Question: Dr. Gene has explained that even in the last decade, if you dollar cost averaged into the market, you theoretically come out ahead of the game. But, is it ever prudent—and under what circumstance—to have more than 10 years of liquidity, say 15-year liquidity planned?
I am retired and not able to dollar cost average into the stock market as much as I was able to when I was working. While I understand how 10 years of liquidity can protect me from having to sell in a down market, if my investments are not growing at the rate I am used to (i.e., the stock market doubling in seven years), should I have more liquidity?
Answer:
- Having more or less than 10 years’ worth of liquidity is a matter of personal preference. Some of our clients want 20 years of liquidity.
- You have to have a certain amount of assets that will allow you to do that.
- In order to have more liquidity, you need to have the money to buy the fixed investments now.
- If you do not have enough, you should have some of your assets in growth investments. Many people need the growth that stock investments can bring for their money to last.
- It is prudent to do it when you can afford to do it, and when you want to sleep better at night.
- You have to have a certain amount of assets that will allow you to do that.
- If you were to set aside the money to cover 20 years’ worth of liquidity needs, we would not recommend buying 10-year treasuries at 3.5%.
- We calculate how much money should be in fixed investments for 20-year liquidity. We likely would not buy investments with more than a few years maturity.
- If you have a taxable portfolio and are in a high tax bracket, you should be able find some long-term municipal bonds yielding more than 5%.
- We suggest staying with shorter maturity bonds until interest rates increase.
- As soon as the market increases, many investors forget they wanted a 20-year rule!
- As the market goes up, investors’ attention toward bonds decreases.
- Why own bonds when you could have stocks that are soaring?
- Additionally, when the stock market is rising, it is generally a bad time to sell bonds as interest rates rise.
Question: Could you suggest some stocks across the sectors for holding in a Roth IRA?
Answer:
- In a Roth IRA, we suggest stocks that have more focus on growth than dividends.
- In Consumer Discretionary: The Walt Disney Company (NYSE: DIS);
- In Consumer Staples: Costco Wholesale Corp. (NASDAQ: COST);
- In Energy: Apache Corp. (NYSE: APA);
- In Financials: IntercontinentalExchange, Inc. (NYSE: ICE);
- In Healthcare: Teva Pharmaceuticals Industries (NASDAQ: TEVA);
- In Industrials: Fluor Corp. (NYSE: FLR), and
- In InformationTechnology: Cisco Systems Inc. (NASDAQ: CSCO)
Question: What are your thoughts on Nam Tai Electronics, Inc. (NYSE: NTE) and Kemet Corporation (NYSE: KEM)?
Answer:
- Nam Tai Electronics, Inc. is a China-based consumer electronics manufacturer for telecommunications devices, basically phones and phone gadgets.
- The company is small, at a $300 Million market cap, and has a higher PEG ratio than we would normally like of 1.26.
- Because it is so small, it does not meet the quality of companies we typically consider.
- The price is a bit higher than we’d like given the growth rate of 14% and P/E of 18%.
- The company is small, at a $300 Million market cap, and has a higher PEG ratio than we would normally like of 1.26.
- Kemet Corporation is a manufacturer of capacitors, components of electronic circuits found in a variety of industries, including communication systems and personal computers, automotive electronic systems, defense and aerospace systems and consumer electronics.
- It is a small company with a $550 million market cap.
- We would urge caution as this industry has been beaten up a bit given the supply disruptions in Japan.
- Long-term, the company’s financials look good; however, it is a bit of a riskier play.
- After the Japan crisis plays out, if you have money to play with, KEM might do well in a cyclical expansion.
Question: Do you have any opinion on CenturyLink Inc. (NYSE: CTL)? It has a great dividend, but it seems that they do not have any wireless customers and are dependent on land lines, which seem to be going away. Also, I know you’ve like PACCAR Inc. (NASDAQ: PCAR) in the past. Do you still think PACCAR is a buy?
Answer:
- We own Century Link in our High Yield Dividend Portfolio
- The company has a lot of business in satellite and broadband technology.
- The company is focused in rural areas where DSL and satellite services are in demand.
- We are not concerned that wireless technology is not part of their business.
- We feel their dividend is safe.
- We owned PACCAR, but sold it when the company began manufacturing engines.
- At the time, national regulations for emissions changed how catalytic converters for diesel engines would be manufactured.
- PACCAR began manufacturing when other businesses would not.
- PACCAR’s competitors like Caterpillar, Inc. (NYSE: CAT) left manufacturing engines for that reason.
- This changed the business model.
- Right now the stock looks good as the market is recovering. The market for heavy trucks is showing some improvement.
- Truck revenues suffered nearly a 50% decline in 2009.
- Increase of 32% in 2010.
- The dividend has been reduced from what it was in previous years.
- There will be more stringent emission standards in the future.
- If you owned PACCAR, we deem it as a hold.
- At the time, national regulations for emissions changed how catalytic converters for diesel engines would be manufactured.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
