Today is my husband’s birthday and we will celebrate by going to a boat-race dinner tonight. The boat-race is being held in London, between Oxford (his alma mater) and Cambridge. But what we are thinking about is not which shade of blue is faster on the River Thames, but what being a year older means for our portfolio.
The golden years have hit us both and it is worrying. Both my parents benefited from multiple pensions, particularly my mother who arrived in the USA in 1937 already owning American stocks which had been given to her grandmother by a NY relative working on Wall Street. By the time she retired, at 62, besides a healthy stock portfolio build up over the years, she collected Social Security, a pension from her job at what was then Chase-Manhattan Bank, and an-ever-higher pension in German marks from her job in Germany before she emigrated. When my father died she added a widow’s pension to the pile even though she turned down inheriting his estate (which went to her child and grandchildren.) The pensions were not taxed.
Given her background, and after taking over my father’s holdings, mom was invested mostly in US dividend-producing stocks, with a few foreign yield funds for diversification. I and my readers still own some of these yield funds today. Among my inherited stock portfolio holdings is Bristol-Myers Squibb which my mother bought because of a prescription she found healthful.
The days of ample retirement are gone. While we write about fixed income investments, we are not wildly enthusiastic about them. With one exception discussed below. Currently you can pick up a yield of 7 to 8% with some bonds and preferred shares from outside the USA. This sounds like it will see you out. But financial repression is always a risk: unleashing inflation to cut budget deficits here and abroad. So are new taxes (or default risks) on vehicles like triple tax-free bonds favored by geezers like me.
Plenty of experts say bonds make investing sense, including some older writers like Mark Hulbert, a commentator on marketwatch (who also rates newsletters), or General Joe Shaefer, USAF-ret., who writes a newsletter for investors in hisStanford Wealth Fund. Both say there are arguments for bonds. I am not yet convinced.
Yesterday I changed many of my passwords to avoid the Heartbleed Internet spy. Note that our website does not collect your credit card details directly, but only through the authorize.com system we use to link to our bank. So far my bank has not sought changes in our signup, perhaps because Jamie Dimon has other expenses to cover before JP Morgan Chase (successor to the bank where my mother worked) can deal with this irritating lack of cyber-security for its high-fee credit-card services. I will tell you when it is safe to change your password to get into www.global-investing.com Meanwhile google, yahoo, and probably lots of other e-mail sites are urging customers to change their passwords. Note that the risk of e-mail access is greater if you use the same password for many sites including your bank account. Be more creative.
More for paid subscribers from Britain, Canada, Hong Kong, South Africa, Ireland, Australia, Denmark, and India. Including an important note about our biggest yield play of all.
*We are heavily overweight in preferreds in the UK from one single bank which had to suspend preferred dividends for 18 months after its common shares were nationalized. We loaded up then. The prefs are still at a discount because yield-seekers fear it will happen again.
The Daily Telegraph reports today that Royal Bank of Scotland (the issuer of our prefs) has reached agreement with the UK government (owner of 81% of the bank at last count) to allow it to buy back for £1.5 bn the “golden share” which gives the British govt a veto on paying dividends to common shareholders. This will allow RBS to be privatized more easily in a few years, assuming that it remains on track to earn a profit.
For us owners of non-cumulative preferred shares of RBS and the C preferred shares of its sub, National Westminster, the news is encouraging. Preferred shares have preference and their dividends have to be paid before those on common shares. So our divvies are safer and our RBS shares should rise to close the gap from the $25 (par) at which they were issued. RBS also won permission from the European Union to delay from the end of 2013 (deadline missed) for ipo privatization of Williams & Glyn private bank branches, to be bought by The Corsair Consortium of institutions and private equity firms for £600 mn. While the deal is delayed, RBS crafted a new logo for the branches involved which seems to stress the ampersand rather than the venerable names of the banks being sold, to stress “partnership”. The Queen has an account at a Windsor branch of W&G.
