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February 13, 2012


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We have been retired almost 20 years. I was 58 when I retired and I am now 77. We were fortunate that we both had pensions, a nice home, no debt and an investment portfolio of $320K in 1992. I was also very fortunate in being able to do extremely well in the stockmarket to the point that before long we could afford to satisfy all of the listed "Wants". However we happened to be happy with our lifestyle and have made no significant changes to it since retiring. We have never had the need for housekeeping or landscaping maintenance services.

It's important to note that one's retirement needs change with time. As young retirees we still continued to do a lot of travelling, even more than when we were working but as we got older the travelling diminished and by the end of 2010 when I was 76 we decided to quit overseas travel.
I have added items to the list that, for us, are extra "Needs" since we don't have any unsatisfied "Wants".

•Need: Basic shelter, which is the home we have had for 34 years.
•Need: Basic utilities (heating, water, electricity, phone, cable, internet, no A/C)
•Need: Basic groceries, wine, eat out twice/week at fairly inexpensive restaurants.
•Need: Basic regular clothing, nothing fancy.
•Need: Health insurance coverage at a really great clinic.
•Need: Basic transportation, one '98 car we add 3,000 miles/year, the other '91 car we add less than 1,000 miles/year.
•Need: Entertainment: Netflix.
•Need: Insurance: Auto, Homeowners, Umbrella policy.

My goal is to retire at 50 with a good cash cushion. I'm at a net worth of $1 million at age 34, but we have 2 kids, and don't live a modest life.

My only worry is the damn market...I know historically is does well in the long-term, but these are different times.

@ Iam1Percent
History is an account of what has already happened and as you have noted these are different times.
As I mentioned above, I have been retired for almost 20 years and made a bundle during the Bubble, and using between 3 and 5 focused mutual funds, went on to parlay it into almost $7M which is now all in corporate and muni bonds, earning around 5% tax exempt and tax deferred, being held to maturity. In my days there were a whole lot fewer participants in the market and it was a lot more predictable. Currently the USA is in the worst financial shape it has ever been in and the conventional wisdom of investing in the broad market and counting on the long-term to do well doesn't appear to me to be a good bet.

If I were in your shoes I would be using a different approach. I would go back to my very earliest days in the market over 50 years ago and become a stock picker. I think you would be better served by holding a small basket of 10-12 stocks in the very best companies available. Of course, the one currently in the news is Apple computer (AAPL) but there are others such as MacDonalds (MACD) which also has a great record. Another one I like is KMP, an oil and gas company paying a dividend of about 5.5% and also with a great longterm record. It takes a lot more work than the LAZY approach of buying ETF funds that track broad market indexes but I would rather base my future retirement on owning some great companies than I would a basket containing everything from the biggest winner to the worst loser and all the others in between. That's the definition of mediocrity.

KMP, even though the P/E is ~360 and they are slowly increasing debt/assets (past 5 years)?

I'm fairly new at investing so maybe I'm missing something...

Here's a chart of annual return for KMP and VFINX (Vanguard's S&P500 fund).

Period ...... KMP ...... VFINX
6mo. ....... 67.15 ...... 33.74
1yr. ........ 31.03 ........ 3.37
2yr. ........ 27.68 ...... 14.18
3yr. ........ 28.93 ...... 20.19
5yr. ........ 19.57 ........ 0.58
10yr. ...... 18.02 ........ 3.85
19yr ....... 22.87 ........ 8.01

Right, I'm not doubting the stock's track record relative to the index. I'm more wondering what your thought process is - do you base it only off of steady past performance? Look at fundamentals, technicals, etc? How exactly would you pick stocks in this market?

I recently made a very tiny investment in KMP largely because my daughter, whose account I manage expressed an interest in putting $20K of her $2.7M account into stocks. We are both solely in individual bonds apart from that.

You asked, "How would I pick stocks".
I would use the proprietary database that I subscribe to.
I would load in all the stocks that they provide into their spreadsheet.
I would choose a particular time period, then rank them first by "Maximum Drawdown" during the period and start looking for the stock with the highest annual return along with a very low drawdown.
I would repeat the process for quite a few periods and would gradually form an opinion about the ones with the best performance. Lots of judgment and experience goes into this process. Once I have a short list of contenders I would go out of the spreasheet and start comparing the charts of the ones that interest me the most.
Even during the period from 1993 to 2007 when I was investing aggressively I used mutual funds entirely because there is definitely an advantage to having a lot of diversity in your holdings. Even now, for example with my muni bonds they are spread out over 92 different municipalities and many states.
The bottom line is that stocks are a lot of work and they are susceptible to becoming what is called the "Disaster de Jour" on a day that some unexpected and unpleasant news comes out.

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