Investment advice and Leon Russell

Advice about investing seems to always be an either/or proposition. For every bull saying a particular stock, or class of investment, should be accumulated there seems to be a bear recommending the exact opposite action for precisely the same investment. Perhaps words from Leon Russel’s epic song Tight Rope describe it best, “I’m up on the tightrope / One side’s hate and one is hope.”1 Hence the oft repeated words from the Christian Churches Pension Plan Facebook page, Read Widely / Respond Wisely.

Point – These are treacherous times for retirement

Mark Cortazzo, CFP, CIMA of the MACRO Consulting Group recently wrote an article that Kiplinger editors entitled, “Retiring Today Is 10 Times Riskier Than It Was 10 Years Ago.” Employing data from Callan Associates, the article concluded that twelve years ago a portfolio targeted to earn 7.5% annually could include 50% bonds, whereas a portfolio with the same goal today could have only 12% in fixed income securities. Cortazzo concedes, “For an investor fewer than five years away from retirement or currently retired, negative volatility in the market increases the chance of running out of money.”2

Counterpoint – Stocks can be counted upon for much more

Brett Owens, a regular Forbes Contributor, wrote an article in January of 2017 entitled, “How To Make 12% Annually … Forever.” His reasoning is to avoid relying heavily upon capital appreciation, and instead invest for regularly growing streams of dividends. In fact, Owens contends that there are only three ways for a company’s stock to pay an individual investor, 1) a cash dividend, 2) dividend growth, and 3) a buyback plan for the company’s stock. His conclusion, “Three simple criteria – dividend payments, dividend growth and buybacks – can boost stock returns when applied haphazardly. As you’d probably guess, they bring even more profits when applied intelligently.”3

Finding calm while on the tight wire

Is it possible to find a sensible approach when one side is hate and one is hope? Decisions reached emotionally seldom turn out to be our best, so how do we find the peace needed to avoid inaction steeped in panic? Another February article from Kiplinger’s comes from Chris Hobart of the Hobart Financial Group, “How Dividend-Paying stocks Can Energize Your Portfolio.” It specifically addresses the innate desire of those approaching or living in retirement to reduce their portfolio risk while enjoying the income envisioned as it was accumulated.

Hobart compares dividend paying stocks to rental property. While the income from either investment cannot eliminate market risk, the regular income helps alleviate volatility. Citing the infamous market year of 2008, dividends did not prevent prices from eroding. However, dividend paying stocks generally fared better than those seeking solely price appreciation. Dividends also help provide cash for income and reduce the need to sell shares when markets are in the negative. His conclusion, “Dividend-paying stocks aren’t going to solve all that ails you. But in these low-interest times, they could be the tonic that can add a little pep to your portfolio.”4

1 Tight Rope. Written by Leon Russell. Released by Shelter Records August 1972
2 http://www.kiplinger.com. February 2017.
3 http://www.forbes.com/sites/brettowens/2017/01/12/how-to-make-12-annually-forever/#79fa48554821
4 http://www.kiplinger.com/article/investing/T018-C032-S014-dividend-paying-stocks-can-energize-your-portfolio.html