How Much Should 40 Year Old Have In A 401 Investment Opportunity Times Two – Or Is It Four

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Investment Opportunity Times Two – Or Is It Four

As of March 23, 2018, the S&P 500 (at $2,588.26) was down about 10% from its all-time high on January 26, 2018 of $2,872.87, and down about 3 .2% for the year, likely in anticipation of an impending trade war. .

Additionally, interest-rate-sensitive securities were trading near 52-week lows as bond and other fixed-income speculators shed stocks in anticipation of at least three interest rate hikes in 2018.

Obviously, a market scenario like this is difficult for:

  • Major market players (institutional investors) whose bond stocks are shrinking.

  • Stock speculators have far too high a PE and stocks with low or no dividends.

  • Income-oriented investors (retired and “future-looking”) who hold positions in individual illiquid fixed-income securities.

  • 401k savings account holders whose pooled investment portfolios are, by design, far too heavily invested in stocks.

But it’s a veritable storm of opportunity for Market Cycle Investment Management (MCIM) portfolios. The MCIM process focuses only on fundamentally sound, S&PB+ or higher-ranked stocks of profitable, dividend-paying companies (Investment Grade Value Stocks). No individual stock is bought until it trades 20% below its 52-week high.

MCIM’s portfolios are diversified in many ways, and each security pays dividends or interest. New issues, NASDAQ companies and mutual funds have no place in MCIM portfolios, which also have strict profit-taking disciplines that eliminate the pain of seeing large profits slip away during corrections . Additionally, “cost-based” asset allocation precludes the need for portfolio “rebalancing” while ensuring annual income growth with asset allocation for income purposes of 40% or more .

As markets climb to record highs, the lack of individual stock investment opportunities is mitigated by the use of closed-end equity funds (CEFs). These are classically diversified, managed portfolios tradable “in real time”, covering most sectors of the market while offering a well above normal income (after expenses).

In the income goal “bucket”, well-diversified income CEFs (both taxable and non-taxable) are used to provide above-normal income from all types of generally illiquid securities…securities that (as CEF) magically become available in liquid form.

How have IGVS stocks and CEFs fared in the three major meltdowns in our lifetime?

  • In 1987, IGVS stocks were the first to rally, and there were no corporate bankruptcies or dividend cuts; few CEFs existed at the time and they were not a major portfolio, but individual interest rate sensitive securities rallied as interest rates were lowered.

  • In 1999, IGVS stocks and most CEFs did not “bubble” with NASDAQ and rallied strongly in the flight to quality following the dot-com disaster. “No NASDAQ, no new issues, no mutual funds” was a winning credo then, as it should be during the next major correction.

  • In 2008, everything changed and two or three IGVS financial services companies were crushed in the government witch hunt. Overall, there were few dividend cuts in stocks as IGVS companies rebounded from the bottom at a slightly faster pace than the S&P 500 through 2014. Income CEFs, however, outperformed the broader stock market from 2007 through late 2012, while maintaining their dividends until around 2016, when tax-free CEF yields began to decline.

So while some managed portfolios may have inherent quality, diversification and income issues during corrections, MCIM portfolios offer new investment opportunities. While some investment portfolios must deplete their capital to pay monthly income to retirees, the vast majority of MCIM portfolios have excess income that is used to grow capital in any market scenario.

Four varieties of investment opportunities exist as of this writing:

  • The number of IGVS shares falling 20% ​​below 52-week highs is on the rise.

  • There are around 40 primarily equity CEFs, representing a wide variety of market sectors, with current returns between 7% and 9% after all internal fees and expenses.

  • There are no less than sixty-one taxable income CEFs, representing a wide variety of security types, with current yields of between 7.5% and 9.5% after all internal fees and expenses.

  • There are at least thirty-one EFCs on federal tax-exempt income that pay between 6% and 6.6%, after all internal fees and expenses.

For the health of your long-term portfolio, be sure to take advantage…this time. Ten years have passed since the last significant market correction, and it makes sense to use an investment medium that provides the fuel to add positions at lower prices. The clock is turning.

The “add at lower prices” approach is particularly effective with CEFs, where each addition:

  • Lowers your cost base, accelerating the return of profit opportunities.

  • Increases your dividend yield on the stock, and.

  • Increase your annual portfolio income.

What’s that old scout motto? Right…

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