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Breaking Down Investments Through Diversification - A Beginners Look

Breaking Down Investments Through Diversification - A Beginners Look

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Published by Ed Ball
Planning for "Your" Retirement
Planning for "Your" Retirement

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Published by: Ed Ball on Apr 06, 2013
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Breaking Down Investments Through Diversification

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Investing is the wave of the future when it comes to planning retirement. Today you are hard pressed to find a company with a lucrative retirement plan. State and local general funds are strapped making government pensions less attractive than years past. Cities are filing bankruptcy across the nation further endangering retirement pensions. CD’s aren’t paying enough to weather inflation, savings and checking accounts are a joke when it comes to yield. When the prices go up what happens to your

purchasing power? Chances are, you cut back on spending elsewhere. Hence the need to learn investing. I started investing, simply as a hobby. It didn’t take long to realize it was a means to financial freedom for vacations, new vehicles, nights out on the town, and little things here and there. My goal is never to be rich, but rather to be comfortable. One of the key ingredients is setting aside an emergency fund to cover the unexpected, i.e., car repairs, broken furnace, insurance deductibles, college funds, or whatever the case. The first payment coming out of your check should be addressed to: [place your name here] this is your emergency fund, do not touch it until the need arises. An emergency fund could be 2 month’s salary, I prefer six months to a year. Don’t worry if it takes you three or four years to develop the emergency fund, you’ll be glad you did. Now, once the emergency fund is established, you’re ready to consider investing. I went years without a cell phone, I didn’t own a flat screen TV for several years, I stay away from the newest fad to hit the market then once the prices dropped usually a few years later I’ll consider making a purchase. Investing has been referred to as a Ponzi scheme, too risky, a fool’s game, etc… and in the hands of the untrained, it can be a psychological nightmare and full of stress at every turn. But it need not be. There is plenty of educational information available for free on the internet. www.investopedia.com would be a great place to start. By creating a “paper portfolio”; one that is for training purposes only, and requires no actual investment money at www.finance.yahoo.com for example, select My Portfolio menu then select New. You can add a few stock symbols and follow along on a daily basis to see how your stock reacts with the market each day, week, or month. Use this time to learn the language of investing, how to read balance sheets, income statements, understand cash flow, yield, earnings per share, reading charts, understand the significance of technical indicators i.e., Stochastics, MACD, Volume, Money Flow Index, Bollinger Bands, Moving Averages, interpreting Candle Stick charting, etc.. If I can do it, anyone can. Keep in mind I took about 2 years of learning before investing my first set of funds, about $400.00. Of all the books I’ve purchased over the years, I strongly recommend The Complete Trading for
a Living: The Legendary Approach to Trading with the Companion Study Guide by Alexander Elder.(1993) It’s not cheap, but it is filled with all the technical analysis you need to know to assist you in the trading process. Stay away from get rich quick schemes, or workshops that promise you the world, the only person getting rich there is the vendor. There is no shortcuts, no matter what you hear or read.

Expect to make mistakes, I guarantee you it will happen, you will buy high and sell low; it is human nature to panic when prices drop, but learn from them, and attempt not to repeat them. Learn to use Stops. Trailing Stops safeguard your profits and trigger a sell when the market drops to the level you set.

