Your Basket vs. Their Index

I am a firm believer that for many people the best investment they can make in the stock market is to just buy a few low expense Index’s and let their money ride until they retire. This same advice is supported by Warren Buffet, Jack Bogle and many others.

But, for those of us that want to spend some time, do our research and try to beat the market there is another option that still offers stability and control. I call it building baskets of stocks. The problem I have with relying on an index is that you get you get the great with the terrible. Large index’s don’t have a choice, they needs a wide spread of stocks and feel comfortable holding poor performers because they primarily don’t want to take the capital losses.

I’ll give you an example of my Industrial Stocks “basket” as compared to the well known Select Sector SPDR ETF Industrials (XLI).







Here are the holdings of the XLI at the end of January:

  1. General Electric GE 9.26%
  2. *Union Pacific UNP 5.92%
  3. *3M MMM 5.56
  4. *United Technology UTX5.27
  5. Boeing BA 5.25
  6. * Honeywell HON 4.21
  7. UPS 3.66
  8. Danaher DHR 2.95
  9. * Lockheed Martin LMT 2.79
  10. Caterpillar 2.69

The stocks shown with a “*” are also in my Industrial Basket, along with General Dynamics, FedEx and United Rental (URI). I usually classify FedEx in my “transportation basket” of stocks.

Now let’s compare:

  1. General Dynamics is up 32% in last 12 months, Danaher has barely kept pace with the S&P at 14%
  2. UPS had a huge earnings miss again in the 4th quarter, just like the 4th quarter of 2013, whereas FedEx was up 32%.
  3. General Electric was up a disappointing 1% in the last 12 months and Caterpillar was down 13%.

If you want to take the time and do a little homework you can build your own “baskets” of winners, instead of going with the index “average” performance stocks.

In future posts I’ll give you some of my other “basket” choices that also outperform the market on a consistent basis.



Is NASDAQ 5000 Like the Crashing Bubble of 2000?

Not to be too picky, but the actual high was 5049. To refresh your memory, when the NASDAQ hit its high it held it for just 31hours before it dropped 80% over the next 2 ½ years. Will the same thing happen again in 2015?

I don’t think so for a number of reasons. This is why things are different, even though both the Dow and S&P are at all time high’s.  First of all, in 2000 the NASDAQ traded at 100 times earnings (P/E) multiple, today it trades at about 21, only slightly higher than the S&P 500 18 x earnings. Secondly, Apple accounts for almost twice the market weight of the next biggest stock. Apple is probably one of the most financially sound companies in the world. By the way, Apple only trades at a 14 P/E, far less than the overall market. Of the 240 point rise in the S&P this year, Apple accounts for about 130 weighted points of the increase. A good reason that the number 1 stock in all equity hedge funds and equity index’s is Apple (APPL).

You might be interested in the difference between the top company’s then and now, just check out the “bubble” P/E’s of 2000.

Nasdaq 5000







Things look a little different, however Amazon sure looks like a 2000 bubble stock!



My Current Allocations – Well Balanced for Growth


I was recently asked to publish my current portfolio allocations; I’ll share them with you with the caveat that everyone’s situation is different.

My current investment goals include:

  1. Provide security while taking advantage of market growth.
  2. Consistently outperform the market (SPY) in “total returns “on both a quarterly and annual basis.
  3. Pick best of breed performing stocks and ride the winners.
  4. Exit positions when the economic cycle changes or an individual stock story changes
  5. Rebalance the overall portfolio as necessary.
  6. Maintain a tax-friendly environment; pay the least amount of fees as possible.
  7. Maintain a small exposure to bonds, but include “bond-like” equity’s such as REIT’s and higher yielding S&P stocks.
  8. Reinvest all dividends and maintain 5-7% cash for buying opportunities.
  9. Always has a “buy” list and quarterly update a “sell” list.

Below is a series of charts showing my portfolio including a few Morningstar analysis of my portfolio. In future articles I’ll further discuss my strategy and some best of breed choices.












A Fixed Income Dream – A Dividend Increase Every Year for Over 35 Years








Investors either in retirement or planning on retiring in a few years are always looking for ways to insure they have a secure and steady source of income.

Here are some facts for your review:

  1. The use of bonds for fixed income has been a favorite option for many years. However, bond yields since the 2009 financial crisis have fallen so far they may no longer be a viable option.
  2. Investors may need to generate 6-8% a year in total returns to make sure they won’t out-live their money. Bonds yielding 2-3% just won’t do that for you, especially given the guarantee that bond prices will fall as future rates start rising.
  3. Here are 5 blue-chip stocks that you will recognize, they have not only paid dividends for over 35 years, but have also increased their dividends each year for over 35 years.
    1. Procter & Gamble (NYSE:PG) currently pays a 2.99% dividend and has increased its dividend each year for the last 58 years.
    2. Altria Group (NYSE:MO) currently pays a 3.80% dividend and has increased its dividend each year for the last 44 years.
    3. SYSCO Corporation (NYSE:SYY) the largest food distributor in the US currently pays a 3.03% dividend and has increased its dividend each year for the last 43 years.
    4. PepsiCo (NYSE:PEP) currently pays a 2.83% dividend and has increased its dividend each year for the last 42 years.
    5. Clorox (NYSE:CLX) currently pays a 2.72% dividend and has increased its dividend each year for the last 37 years.
  4. Each of these blue-chip stocks have a high probability of increasing their dividends each year during the years of your retirement.
  5. The nice thing about owning these blue-chip stocks, not only do they pay consistently increased dividends, they may also have capital gains over the years.



