Hopscotching The Investment Media
The Wall Street Journal recently pointed out an interesting retirement strategy that can work for the fixed-income portion of your retirement portfolio. This is to put some money into money market funds and short-term bonds. Use that money to pay for the first five years of your retirement. In addition, buy TIPS maturing in five, 10, 15, 20, and 25 years. As each block of bonds matures, use the proceeds to pay for the next five years of retirement. This strategy will assure you that your portfolio will deliver a yield around two points higher than inflation. And you could also put extra cash in the 25-year TIPS, planning to buy a lifetime-income annuity at maturity - if your health is good.
NOTE: it would also make sense to add some stocks to such a portfolio in order to provide for growth potential.
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In Smart Money, we read that among several stock screens, the top performer in 2006 was one that looks for stocks with a high return on equity and a modest price/earnings ratio. By restricting picks to companies worth at least $1 billion, you reduce the risk that people using this screen will send up the price just before you buy. On the other hand, a similar screen (low price/sales ratios, steady earnings growth, and recent share-price momentum) actually picked losers in 2006. Reason? Too many of the companies selected were tied to commodities prices, which fell.
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Business Week tells us this is the first bull market in the past 45 years where the price/earnings ratio of the S&P 500 has contracted. In 2002, the typical S&P 500 stock traded at 17 times the next year's earnings. Today, the forward P/E ratio is 15. That means blue-chip stocks are moderately-priced and have room to run. What's more, high-quality, high-capitalization stocks are the safest place to be if the U.S. economy is heading for a soft landing - as most forecasters expect. After lagging small-caps for the past six years, large-caps may become leaders in 2007.
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NOTE: it would also make sense to add some stocks to such a portfolio in order to provide for growth potential.
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In Smart Money, we read that among several stock screens, the top performer in 2006 was one that looks for stocks with a high return on equity and a modest price/earnings ratio. By restricting picks to companies worth at least $1 billion, you reduce the risk that people using this screen will send up the price just before you buy. On the other hand, a similar screen (low price/sales ratios, steady earnings growth, and recent share-price momentum) actually picked losers in 2006. Reason? Too many of the companies selected were tied to commodities prices, which fell.
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Business Week tells us this is the first bull market in the past 45 years where the price/earnings ratio of the S&P 500 has contracted. In 2002, the typical S&P 500 stock traded at 17 times the next year's earnings. Today, the forward P/E ratio is 15. That means blue-chip stocks are moderately-priced and have room to run. What's more, high-quality, high-capitalization stocks are the safest place to be if the U.S. economy is heading for a soft landing - as most forecasters expect. After lagging small-caps for the past six years, large-caps may become leaders in 2007.
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posted by Bob Moser at
8:26 PM
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