Retirement Advice for $4.99?
April 17, 2017
If you want some very basic suggestions on retirement just go to the magazine display at Barnes and Noble. The headlines of the magazines are designed to catch our attention. My favorite articles are about the best places to live in retirement. These magazines also stray into providing ideas on the market. I know that for a fact because, in the course of a recent home cleaning project, I came across a 2007 guide from Fortune Magazine. That magazine was a keeper because its title claimed that readers could “Retire Rich”. Is there any wonder why I was happy to make a $4.99 purchase with a title like that?
As I flipped through the 2007 guide, I came across an article called “Stock Picks to Retire On”. The curse of any written prediction is that the accuracy of that prediction can be tested down the road. With ten years having passed since the article was written, this seemed like a good time to review the performance of the recommended stock picks.
The magazine suggested a “buy and hold” portfolio with five major categories, and eight stocks within each category. The categories were labeled “Growth and Income”, “Bargain Growth”, “Deep Value”, “Small Growth”, and “Foreign Value”. All the stocks were priced as of June 1st 2007 So how rich would an investor be if they followed this plan? For comparison the S&P 500 index rose by 52% between June 1st 2007 and last Friday, April 14th 2017. To simplify the analysis the following figures cover only the price movement of the stocks.
As you might expect, Fortune magazine had some winners and some losers. The Growth and Income category was up by 83.4%, with companies such as Colgate, General Mills, Phillip Morris International and Johnson and Johnson doing extremely well. Bargain Growth did even better, with a 93% increase, and that overall increase included very strong performances from Accenture, 3M and Microsoft – strong enough to offset a decline of 95% in AIG. The Foreign Value category by comparison was poor, and turned in an overall loss. The performance of the other two sectors (Small Growth and Deep Value) was even worse, and would have provided a major drag on anyone’s desire to Retire Rich.
This simplistic analysis demonstrated clearly the value of diversification. With hindsight, it would have been great if all a potential retiree’s money had been in Accenture which rose 180%, but not if all the investment had been in AIG. The exercise reinforced several investment rules. First, we all must be disciplined with our investment strategy whether it be 2007 or 2017. Second, never forget the value of diversification. As much as you may love a single company, keep that concentration at a manageable level. Third, make sure you review your portfolio regularly to confirm the strategy still fits your financial objectives.
I am far from convinced there is any value in a $4.99 retirement guide, but I still love reading about the possibilities of retiring in the South of France. Ooh la la!
Carl Gambrell
