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Money Matters Radio Show #819
October 1, 2006
What’s all the fuss about the Dow hitting a new record? For the popular media, it’s a story because so many negatives were reported in the past few years that it seems incredible that the stock market might return to its old record mark. And naturally, you are hearing many reports saying once the market crosses over the record high, it will pull back and not to get your hopes up.
For financial planners with a long term view, all of this short term minute by minute breathless coverage of the Dow is nothing short of silly. First, most planners could care less about the Dow Jones Industrial Average with its 30 stocks. The fact is that most of us follow the S&P 500 index and many of us follow the Wilshire Total Stock Market Index. Note – the Wilshire already has pierced its all time high – a full recovery from the bear market of 2000 to 2003. For people who stuck with an index fund and invested more through their 401k’s and 403b’s, money invested at the low point of the market is up nearly 85%!!! That is the beauty of dollar cost averaging for the long term portfolio. You weather the downturn and your old money returns to where it was and then moves up in later years. Meantime, new money is buying shares at very cheap prices.
Another reason the recent runup in the market is not news for financial planners – most of us look at stocks in ten year and twenty year time blocks, not ten or twenty minutes. A dollar I invested ten years ago is $2.50 cents today – a return I find very impressive.
Yes, I’ve also done better in the past decade in some real estate and energy plays, but those are non-diversified sector plays which I usually reserve for income – not long term growth. The beauty of those sector plays is that even when sectors are cool, like energy and real estate are now, I still get income. Inside an IRA, such investments make a lot of sense.
The dividend trend continues. As I have been pointing out to you for a couple of years now --- the future for investors is putting money into dividend stocks. As baby boomers head to the yield door in the years to come, sheer demand will outstrip supply for CD’s and bonds – creating what may become a generation long period of low interest rates.
With any tiny increase in inflation, such fixed rates of return will be hard to put up with. The solution, outlined in a new book this year by Professor Jeremy Siegel of the Wharton School of Economics, is to put money into dividend paying stocks.
Sure enough, we are beginning to see a new trend in demands on companies to increase their payouts. That trend means companies with good business can increase dividends which in turn makes their stocks more attractive to yield conscious boomers. That in turn, will push dividend paying stocks higher.
McDonald’s. The company confirms a whopping 49% increase in the company's annual dividend, from $0.67 to $1 per share. And on top of this, management says it expects to return more cash to shareholders in future years, with plans for at least $10 billion in dividends and share repurchases from 2006 to 2008.
Last week it was Texas Instruments – increasing its very low dividend by 33%. Not much I’ll grant you, but still an impressive turn of events in the normally dividend adverse high tech sector.
Countering this trend though – a substantial increase in stock buybacks, which come at the expense of increasing dividends. This year, buybacks are up and dividend payouts as a whole are flat – so just investing in any dividend mutual fund may not be what you are looking for.
Among the strategies we utilize as planners in my private financial planning practice Capital Investment Advisors, Inc. -- is to identify companies with identifiable trends of increasing their dividend payouts – going back as long as ten years.
For more information and for a free consultation with any of the planners in my practice – call my office at 404-531-0018 or send an e-mail to my assistant Barbara Wrazin…. Barbara@yourwealth.com
Mutual fund manager changes posted for the last month: Thanks to Fund Alarm web site for the listings:
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Evergreen Emerging Markets and Evergreen Health Care: Liu-Er Chen leaves as manager and leaves the firm. He's reportedly heading to the Delaware Group, where he will manage an emerging markets fund -- Delaware's gain, and Evergreen's distinct loss.
- Evergreen Utility and Telecommunications: Technically, this is a manager change, even though it might not look like one: Timothy O'Brien moves from employee of Evergreen, and manager of this fund, to owner of his own firm (Crow Point Partners LLC) and subadvisor of this fund (pending shareholder approval). Nice to start off a new money mangement firm with a $400 million fund from your former employer. That chunk of assets should generate about $140,000 a month in management fees for O'Brien's new firm, which we're guessing will cover the rent. [10/06]
- Fidelity Blue Chip: Brian Hogan is out as manager, and Charles Hebard takes over. Hebard also runs a Fidelity Select fund (Financial Services) and, remarkably, Hebard hasn't been rotated off that fund -- yet. [10/06]
- Fidelity Select Multimedia: John Roth heads out the revolving door, a couple of months after being assigned to run Fidelity New Millennium. Kristina Salen takes over for Roth. [10/06]
- Hartford Advisors: Saul Pannell used to be one of five managers assigned to this fund; now, he's gone, although everybody else remains. Pannell also steps down from Hartford Stock fund and two co-managers carry on without yhim.
- Hartford Global Technology: Vikram Murthy leaves as a member of this fund's six-person management team, and now there are five in charge. [Change effective 7/06; posted 10/06]
- Hartford Income: Edward Vaimberg leaves as co-manager. Former colleague William Davison continues to run the fund, now assisted by Jeffrey MacDonald and Charles Moon. [Change effective 8/06; posted 10/06]
- Jensen Portfolio: Another founder is gone: Gary Hibler will retire as co-manager, effective February 15, 2007. The remaining co-managers (McIver, Millen, Schoenstein, Zagunis) will run the show without Hibler. [10/06]
- UMB Scout Small Cap: David Bagby steps down as co-manager. Bagby's colleagues, Jason Votruba and Adrianne Valkar will continue to be in charge.
- Vanguard Windsor II: Don't say we didn't give you advance notice: Lead manager James Barrow, of subadvisor Barrow Hanley Mewhinney & Strauss, has announced that he will retire within four years. No replacement has been named, but Barrow promises that his successor(s) will each have at least eight years of investing experience at Barrow Hanley. [note of interest here – many of you have Vanguard managed funds and you assume they are managed by Vaguard. That is not the case – Vanguard outsources management of its funds and in some cases has up to three different management companies running an individual fund. ]
- Victory Special Value: Pat Dunkerley is out a manager, and Leslie Globits takes over. This happened a month ago, but the news is just coming out. Nothing like full disclosure.
New article in the latest issue of Business Week warns about “quirky ways to diversify.” Discussed are investments in timber, gold, international real estate and oil energy trusts.
From Kiplinger Magazine’s new issue:
Closed end funds a good way to add diversity and income to your portfolio according to a new article in Kiplinger by Andrew Tanzer.
A warning about market timing – Columist Andrew Feinberg says deep down we all want to time the market, but we need to avoid self-delusion.
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