When I started with my current employer I had no retirement options to decide - I had a pension, and would be "taken care of" for the rest of my life. Two years later the system has been changed and my pension is now a hybrid plan with a fixed smaller pension amount combined with a defined contribution plan administered by TIAA CREF. I am not complaining about the change to a hybrid plan - but I would like to complain about my current investment options under the defined contribution plan.
Initially I was very excited about the prospects of managing my own retirement funds. I liked the idea of taking the power of managing my investments away from a revolving door of elected officials who have no idea what they are doing. I am probably still better off as our current assumed rate of return is 7.5% per annum, and a majority of the pension holdings are in treasuries that are yielding much lower.
Anyway, when i received a letter from TIAA I was shocked to see that my funds would be put into a target date fund. For all of you who enjoy reading SA you can understand this is a death blow to someone who thought they were going to be able to manage their funds. Thankfully the letter was followed soon by a booklet and letter that told me that If I did not wish to put my money in the target date fund I could switch to a select few (5) managed funds or passive index funds (5). This of course is much better than target date funds but still short of what I would like to do.
Under my dream scenario funds from my paycheck would be funneled into my sharebuilder account where I would have the ability to manage my own future. Here is a list of what stocks I would have in my dream retirement portfolio, dividends reinvested of course. Charts are courtesy of barchart.com.
Walt Disney Co. (DIS) - Every dream portfolio should start with Disney. The Magic Kindgom is a king at producing products that generate cash. Movies are a perpetual bond paying dividends into eternity and ESPN is an asset to which there is no competitor. I have faith putting my retirement into Mickey Mouse and Donald Duck, and so should you.
DIS is currently trading at 13x forward earnings and sports a 1.35% dividend. At $45 per share it is trading above all its moving averages and is up almost 20% YTD. It is trading at 16x trailing earnings which is in the middle of the 10-20 range it has traded in since 2006.
Click to enlarge.
Tiffany & Co. (TIF) - They have their own color and every woman in the developed world knows what it is. The jewelry maker has expanded their product portfolio to include leather goods and fragrances. The company is starting to leverage its brilliant marketing to increase sales and should continue to do so in emerging markets.
TIF is trading at 12.5x forward earnings and sports a 2.36% dividend. Trading at around $55, TIF is down 16% YTD and is trading below all of the major moving averages. Insider activity has been negative recently so there is no need to rush into a position - take your time and build one over time. TIF trades at a trailing earnings ratio of 16x, on the lower end its range (low teens - mid thirties) for the past 10 years.
Visa, Inc. (V) - The payment processor is the largest in the world with MasterCard Incorporated (MA) and eBay Inc.'s (EBAY) PayPal the only major competitors. As emerging markets develop Visa is in a great position to capitalize on their growth. Smaller competitors like Square are ripe for the picking and should be eventually be bought by Visa.
Visa is trading at 16x forward earnings and sports a 0.75% dividend. Sales have grown the past 5 years at a clip of 25% per year and EPS has grown over 44% per year during the same time period. These explosive growth rates are sure to slow but the stock is only trading at 18.5x trailing earnings, leaving enough wiggle room if earnings growth slows.
These 3 stocks would represent 30% of my dream portfolio. Look out for the upcoming Part 2 of Managing My Own Retirement Is A Dream.