Disclosure: I am long PG, MO,PEP and plan on adding CLX in the near future.

Is your 2014 Social Security Benefits Taxable – Maybe, and it’s Complicated

Many people believe the old adage that Social Security is not taxed. Years ago these benefits were not taxed, but today they can be depending on other factors.

Here are the rules for 2014 tax on Social Security, based on your filing status:


  • Your combined income* is between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
  •  If your combined income is more than $34,000, up to 85 percent of your benefits may be taxable.

Married Filing Jointly

  • If you and your spouse have a combined income that is between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
  • If your combined income is more than $44,000, up to 85 percent of your benefits may be taxable.

Married Filing Separately

  • You are out of luck, all of your benefits are usually taxable.
  • Keep in mind that Married Filing Separately is a really bad classification and has a lot of tax penalties.

Strategy Calculation

For every dollar of extra income you earn above the lower threshold, $0.50 of your Social Security benefits will be subject to tax. Above the upper threshold, each extra dollar of income adds $0.85 to the total benefits that the IRS will tax.

How to Calculate Combined Income

Your adjusted gross income

 + Nontaxable interest (like tax-exempt income from municipal bond interest)

+ ½ of your Social Security benefits

 = Your “Combined Income

This Stock has been flat for 3 years – You’ll just love it!

First look at this chart, this stock hasn’t moved more than $1.00 in the last 3 years. Why would you possibly want to own it in your portfolio? Because it is a “money machine”!!!!

 Barclays Pre






This is an excellent example of a “preferred stock” that is a money machine. It pays a current 7.70% quarterly dividend that is a “qualified dividend” for tax purposes. The dividend is fixed at $2.03/year. It trades under the symbol BCSPRD (Fidelity) you can look it up on Yahoo Finance under BCS-PD.  Barclays Bank is a UK based and worldwide financial powerhouse. It carries a S&P BB rating (not bad at all). At this current yield, you will double your investment every 9 years by just re-investing your dividends each quarter.  This preferred was originally issued at $25/share and 8.13% yield. As it rose in price to $26.xx the yield dropped to the current 7.7%. If you bought it at the initial $25 price you would still be getting the 8.13% yield.

For those of us who need a well balanced portfolio and are always looking for non-volatile stocks that are also tax friendly, preferred stocks are a great choice. I have allocated a portion of my core portfolio to quality preferred stocks with high-yields.  In general, they don’t go up or down in price but they sure crank out their nice steady dividends.

Preferred stocks act almost like a bond. They have coupon values, fixed dividends, call or expiration dates and so forth.

You can learn more about Preferred Stocks by checking out these sites.


What Type of Assets Go into Taxable vs. Retirement Accounts

It really is a classic question many investors have. How do I decide what type of stocks, bonds and funds to put into my taxable brokerage account vs. my tax deferred 401K/IRA accounts? The overall idea is to reduce the impact of taxes on your investments. There is no “one size fits all” approach and sometimes your allocation depends on what stage of life you are in. I’ll assume in this article that you are over 50 and planning or are in retirement.

Tax Deferred 401K/IRA Accounts:

  1. The strategy is to have higher tax items in these accounts.
  2. Stocks or funds where dividends are taxed as “ordinary income”.
  3. Mutual Funds or ETF’s that have a high beta, or churn. This means the portfolio can have big tax consequences since they typically have short term capital gains taxed as ordinary income.
  4. REIT’s and BDC’s, whose dividend payouts are generally considered nonqualified and taxed at ordinary income tax rates.
  5. Any preferred stock who’s dividends are taxed as ordinary income, i.e. preferred REIT’s.
  6. Trust preferred’s that are taxed as ordinary income.
  7. Dividends from some foreign stocks and funds that are taxed as ordinary income.
  8. Options trading

Taxable Accounts:

  1. Strategy is to have tax friendly assets in this account and also a high degree of control.
  2. All cash for retirement living expenses or an emergency fund.
  3. Growth stocks that don’t pay dividends but will be held for long term gains.
  4. Tax-free bonds and bond funds.
  5. Unless you are looking for a “no-income” approach, stocks or funds with “qualified dividends”.
  6. MLP’s, if held for a long time since most distributions are a “return of capital” until the stock is sold.
  7. Any investment used as a “hedge” such as Gold stocks, inverse S&P etc. since they can be used for an offsetting capital loss at tax time if desired.

ROTH IRA Accounts

  1. This is the best account to hold high tax items in.
  2. It is also probably the safest place to shelter future income since the government has constantly changed tax rates and thresholds on taxable and tax deferred accounts (ordinary income tax rates). It’s hard to believe the government would change the tax-free provisions of the ROTH IRA.