Strategic Investing In Equity And Debt: Target 2042

by: Charles Margolis

The Strategy

Here is a simple strategy for a 30-year savings account. I will present the portfolio suggestion here, then describe the reasons:

Company # of shares Price Total
Microsoft (NASDAQ:MSFT) 25 shares 31.98 / share 800
Corning (NYSE:GLW) 25 shares 14.45 / share 361
Berkshire B (NYSE:BRK.B) 12 shares 80.58 / share 967
Hasbro (NASDAQ:HAS) 12 shares 36.68 / share 440
Mattel (NASDAQ:MAT) 12 shares 33.52 / share 402
Boeing (NYSE:BA) 12 shares 77.28 / share 927
Wal-Mart (NYSE:WMT) 12 shares 59.07/ share 709
Johnson & Johnson (NYSE:JNJ) 12 shares 64.85 / share 778
* Con Agra (NYSE:CAG) 12 shares 25.91 / share 311
* General Electric (NYSE:GE) 12 shares 19.78 / share 237

[* I've added Con Agra and General Electric as examples, the idea here is to pick a couple companies to complement the core holdings. You might prefer Apple (NASDAQ:AAPL) or Google (NASDAQ:GOOG) or an Oil, Tobacco or other company.]

This totals 5,932 dollars. Set your dividends to reinvest, so you will accumulate more shares of each company over time.

Let's get some Corporate Bonds for Fixed Income to balance this. Here is an example; you will find various similar bonds by these companies. I have selected Non-callable bonds:

Company / Coupon CUSIP Matures Price Yield
Microsoft 5.3% 594918AM6 02/08/2041 124.02 3.89%
Berkshire Hath Fin 5.75% 084664BL4 01/15/2040 118.75 4.55%
Mattel 6.2% 577081AU6 10/01/2040 113.24 5.29%
Johnson & Johnson 4.5% 478160AV6 09/01/2040 112.15 3.79%

Currently Microsoft and Johnson & Johnson are rated AAA by Moody and S&P. Berkshire is rated AA, Mattel is rated BBB. If you get 2 of each of these bonds it will cost, 9,363 dollars.

These will simply generate 435 dollars a year for the next 27.5 years. So they should pay out approximately 11,745 dollars, and then return your 8,000 initial investment. There is a possibility that something could happen to one of these companies that could affect the bond. The point is to have some diversification, to plan for such a contingency.

Now, finally, you need some US Treasuries to complete the portfolio. Though yields are quite low now, here are some valuable investments for this portfolio.

US Treasury / Coupon Matures Price Yield
U S TREAS SEC STRIPPED INT 0.00000% 2/15/2040 TINT 2/15/2040 39.64 3.35%
U S TREAS SEC STRIPPED INT 0.00000% 2/15/2041 TINT 2/15/2041 38.29 3.36%

If you get 6 of each of these, you will put down 4,676 dollars and upon maturity you should have 12,000 dollars.


  • Stocks 5,932
  • Corp. Bonds 9,363
  • Treasuries 4,676
  • Grand total: 19,971 (commissions: about 240)

So your portfolio will consist of 20,000 dollars, in a diverse selection of American companies and US government Treasuries.

Be mindful of the risks. On Wall Street you have to expect the unexpected, however this is one type of portfolio to consider. Remember if you put this in your IRA, there will be no taxes until you withdraw funds. In a non IRA (or Trust) you will need to pay taxes annually on the dividends and income.

Core Holdings

The strategy consists of 8 core American businesses' stocks and bonds:

Microsoft, Corning, Berkshire Hathaway, Hasbro, Mattel, Boeing, Wal-Mart and Johnson & Johnson. You can pick two additional positions to round out the portfolio, I picked Con Agra and GE.

You could add 6 shares of Exxon Mobil (NYSE:XOM) and 6 shares of Reynolds (NYSE:RAI). Or you might pick 6 shares of State Street's SPDR Gold Shares (NYSEARCA:GLD) or a half dozen shares of Coca Cola (NYSE:KO) and a half dozen shares of Pepsi (NYSE:PEP). (Remember though your Berkshire will give you a little exposure to Coca Cola.)

The core holdings with the exception of Berkshire pay dividends. Together the core holdings create balance and diversification. Last but not least these stocks and bonds are still priced well today.

Here is a brief explanation:


Microsoft creates products that are increasingly used by more and more American homes (like XBox and Sync Automotive Entertainment Software). The leadership, CEO Steven Ballmer and Chairman Bill Gates, had the foresight to invest in Facebook early on. Investors should be able to expect more of this ingenuity, though if the company does falter in the future, the other positions in this strategy should compensate.

Currently Microsoft has a 58 billion dollar stockpile and 13 billion in debt.


Corning's glass products are used in televisions and notably in the iPad. Though I wish the management were stronger (and their Key Executives were paid based on stock performance) I believe this company can maintain share holder value in the long term.

Currently Corning has 5.8 billion dollars in cash and 2.4 billion dollars in debt.

Berkshire Hathaway

Berkshire invests in strong businesses. I trust Warren Buffett will use all of his power to protect his business into the future, and choose the appropriate leaders. Though in the event Berkshire Class B shares do fail, the remaining positions should compensate.

Berkshire has 37.3 billion cash on hand and 60.4 billion dollars in debt.


Hasbro makes toys enjoyed by millions of families across the world. The stock has shown weakness in the past year. However in the long term there is a greater chance Hasbro will continue making great toys (and is potentially a buyout opportunity.)

Hasbro's balance sheet shows 661 million in cash and 1.6 billion in debt.


