“Personal Finance: Dividends will deliver a payoff - Philadelphia Daily News” plus 1 more

Personal Finance: Dividends will deliver a payoff - Philadelphia Daily News

Posted: 26 Sep 2010 05:26 AM PDT

Posted on Sun, Sep. 26, 2010

As investors shy away from stocks, financial advisers are trying to give them courage by extolling the virtues of dividend-paying shares.

The story line: Dividends pay you while you wait for the stock market to cooperate. Your stock might not climb in value for some time. It may plunge with the rest of the market if the economy dips back into a recession, investors panic about something, or flash crashes play their dastardly deeds.

But if you have a solid company with a record of paying dividends for years, you can take advantage of a dividend yield comparable to current bond interest. And when this horrible stock market phase ends, your stock, if solid, should climb and provide larger gains than bonds.

The challenge of finding that stock is not always easy. What can investors do if they like the promise of dividends but cannot trust themselves to pick one or a handful of these seemingly reliable moneymakers? Consider a mutual fund or exchange-traded fund focused on dividend-paying stocks. But be aware that all are not created equal.

Trade-off

Investors who seek high yields might veer toward the iShares Dow Jones Select Dividend Index. But realize the trade-off: The fund gets high yields, said Morningstar Inc. analyst Michael Rawson, by finding the highest-yielding stocks. Those often are companies that have been in an unpopular industry or had operating or financial problems. So the stock price has fallen, causing yields to pop up.

The iShares Dow Jones Select Dividend Index underperformed the Standard & Poor's 500 and many other dividend funds after 2007 because it was heavily invested in financial stocks, which often pay a high dividend, Rawson noted. It has switched from financials, and the portfolio recently contained 28.5 percent utilities and 12 percent financials. If you are worried about financials, you might like this. But Rawson said that with the popularity of utilities lately, financial companies have more upside.

If you cannot stomach financials, consider the WisdomTree Dividend ex-Financials Fund. Guessing sectors is tough. With time, unpopular sectors climb, and the most popular decline. Since getting the timing right is tough, financial advisers often want diverse exposure.

No guessing

For the person who does not want to guess on sectors, there is the Vanguard Dividend Appreciation fund. It is heavily reliant on such stalwarts as Procter & Gamble Co., McDonald's Corp., and Exxon Mobil Corp. When you hear people talking about blue-chip dividend payers, they are here. That, of course, means lower yields, but perhaps more predictability.

Another approach comes from the SPDR Dividend fund. It picks smaller companies, too, but to add assurance, Rawson said, it screens for companies that have consistently raised dividends, delivered growth, and been resilient in rough cycles.

Still, investors must realize that even stellar companies fall in downturns. Despite Vanguard Dividend's relatively solid performance, the fund lost 26.6 percent in 2008 - much better than the 38 percent market decline, but a loss nonetheless. This year the fund is up 2.5 percent, while the stock market is up less than a half-percent.

For the near future, dividend-paying stocks could be vulnerable if tax laws change. The key for investors worried about the effect of higher taxes: Put dividend-paying stocks and funds in IRAs, not taxable accounts.

To get a diversified portfolio, investors could focus on solid U.S. dividend-paying stocks and also an international fund such as the WisdomTree International LargeCap Dividend. Another way: Pick a fund manager who will eye stocks constantly.

Some worthy of consideration, Morningstar research director Russell Kinnel says: First Eagle Overseas, Vanguard Equity-Income, American Century Equity Income, Vanguard Dividend Growth, Vanguard Global Equity, and Artisan Global Value Fund.

Gail MarksJarvis is a personal-finance columnist for the Chicago Tribune. E-mail her at gmarksjarvis@tribune.com.

This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php
Five Filters featured article: Beyond Hiroshima - The Non-Reporting of Falluja's Cancer Catastrophe.

Personal Finance: Ways to fine-tune your 401(k) - Sacramento Bee

Posted: 26 Sep 2010 12:04 AM PDT

We want to be good retirement savers, we really do. But many working Americans find the process intimidating, confusing or financially impossible.

Unfortunately, in an era where more of the retirement burden is falling on individuals than their employers, ramping up savings is essential.

Which helps explain why 401(k) plans, where contributions come out of your paycheck tax-free – and often are matched by the boss – are one of the most common retirement tools out there, research shows.

Last week, we looked at a San Diego company, BrightScope.com, that ranked the best 401(k) plans among large employers in the Sacramento region.

This week, to get some tips on how to fine-tune your 401(k), we talked by phone with Mary Beth Franklin, senior editor of Kiplinger's Personal Finance magazine, who spent weeks researching the topic for the magazine's October issue. Here's some of her advice:

Trying to save for retirement can be daunting. How do you know if you're saving enough?

People have to rely on themselves for their future retirement. We've got the first of baby boomers turning 65 who still have pensions. But going forward, those who are middle-aged and younger will really be on their own. The onus of making sure you're doing it right, that you're setting aside enough for your retirement, falls more and more on the shoulders of workers themselves. Now is a great time to reassess your plan.

What's the magic formula for how much you should be socking away in your 401(k)?

You should be contributing about 15 percent of your gross salary a year; that's combined between you and your employer. If you're contributing 10 percent and your employer is matching 50 cents on the dollar, which is typical, that's (an additional) 5 percent.

