Editors' Note: This article is meant to introduce Roger S. Conrad's Marketplace service, Utility Investor.
A study conducted by giant accounting firm Ernst & Young LLP concluded that more than 60% of Americans will eventually outlive their investment assets.
E&Y also found the average person that’s seven years from retirement will be forced by diminished portfolios to gut their standard of living by 37 percent. That includes more than a few investors who now boast nest eggs of $1 million or more.
Some will fail simply because they’re unable to curb a lifetime of high living habits. But even those who do cut back are at risk to running out of money, as they settle for the mediocre returns currently offered by such “prudent saver” investments as annuities, bank savings and “target” retirement accounts peddled by their advisors.
Don’t look to bonds for a solution either. Prospective returns are the lowest in decades, while risk to your principal from inflation and eventually another recession is the highest in years.
Yet, Vanguard’s popular Target Retirement 2030 Fund insists on investing 25% of shareholders’ money in bonds. Target 2025 has 35% in bonds. Target 2015, presumably for people who’ve been retired the past three years, is 55 percent in bonds!
I don’t mean to pick on Vanguard. In fact, I’m a great admirer of John C. Bogle’s low fees approach and the way it’s revolutionized the business. The Target funds have certainly been a marketing success, with $16.55 billion in Target 2015 assets alone.
But it’s hard to see how a retiree is going to survive on Target 2015’s barely 2% yield. Neither has this fund’s 5.9% annualized five-year return done much to build retirement savings. A basket of solid utilities would have generated twice the capital gains and nearly three times the income.
Bonds can be a great investment if you time your purchases. Back in 2009 in the aftermath of the financial crisis, I highlighted for readers a basket of BBB rated utility company bonds yielding as much as 10%. More recently, I’ve recommended bonds of lower rated but strengthening companies that yield upwards of 8%.
But the idea that retirees or investors close to retirement must always own some set portion of their portfolios in fixed income like bonds, annuities and CDs is frankly preposterous. In fact, I’ve rarely come across a worse piece of advice in my 30-plus years in the investment advisory business.
The bottom line is these Target funds are as fatally flawed as the low return investments they hold. Neither have they been particularly safe in bear markets: Target 2015 dropped -24% in 2008, while Target 2030 lost -33%.
That’s not to say Vanguard doesn’t have some good funds. In fact, I frequently recommend the Vanguard Intermediate Term Tax Exempt Fund and its 2.8% yield as a place for investors to temporarily park cash.
But the Target funds’ popularity makes it clear to me that more people than ever are looking for easy answers to investment challenges—rather than embracing the opportunities all around us to meaningfully improve their lives.
The Solution? Sustainable wealth accumulation.
If you’re serious about building sustainable wealth, you owe it to yourself to give Utility Investor a try. This is a publication for serious investors, written by a serious investor. You won’t find any sound effects here—just sound advice.
My almost 35 years covering the utility sector and essential-service stocks have taught me that no “system” can substitute for diligence and experience. I’m always looking for the next investment opportunity and reevaluating my winners and losers with an eye to their future upside potential or emerging risks.
So, what’s included with Utility Investor?
- Access to my model portfolios including specific buy and sell advice.
- Breakdown of my key investment themes and focus area coverage.
- Spotlight profiles on key companies.
- In-depth portfolio analysis and timely commentary.
- Buy/sell recommendations through our portfolios.
- Active chat room with investors.
- Short-term trading opportunities (Long/Short).
Let me tell you about a strategy that does all these things and is based on my more than 30 years of accumulated investment knowledge and experience.
The cornerstone of the strategy is stocks, specifically of healthy and growing companies that pay generous and increasing dividends. The focus is essential services, without which a functioning modern world is impossible.
Suffice to say the stocks I’ve built my career on are able to grow their earnings and dividends in every economic and market environment, including financial crises like 2008-09. Now, in a latter stage bull market, they pay safe dividend yields as high as 10% and growing as fast as 20% a year.
I want to make clear right now that I’m NOT a yield chaser.
In fact, I devote a column in Utility Investor to my Endangered Dividends List. These stocks lure unwary income seekers with the sirens’ call of mouthwatering yields, eventually crushing their portfolios on the rocks of deep dividend cuts and usually even deeper share price declines.
I’m currently warning investors about 20 companies that are headed for trouble.
That’s less four names I had on the Endangered list in January 2018, which have cut their payouts by 50%, 100%, 45% and 80% respectively. And unfortunately, the 20 current members of the Endangered Dividends List are likely headed for the same fate.
An Invitation to Join Us
At Utility Investor I'll be focusing on safe and growing dividend streams, while avoiding companies who may find the need to cut their dividends.
You’ll also get access to my Dream Buy strategy to lock up the best stocks at prices that virtually guarantee windfall profits. I’ll show you how and when to lock in gains that are essentially equal to years of future dividends, and how to buy back at bargain prices when the momentum shifts. The service includes these features:
✓ A strategy that will enable you to generate income that’s 2 to 3 times higher than available fixed income as well as the S&P 500.
✓ A strategy that will grow your income stream at several times the rate of inflation every year.
✓ A strategy that minimizes the risk of dividend cuts that not only eat into your income stream but destroy principal, sometimes permanently.
✓ A strategy that diversifies and balances your holdings among the highest quality stocks in the most resilient of sectors, all essential services, to reduce volatility to principal even in this latter stage bull market.
We are offering a limited-time offer of $500/year or $50/month so initial members can lock in lower rates. To start a free trial, go here and begin your safer dividend investing!
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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: The Utility Investor publishes financial news and opinions and is NOT a securities broker/dealer or an investment advisor. Readers and subscribers are responsible for their own investment decisions. All information contained in articles and model portfolios should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence and consider obtaining professional advice before making any investment decision. Roger Conrad and /or people associated with him may hold positions in the securities that are discussed in the Utility Investor.