Mattel has had a great run in the past year. The company makes toys that are timeless (like Barbie) and competes with Hasbro. Ownership of even a small position today exposes you to a cherished American brand that turns basic inexpensive materials, like paper and plastic, into toys that are far more valuable.

Mattel has 784 million in cash on hand and 1.55 billion in debt.


Boeing's airplanes are sold worldwide and the company continues to advance the art of aerospace/defense product design. The stock price has increased greatly in the past 6 months. However for the long flight into the future Boeing is included in the core holdings because of unique dominance in a very important industry.

Boeing has 11.2 billion in cash and 12.37 billion in debt.


Wal-Mart currently employs over 2 million people. If a company wants to get their product to consumers one of the best options is to work with Wal-Mart. The Waltons have stewarded the company very well since it was founded and appear capable of continuing to do so for a long time.

Walmart has 6.5 billion in cash and 53.5 billion in debt.

Johnson & Johnson

Johnson & Johnson works in the health care sector. Their products are used by tens of millions of people across the world each day. The chances are great that a dozen shares purchased this year and reinvested for the future should create shareholder value.

Johnson & Johnson has 32.2 billion in cash and 19.6 billion in debt.

Non-callable Bonds
Microsoft 5.3% (yield 3.89%) Microsoft is rated by both Moody and S&P at AAA. Therefore their bonds have lower rates and are thought to be somewhat stronger. Notice in this strategy you are putting 2.5 times more cash into the Microsoft bonds than into the stock.
Berkshire 5.75% (yield 4.55%) Berkshire is rated Aa2/AA+ by Moody and S&P. The bonds were issued upon the company's purchase of Burlington Northern railroad. In fact in January 2012 Berkshire refinanced their debt with some 5 and 10 year bond offerings. Since the stock has no dividend one way to have Berkshire pay you is to own their debt.
Mattel 6.2% (yield 5.29%) Mattel's bonds are rated BBB, therefore they pay more to attract investors. Mattel's bonds are still yielding over 5% and should provide exposure to quality income and balance your risk.
Johnson & Johnson 4.5% (yield 3.79%) Johnson & Johnson is also rated AAA by Moody and S&P. Here again you will have 2.5 times the amount of cash in this company's debt than in Johnson & Johnson stock to begin with.
Zero Coupon US Treasuries
U S TREAS SEC STRIPPED INT 0.00000% (2040 & 2041)

Instead of investing in lower yield Treasuries that distribute money each year, the Zero Coupon Treasuries have slightly higher yields. Think of the Treasuries as a fail safe.

Income Calculations

The prices of the stocks will go up and down. Some may split, or reverse split, spin off, or cash you out (if a corporate action occurs and positions less than a certain minimum are bought out) or some could go bankrupt. However with this strategy, you will lessen your risk, because your eggs are in multiple baskets.

Here is a chart for the Corporate Bonds, using a period of 27 years.

(2) Microsoft 5.3% (2 x 53) x 27 yrs 2,862
(2) Berkshire Hath Fin 5.75% (2 x 57.5) x 27 yrs 3,105
(2) Mattel 6.2% (2 x 62) x 27 yrs 3,348
(2) Johnson & Johnson 4.5% (2 x 45) x 27 yrs 2,430
total 11,745

This is an example considering you might get these (or similar bonds) sometime this year.


We can go through and figure out the stocks' current dividends. To get an idea of how this ball is going to start rolling:

Company # of shares Div. Current Total / year
Microsoft 25 0.80 20.00
Corning 25 0.30 7.50
Berkshire B 12 N/A 0.00
Boeing 12 1.76 21.12
Hasbro 12 1.44 17.28
Mattel 12 1.24 14.88
Wal-Mart 12 1.59 19.08
Johnson & Johnson 12 2.28 27.36
Con Agra 12 0.96 11.52
General Electric 12 0.68 8.16

The total dividend income is 147 dollars, to begin with. The dividends will be greater each quarter as the positions reinvest.

Make Your Portfolio Dynamic

Leave these positions, don't touch them. Literally forget about them.

With this composition you will create just a little cash to start with. Every three - five years or so take some of the cash (like 500 dollars) and put it into an Income Fund. Many of the major Fund Companies offer these types of securities; here are some examples:


New America High Income Fund (NYSE:HYB)

Eaton Vance LTD Duration Income Fund (NYSEMKT:EVV)

American Income Fund (MRF)

Tax Exempt:

DTF Tax-Free Income (NYSE:DTF)

Nuveen Select Tax-Free Income Portfolio (NYSE:NXP)

Try to keep dividends set to reinvest until the last few years of the term. Then, if you so choose, set the stocks and Income Funds to pay cash dividends. This way you should find thousands in cash in 2042 and a selection of securities that will continue to generate income.

Here is an example schedule:

2012 Buy 20,000 of stocks, bonds & US treasuries
2017 Buy 500 dollars of an Income Fund
2022 Buy 500 dollars of an Income Fund
2027 Buy 500 dollars of an Income Fund
2032 Buy 2-5 more 10 year US Treasuries
2037 Set stock dividends to pay cash
2042 Portfolio target Maturity

This completes the strategy. Notice a variable in 20 years of buying some 10 year US Treasuries, for the final stretch.

With a strategy such as this you should be able to create a properly balanced portfolio. The risks of the stock market are well known. However with a simple plan you absolutely can use savings to build some cash for the future.

Disclosure: I am long MSFT, GLW, BA, JNJ, WMT, HAS, MAT, CAG, GE, DTF, HYB, NXP, EVV, MRF, AAPL, XOM, KO, PEP.