Always contribute at least enough to get your employer match or you are walking away from free money. Nobody can afford that. If you don't take the 3 percent your boss was going to give you in 2010, it's gone forever.

What are some quick fixes employees can make to fortify their retirement accounts?

A typical 401(k) plan participant is a 45-year-old employee earning $50,000, who contributes 6 percent of salary, has a 50 percent employer match (combined contribution: 9 percent of total salary) and plans to work full time until age 65. Assuming an average annual return of 6 percent, that person would have a nest egg at retirement of $420,000.

Here are three things you can do:

• If you work two more years, until age 67, you could move that nest egg from $420,000 to $490,000.

• If you boost your contribution to 10 percent of salary, and your employer match is still half (in this case, 5 percent), you could boost that nest egg at retirement to $540,000.

• If you rejigger your portfolio to get an 8 percent return instead of 6 percent, you would have $560,000.

• If you do all three things, you would have a retirement nest egg of $850,000, more than twice where you started in the original scenario.

It shows that you can make some small changes that add up. For somebody who's 45 years old, you still have two decades. … Maybe it's a wake-up call that if you're only saving 6 percent, frankly that's not enough.

What if you're in your 50s or 60s and don't have two decades left to stash away enough for retirement?

Those are the ones hit hardest. You probably have to save more and may have to work longer to come up with a nest egg that you consider comfortable.

If you lost your job at 58 and can't find a new job, a lot of these strategies aren't going to help. We're quite aware that for many people, it's a dismal situation.

But those coming of age in the work force today – 20-somethings and those in their early 30s – will be in an environment where the only retirement plan available is a 401(k). This is the new normal for them. By the time they reach retirement age, they'll be fine.

Why is it so hard for many people to get going on retirement savings?

Part of it's inertia. Which is why this trend toward automatic enrollments and contributions since 2006 (endorsed by the Pension Protection Act that year) is so helpful. You can opt out, but you have to take an action to do so.

Don't say no (if your employer automatically enrolls you in the company 401(k). It's coming directly out of your paycheck, just like state taxes or Social Security. If you don't see it, you're not going to spend it.

We're starting to see more companies (using) automatic escalation dates: On your anniversary date, they'll bump you up 1 or 2 percent, unless you say no. That's a very powerful tool and a very painless way of increasing your retirement savings.

What if your company doesn't offer a 401(k) plan?

Roughly 50 million Americans don't have any retirement plan at work … generally those working for businesses that are too small to make it financially viable to offer retirement plans.

But everyone who has a job can set up an IRA. You can have your paycheck make direct deposits to your IRA. There's no excuse: if you don't have a 401(k) at work, set up an IRA.

Some final thoughts?

This extraordinary recession, which has focused people on how they're spending money, is also focusing them on how they're saving money. And a 401(k) is one of the best forms of saving money.

We're all running out of excuses on why we aren't saving for retirement. Twenty years from now, if you reach retirement without enough set aside, you won't have a lot of people to blame but yourself.

Commit to boosting your 401(k) contribution 1 percent a year for the next five years. The sooner you start, the better off you'll be.

Editor's Note: For more details on 401(k) plans, see the October issue of Kiplinger magazine.

Have a personal finance question? Call The Bee's Claudia Buck at (916) 321-1968.

What You Should Know About Comments on Sacbee.com

Sacbee.com is happy to provide a forum for reader interaction, discussion, feedback and reaction to our stories. However, we reserve the right to delete inappropriate comments or ban users who can't play nice. (See our full terms of service here.)

Here are some rules of the road:

• Keep your comments civil. Don't insult one another or the subjects of our articles. If you think a comment violates our guidelines click the "report abuse" button to notify the moderators. Responding to the comment will only encourage bad behavior.

• Don't use profanities, vulgarities or hate speech. This is a general interest news site. Sometimes, there are children present. Don't say anything in a way you wouldn't want your own child to hear.

• Do not attack other users; focus your comments on issues, not individuals.

• Stay on topic. Only post comments relevant to the article at hand. If you want to discuss an issue with a specific user, click on his profile name and send him a direct message.

• Do not copy and paste outside material into the comment box.

• Don't repeat the same comment over and over. We heard you the first time.

• Do not use the commenting system for advertising. That's spam and it isn't allowed.

• Don't use all capital letters. That's akin to yelling and not appreciated by the audience.

You should also know that The Sacramento Bee does not screen comments before they are posted. You are more likely to see inappropriate comments before our staff does, so we ask that you click the "report abuse" button to submit those comments for moderator review. You also may notify us via email at feedback@sacbee.com. Note the headline on which the comment is made and tell us the profile name of the user who made the comment. Remember, comment moderation is subjective. You may find some material objectionable that we won't and vice versa.

If you submit a comment, the user name of your account will appear along with it. Users cannot remove their own comments once they have submitted them, but you may ask our staff to retract one of your comments by sending an email to feedback@sacbee.com. Again, make sure you note the headline on which the comment is made and tell us your profile name.

If you choose to use our "reply to comment" feature, you should note that the length of the quoted comment will count against the size limits for your comment.

Personal Finance

Sunday, September 26, 2010