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Thursday, May 30, 2013
Next, if called for, consolidation can take place. Assuming the investment approach of utilizing low-cost ETFs is the guiding approach. the number of accounts can usually be reduced. There is no need to have 11 accounts at 7 different brokerages.
Inevitably, there will still be some individual stocks because clients many times want to pick stocks with part of the assets or they may be sitting on large capital gains that need to be managed for tax purposes. A final step is to think through the location of investments to fit a specific asset allocation.
Once all of this is in order ,the sailing is pretty smooth - keeping an eye on performance and asset allocation. From time to time, rebalancing is necessary to align the asset allocation.
Another exercise which is helpful, quite easy, and helps in understanding the big picture is to build a dividend calendar. This is especially important if, like many investors today, you are using high dividend paying stocks as a substitute for bonds.
Build a Dividend Calendar
Assume a portfolio comprised of 100 shares of Johnson & Johnson (JNJ) and 100 shares of Schwab's dividend ETF (SCHD).
There are a number of sites that give dividend information. One I like is www.nasdaq.com. Scroll down the left hand side and click "Dividend History." Next, put in the ticker symbol for JNJ in the "Get a Quote" box. This is what you come up with:
Doing the same exercise for SCHD shows the last payment date, but you can easily estimate the next payment as being made around 6/22 and estimate the amount using the previous payment. The amounts then would be filled in at the appropriate dates on the calendar. Note that you can save your stock list, making it easy to update data as stocks declare their dividends.
I like to put the amounts on an Excel spreadsheet so that I can easily set up formulas to calculate totals, yields, etc.; but old schoolers can also write amounts to be received on paper calendars.
Finally, it is worth checking that payments for the correct amounts are made into your accounts. At Schwab, for example, you check the "History" tab and put in the symbol to get:
Income for many retirees is obviously crucial, and they face the challenge of weathering a market downturn. Some advisors recommend a bucket approach, others position the portfolio in an extreme defensive position, thereby giving up the potential for a higher quality retirement. I recommend that a retiree's portfolio be positioned so that at least 60% of the income need is met by interest and dividends. This means, for example, that, if your nest egg is $1.0 million and you are seeking $40,000/year inflation adjusted (4% rule-of-thumb), you should identify approximately $24,000 in interest and dividends.
This 60% interest and income positioning, along with the cash portion of the asset allocation, has historically successfully weathered sharp market downturns ,enabling retirees to participate in the ensuing market upturns. Note to the weak hearted: I'm not saying it has been easy!
Disclosure: This post is for educational purposes. I and my clients own securities mentioned. Individuals should do their own research or consult a professional before making investment decisions.