Retirement Strategy: Adding A Risk Basket (Part 10)

Includes: BAC, GNW, LUB
by: Regarded Solutions

Now that we have a fairly well defined core portfolio of dividend and growth blue chip large cap stocks to be the foundation of our retirement strategy, we can expand our portfolio into other areas.

Our current portfolio consists of Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), AT&T (NYSE:T), General Electric (NYSE:GE), Annaly Capital (NYSE:NLY), Exelon (NYSE:EXC), Procter & Gamble (NYSE:PG), Philip Morris (NYSE:PM), Intel (NASDAQ:INTC), Realty Income (NYSE:O), ConocoPhillips (NYSE:COP), Pfizer (NYSE:PFE) Chevron (NYSE:CVX), E.I. du Pont (DD), Duke Energy (NYSE:DUK), and PPL Corp. (NYSE:PPL).

There are numerous areas in the world of investing that we can add to our portfolio mix. Let's not get too crazy, since we are near retirement or already retired, and we have a much shorter time frame to make up for significant losses. That being said, one of the most important expansions that we can do,] is to evaluate our own personal risk tolerance and deploy a modest percentage of our available funds into some riskier investments.

Risk does not mean to "gamble." It is simply our own personal measurement of how much of our investment dollars we can afford to invest (for the long term, by the way) in stocks that might have some strong capital appreciation potential. Basically, they are cheap!

My personal approach is to allocate between 5% to 10% of my available cash into a risk basket of stocks. Depending upon your own risk tolerance, I would suggest this range as a guide. Some folks should not have any, others feel fine with 10%.

Let's Create A "Retirement Risk Basket"

Starting off small, let's remember what our goals are. Mainly we want to increase our overall portfolio value, increase our stream of income over time, keep up with inflationary pressures, and keep our risks at a minimum.

My criteria for buying some stocks for a risk basket are:

  • Overall growth of at least 25% last year
  • Projected overall growth of at least 25% this year
  • A price to book value of 1.0 or less
  • PE ratio under 10

By keeping it simple and doing some research and reading everything we can about the stocks we select, we can find a few hidden nuggets to buy. I am offering these 3 stocks for your evaluation as they fit the criteria and I've done some basic research.

Luby's (NYSE:LUB):

Price: $5.58/share
Dividend Yield: NA
ESS Rating: Neutral


LUB is a low beta stock, fits my criteria mentioned above, has been as high as $20.00/share, and I feel it is undervalued and has significant upside potential based upon my criteria.

Genworth Financial (NYSE:GNW):

Price: $8.90/share
Dividend Yield: NA
ESS Rating: Neutral

Genworth Financial Inc. (<a href='' title='Genworth Financial, Inc.'>GNW</a>)

I really like GNW because of sector it is in: insurance. With a focus on baby boomers it offers a quality package of long term care insurance products that could fit the needs of our boomer population as we get up in years and need a place (or places) to hang out while we are not doing as well any longer. They are also the only insurance company for long term care recommended by AARP.

Bank of America (NYSE:BAC):

Price: $8.13/share
Dividend Yield: NA
ESS Rating: Bearish

Bank of America Corporation (<a href='' title='Bank of America Corporation'>BAC</a>)

I have just made a solid trade with BAC and sold my "trade" at a 60% profit. That being said, I believe BAC will be a $20.00 stock over the course of the next 12-18 months. It has had lots of media attention forever it seems, and so much of it has been negative. Lately, however, the fixes are being patched in, and there seems to be a strong upward bias, as the balance sheet is being cleaned up. Banks lead the way in extended bull markets, and BAC is just beginning to make its run, I believe.

My Opinion

Increasing the value of our portfolio even during retirement is important for many reasons, not the least of which is to be able to redeploy more funds into dividend paying stocks to throw off more income, to keep up with inflation.

Since we have a portfolio that is in place to give us income now, a true way to grow is by selecting some solid value stocks that have upside potential. The three I have outlined here are a good place to start, and I will incorporate them into our "Team Alpha" retirement strategy in upcoming chapters.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GNW, LUB over the next 72 hours. I am also trading BAC.

Disclaimer: Please remember to do your own research prior to making any investment decisions. This article is not a recommendation to buy or sell any securities or stocks, and is the opinion of the author.