The Stock Market And Your Nest Egg

If you are a stock investor, there is no time that you are at the mercy of the stock market quite like during your retirement. After all, if you buy shares of Coca-Cola during your 20s, 30s, or 40s, you can weather a stock market crash. All you have to do is hold your shares steady, reinvest the dividends, and then coming out owning more Coca-Cola stock once the economy improves. But, if the stock market crash of 2008 coincides with your retirement, then you do not have that luxury.

Let’s try this hypothetical example. You decide to invest in General Electric during the 1970s. After all, it’s a stodgy blue-chip that has been delivering excellent returns to its investors for over a century. Seems like a no-brainer, right? And then Jack Welch runs the company phenomenally well during the 1990s and early 2000s, as you pad yourself on the back for making such an outstanding investment. And let’s say you continued to hold the General Electric (GE) stock after you retired at the end of 2007. When the recession hit in 2008, the stock completely tanked, falling to as low as $6. And if you were relying on GE dividends to fund your retirement lifestyle, you would be incredibly disappointed to know that they reduced their dividend payments by over 75% during the recession. If you were relying on GE dividends to pay for your retirement, you would be out of luck—a very poor consolation for a lifetime of sedulous investing.

The moral of the story is to diversify your investments, and if a severe recession hits during part of your retirement, you should adjust your withdrawals to the best of your ability to make out only enough money so that you can ensure that you never run out of funds. 

Why You Should Buy Dividend Stocks

There are two big reasons why you should buy strong dividend-paying stocks. First of all, a stock that pays a dividend has to have the cash on hand. They can't fake it. If a company is paying out 50-60% of its earnings as dividends to shareholders, then they can't rely on bogus accounting to get through tough times like Enron and Worldcom attempted to do. By virtue of paying a dividend alone, a company has to stay focused and disciplined, making sure that it always has the cash on hand to fulfill its obligations to shareholders.

Another important reason why you should consider purchasing dividend paying stocks is because it enables you to purchase additional shares during recessions. Of course, this assumes that you are reinvesting your dividends instead of electing to take the cash payouts. Let's say you own 1000 shares of Coca-Cola. During the recession, the price of Coke fell to about $40 per share. Because your 1000 shares earn $470 every three months, you could plow that money into $40 shares, which would be worth much more once the recession clears. Those $40 shares that you were able to buy with reinvested dividends during the recession are now worth just shy of $70. Not a bad investment.

The folks over at The Intelligent Speculator wrote a fantastic article about the philosophical approach that one should take toward purchasing dividend paying stocks, and I highly recommend that you visit their website by clicking here: http://www.intelligentspeculator.net/investment-talking/how-to-build-a-sustainable-dividend-portfolio/ .

Owning Stocks in Retirement

One of the hardest financial questions facing investors on the brink of retirement is the question of what to do with their stocks. If they are particularly affluent, it is most likely because of stocks that they were able to acquire wealth, and so they would naturally be hesitant to cut off the arm that fed them throughout life. And if they weren't particularly rich stockholders, then they might feel that stocks have failed them in life, and be more inclined to sell. And it's a difficult question for many investors to face regarding how to shift their money into retirement. If you've accumulated 1000 shares of Coca-Cola stock that pays you a dividend of $470 every three months, it's easy to understand why you'd be reluctant to sell it. But then again, you could have been enjoying your Lehman Brothers and Wachovia dividends before both companies slashed them in 2008, leaving you with nothing in the case of Lehman Brothers, and darn near nothing in the case of Wachovia. While most investors would be wise to shift their assets to an allocation that is a mixture of bonds, stocks, and annuities, it may also be wise to hold on to a few steady large-cap stocks to guide you through your retirement years. Be sure to visit this great article at The Oblivious Investor for further reference: http://www.obliviousinvestor.com/should-you-own-stocks-in-retirement/ .

Yellow Page Cancellation Opt-Out Service On The Rise

Whenever someone talks about buying a stock, one of the primary risks facing an investor is the potential for technological obsolescence. After all, Eastman-Kodak was once the most powerful name in the photo business, racking up millions of dollars in profits. Rapid technology increases has significantly disrupted the company's business model, and these technological forces have reduced Kodak to a pale shell of its former self. Whenever a company faces industry headwinds, people often joke of the business going the way of the 'horse and buggy business.' Whenever you're thinking about a business, you should immediately think about how vulnerable the company is to technology. For instance, it would be much easier for technology increases to bring down a printing business than it would, say, a beverage company. If you had to guess between McGraw-Hill and Coca-Cola which business model would still be intact in a hundred years, I know I would put my money on the latter.

Chris Morran at The Consumerist has written a great article about the decaying yellow and white book industry, noting the sharp increase in the number of people opting out of receiving the giant paper doorstop. If you'd like to read his amusing article, I've included a link here: http://consumerist.com/2011/06/seattle-residents-have-canceled-225000-yellow-pages-in-only-two-months.html .