Alright, ready for our next question from Xanthippe?
That is really tough. Your parents could consider some dividend-paying stocks with some of the safest, soundest companies, such as Johnson and Johnson and General Mills. Steer clear of financial companies for now. But, of course, with reward there is some risk.
Hi Xanthippe. If this is money they'll need for living expenses within a couple of years, your parents will have to remain extremely conservative. But if they won't need the money for a couple of years, they might consider a fund that holds agency bonds such as Ginnie Maes. These are backed by the U.S. government and tend to yield more than comparable Treasuries.
One solid fund in this category is Vanguard GNMA (VFIIX), which yields nearly 3%.
A couple of agency bond funds we like are Vanguard GNMA and Fidelity GNMA.
Some great suggestions, all. Thanks!
Here's our next question from Cathy
Hi Cathy. One of the easiest ways to buy gold is through an exchange-traded fund such as SPDR Gold Shares (GLD) or iShares Gold Trust (IAU). These investments are backed by physical gold.
Thanks, Susan. Great suggestion.
To piggyback on Susan's last comment, local community banks and credit unions are also worth taking a look at to find a good deal.
We would not recommend that you buy actual gold. We really don't know how to sort out the reputable companies from the non-reputable ones. Many advertise on the radio,
Also, keep in mind that gold is taxed as a collectible, so any gains are subject to a maximum 28% rate, no matter how long you hold it.
Another important caveat to point out, Susan. Thanks.
For better diversification among commodities, you might consider a broader fund such as Harbor Commodity Real Return (HACMX).
Thanks, Eleanor. Some great advice for Cathy.
Here's a quick question related to our comments earlier about dividend-paying stocks.
If you're determined to buy gold coins, don't pay more than 5% to 8% or so over the spot price, which you can find at www.gold.org.
Hi WayneDC. Absolutely. One solid dividend-focused fund is Vanguard Dividend Growth (VDIGX). The fees are low, about 0.31%.
And of course, VDIGX is one of the funds recommended in that article
Also, don't forget foreign dividend growers. One is PowerShares International Dividend Achievers ETF. It invests in foreign companies that have raised dividends for at least five consecutive years.
Alright, here's our next question from LeighWC
Hi LeighWC. REITs can make sense as part of a retiree's long-term asset allocation, but they've been on a big run and many analysts feel their valuations have become a bit rich lately. If you're interested in adding them to your portfolio, consider dollar-cost-averaging into a broadly diversified REIT fund.
Smart suggestion. Thanks, Eleanor.
Definitely, VNQ is a solid choice with very low expenses. You might also take a look at iShares Dow Jones Real Estate Index (IYR).
LeighWC, make sure you steer clear of non-traded REITS. They are not traded on an exchange. They're very illiquid and you may have a tough time getting your money out. They're publicizing heavily, so be careful.
Alright, let's take our next question from dwfboca.
Hi D. Fleming. Dividend paying stocks may be a good choice if you have at least a five year time horizon. Don't just go for the highest yields you can find. Generally you may find better valuations (and less risk of a dividend cut) with stocks yielding a more moderate 4% or less.
That's a good point, Eleanor.
The first thing that would concern me is getting out of an annuity. You would need to find out if there are any surrender or other charges before you move out. You can find safe dividend payers with higher yields, but steer clear of stocks with 8% or 9% yields. They can be big trouble. As Eleanor says, a moderate 4% or less would be a way to go.
D. Fleming, if you have a few years before you need this money, you might also take a look at closed-end bond funds, which often offer attractive distributions. Just don't buy these funds at a steep premium to NAV. Alliance Bernstein Income fund (ACG), for example, is trading at a discount to NAV and has a distribution rate of about 5.6% relative to its share price.
Alright, we only have ten minutes left, so let's move on to our next question from Janet. Dividends are a hot topic today!
A really high dividend yield on a stock (say, 8% or 10%) may be a signal that the market thinks the dividend is going to get cut. Of course, a mutual fund generally offers broad diversification that cushions the blow if a single stock tanks. Just be sure you understand how the fund is generating that attractive yield.
For dividend paying stocks, we often recommend looking for ones that consistently increase their dividends over a number of years.
Also, if a dividend paying stock is offering a very high dividend and the company heads into bad times, it can cut or eliminate the dividend. You want reliability from a dividend payer.
Alright, unfortunately it looks like we only have time for one or two more questions. Here's one from Robert.
That is really tough. Your parents could consider some dividend-paying stocks with some of the safest, soundest companies, such as Johnson and Johnson and General Mills. Steer clear of financial companies for now. But, of course, with reward there is some risk.
Eleanor looked at a wealth of ideas in Retirement Report's recent cover story on finding income in a low-yield landscape...you can read that here -- www.kiplinger.com
