No Financial Disaster with Diversification
Bjorn, I not a mutual fund person so I cannot reply much there. Bob W, thanks for you conservative warnings which certainly are welcome and needed, especially when the market is going way up fast. I do want to point out that with industry diversification, there would be no financial disaster. For example, during the big market slide of 2001 & 02, stocks such as high quality electric, energy and water utilities continued rising up throughout the bear market, as did high quality REIT's. (Enron was not high quality) This countered the income stocks that dropped off (such as growth stocks that pay a generous dividend). If one looks at, say Value Line's section of "Highest Dividend Yielding Stocks" of the highest 15 stocks ranked by dividend yield (7 to 12%); one would find a diversification of various industries (there not all utility stocks as some might think), which creates diversification protection. Of course, one's portfolio would not be only those stocks but also some very high quality income stocks of a lower yield (example: Exxon). I just want to point out there are opportunities in investing directly in income stocks (buying directly the stocks that the income mutual funds buy) for a higher yield. To me, getting closer to retirement age would not mean CD's but would simply mean adjusting the portfolio of income stocks to a little lower yield and in turn getting higher quality, lower risk stocks that would withstand an economic recession. However I will yield to an old radio talk show host in Philadelphia years ago, Harry S Gross, who said: " if you have trouble sleeping or you don't understand the investment, then it's not for you"; so if CD's is what allows one to sleep, then by all means stay with them (but watch the small banks). happy investing! (great interaction here).
Bjorn, I not a mutual fund person so I cannot reply much there. Bob W, thanks for you conservative warnings which certainly are welcome and needed, especially when the market is going way up fast. I do want to point out that with industry diversification, there would be no financial disaster. For example, during the big market slide of 2001 & 02, stocks such as high quality electric, energy and water utilities continued rising up throughout the bear market, as did high quality REIT's. (Enron was not high quality) This countered the income stocks that dropped off (such as growth stocks that pay a generous dividend). If one looks at, say Value Line's section of "Highest Dividend Yielding Stocks" of the highest 15 stocks ranked by dividend yield (7 to 12%); one would find a diversification of various industries (there not all utility stocks as some might think), which creates diversification protection. Of course, one's portfolio would not be only those stocks but also some very high quality income stocks of a lower yield (example: Exxon). I just want to point out there are opportunities in investing directly in income stocks (buying directly the stocks that the income mutual funds buy) for a higher yield. To me, getting closer to retirement age would not mean CD's but would simply mean adjusting the portfolio of income stocks to a little lower yield and in turn getting higher quality, lower risk stocks that would withstand an economic recession. However I will yield to an old radio talk show host in Philadelphia years ago, Harry S Gross, who said: " if you have trouble sleeping or you don't understand the investment, then it's not for you"; so if CD's is what allows one to sleep, then by all means stay with them (but watch the small banks). happy investing! (great interaction here).
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