contribution

Annualized Volatility

Beta

Daily VaR (99%)

Max Drawdown

Total Return

FSITX

2.80%

-0.20%

3.40%

-0.09

0.50%

-1.50%

6.00%

FSIVX

2.80%

3.20%

19.40%

0.93

2.80%

-21.10%

-15.70%

FUSVX

2.80%

3.60%

17.00%

1

2.50%

-13.00%

-0.90%

NWN

2.80%

2.30%

18.60%

0.34

2.70%

-8.70%

49.50%

PG

2.80%

2.80%

16.40%

0.65

2.40%

-16.60%

7.30%

EMR

2.80%

4.20%

24.30%

1.03

3.60%

-23.80%

-6.60%

MMM

2.80%

3.20%

18.80%

0.8

2.80%

-13.80%

10.60%

VVC

2.80%

2.70%

19.50%

0.45

2.90%

-14.30%

36.20%

CINF

2.80%

3.40%

18.70%

0.86

2.70%

-11.30%

43.30%

KO

2.80%

2.70%

15.10%

0.58

2.20%

-9.80%

13.40%

JNJ

2.80%

2.70%

16.10%

0.7

2.40%

-9.60%

19.50%

CWT

2.80%

2.80%

25.80%

0.46

3.80%

-18.10%

46.30%

TGT

2.80%

3.10%

24.00%

0.7

3.50%

-19.90%

-14.90%

SWK

2.80%

3.70%

22.30%

1.02

3.30%

-18.20%

3.00%

MO

2.80%

2.70%

17.60%

0.56

2.60%

-8.50%

40.70%

SYY

2.80%

2.20%

19.20%

0.49

2.80%

-6.40%

34.10%

BKH

2.80%

3.60%

26.00%

0.62

3.80%

-19.60%

43.30%

UVV

2.80%

3.00%

24.80%

0.68

3.60%

-19.60%

0.20%

HP

2.80%

5.90%

48.10%

1.46

7.10%

-38.20%

-2.20%

WMT

2.80%

2.70%

23.40%

0.59

3.40%

-23.20%

2.80%

PEP

2.80%

2.90%

15.40%

0.66

2.30%

-10.20%

10.60%

XOM

2.80%

4.00%

24.30%

0.99

3.60%

-17.30%

10.40%

MCD

2.80%

2.90%

18.30%

0.73

2.70%

-9.80%

26.70%

NNN

2.80%

2.60%

19.20%

0.47

2.80%

-10.30%

41.90%

O

2.80%

2.60%

20.20%

0.46

3.00%

-10.70%

53.00%

AAPL

2.80%

3.80%

28.20%

1.13

4.10%

-30.20%

-24.80%

VIG

2.80%

3.30%

15.10%

0.86

2.20%

-10.80%

2.80%

VYM

2.80%

3.50%

16.00%

0.93

2.40%

-12.00%

4.00%

DVY

2.80%

3.20%

14.30%

0.76

2.10%

-9.10%

11.80%

HDV

2.80%

3.20%

14.60%

0.8

2.10%

-10.80%

10.00%

PFF

2.80%

0.70%

6.40%

0.21

0.90%

-6.80%

6.40%

SDOG

2.80%

3.90%

19.20%

1.02

2.80%

-14.00%

7.20%

VCLT

2.80%

-0.20%

7.90%

-0.09

1.20%

-3.80%

14.50%

TLT

2.80%

-1.10%

13.50%

-0.41

2.00%

-5.80%

20.80%

HYG

2.80%

1.20%

8.50%

0.35

1.20%

-12.10%

-1.00%

SPHD

2.70%

3.10%

15.00%

0.79

2.20%

-8.90%

18.40%

Ticker

Portfolio Weight

Risk Contribution

Annualized Volatility

Beta

Daily VaR (99%)

Max Drawdown

Total Return

Portfolio

100.00%

100.00%

12.10%

0.65

1.80%

-8.50%

14.60%

SPY

17.00%

1

2.50%

-13.00%

-1.00%

Click to enlarge

Using a simple equal weight strategy is a little over simplistic, but it also demonstrates how simply this portfolio was able to outperform the S&P 500. The annualized volatility was only 12.1% which was dramatically lower than the S&P 500. The biggest drawdown was only down 8.5% from the prior high, compared to 13% for the S&P 500. The dramatically smaller level of drawdown reinforces that the goal in this portfolio was to outperform by losing less when the market turns sour.

Interested in Preferred Shares?

Another major area many retirees are interested in is the analysis of preferred shares. Unfortunately, there is not a great deal of analysis available on preferred shares. If you're interested in preferred shares, you should check out a piece I wrote on the preferred strategy.

Don't Keep It to Yourself

If you found this article helpful, e-mail it to someone you think might enjoy it or tell me what you liked in the comments.

Pitch for Subscribers

Since the Mortgage REIT Forum is a new exclusive research platform, the first 100 subscribers will be able to lock in their subscription rates at only $240/year. My investment ideas emphasize finding undervalued mortgage REITs, triple net lease REITs, and preferred shares. With the market at relatively high levels, there is also significant work on finding which securities are overvalued to protect investors from losing a chunk of their portfolio.

Disclosure: I am/we are long FSITX, FSIVX, FUSVX, WMT, TGT, NNN, MO.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Information in this article represents the opinion of the analyst. All statements are represented as opinions, rather than facts, and should not be construed as advice to buy or sell a security. This article is prepared solely for publication on Seeking Alpha and any reproduction of it on other sites is unauthorized. Ratings of “outperform” and “underperform” reflect the analyst’s estimation of a divergence between the market value for a security and the price that would be appropriate given the potential for risks and returns relative to other securities. The analyst does not know your particular objectives for returns or constraints upon investing. All investors are encouraged to do their own research before making any investment decision. Information is regularly obtained from Yahoo Finance, Google Finance, and SEC Database. If Yahoo, Google, or the SEC database contained faulty or old information it could be incorporated into my analysis.