The theory is to generate an investment of diverse opportunities with focus towards supplementing retirement income. A secondary consideration is not only generating high yielding income but to allow investment growth opportunity increasing the value of the portfolio. You will find there are various ways to invest. Some people invest in growth stocks, buy low sell high. Some folks short stocks, others use high yield dividend investing, while some investors day trade, some buy a stock and hold it for three months then sell. Others utilize Benjamin Grahams approach in value stocks. You need to find what meets your needs and works for you. Understand the difference between short capital gains and long capital gains for tax purposes. What is a K-1? Turbo Tax will now allow for importing of TDAmeritrade accounts which makes taxes so much easier to file. You have to account for each buy and sell per company, it was a pain in years past during tax preparation. For just a few select companies it’s not too bad, but when you’re buying and selling the transactions can add up to $100K pretty quick throughout the year. (Not that you physically have that much money, but you buy $20 stock, then sell for $22, you now account for the $42.00 for IRS purposes.) Never invest with money you cannot afford to lose. This is the Golden Rule of investing. There is always the threat of a disaster, or recession lurking that some companies cannot overcome. Determine your risk level, can you handle high risk, or medium, or simply play it safe with lower income and have inflation take away your purchasing power. I’ve abandoned 401Ks, I’d rather be in control and not lose half my life’s savings due to a recession. But above all else, have fun, take the time to properly research the companies before making an investment, what is the current market trend (Dow Jones Industrial Average Index is an excellent indicator) are prices increasing or decreasing, or is the market trading sideways? Now bring up a chart for the company, is it over bought, or oversold according to the stochastics? What is the underlying trend as seen with MACD? These are key factors to consider before jumping into your broker account and making the buy. Unless this is a stock that you just want to purchase and hold for a few years. But at least read the balance sheets, income statements and cash flow before making a purchase. Will the company grow, will it be able to make dividend payments, or is it too highly sacked by debt and destined to file bankruptcy? Are there inside traders within the company? What are the analyst saying? By taking a look at my current portfolio I will eventually have three groups of four companies paying dividends each quarter allowing for a monthly income to increase purchasing power. Monthly contributions and dividends collected are rolled into purchasing additional shares/units in one company per month to preclude excessive brokerage fees ($9.99 to purchase; $9.99 to sell). Setting up a spreadsheet provides a schedule for investing. Carefully monitor investments for changes that may place the dividend in danger of drastic cuts or non-payment.

Another issue for consideration is the increase percentage in dividends either quarterly or annually (past performance doesn’t guarantee future performance but is a good indicator based on low or high percentage increases.) i.e.,

KMP – Kinder Morgan Energy Partners L.P. dividend increase.
Prices Date Jan 29, 2013 Oct 31, 2012 Jul 27, 2012 Apr 26, 2012 Jan 27, 2012 Open High Low Close Volume Adj Close*

1.29 Dividend 1.26 Dividend 1.23 Dividend 1.20 Dividend 1.16 Dividend

Don’t take my word for it, do your own homework. I’m not liable for your losses. But would gladly share in your earnings! I am available for any questions you may have or assistance if need be. Keep in mind, I didn’t have the luxury of starting out with this portfolio, this has been in the making for approximately 10 years. There are cheaper stocks available to help you generate the income you will need to make these type of purchases in the future. I’d recommend small utility companies, business development companies, master limited partnerships, REITs, to help generate the revenue you will need to successfully begin your journey, you may want to ask yourself, what company is the leader in any given sector, and why? Remember, even Warren Buffet began with only $500. Another great investor to learn from would be Peter Lynch. He believed in investing in companies with products he understood, and was one of the best. Cash – Emergency Fund (six months of income or greater) includes household savings, checking, and money market funds. PIMCO Bonds - $11.30 3.65% Yield. The investment seeks maximum total return, consistent with preservation of
capital and prudent investment management. The fund normally invests at least 65% of its total assets in a diversified portfolio of Fixed Income Instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts, or swap agreements. It invests primarily in investment-grade debt securities, but may invest up to 10% of its total assets in high yield securities ("junk bonds") rated B or higher by Moody's, or equivalently rated by S&P or Fitch, or, if unrated, determined by PIMCO to be of comparable quality.

Agree Realty Corp. (ADC) - $29.97 annual dividend/yield $1.64/5.58%. Agree Realty Corporation is a selfadministered and self-managed real estate investment trust (REIT). The Company's operations are conducted through, directly or indirectly, Agree Limited Partnership (Operating Partnership), of which it is the sole general partner, and in which it 96.59% interest as of December 31, 2011. It is focused primarily on the ownership, development, acquisition and management of retail properties net leased to national tenants. It specializes in acquiring and developing single tenant net leased retail properties for industry retail tenants. At December 31, 2011, its portfolio consisted of 87 properties. In January 2013, the Company acquired 317 South State Street for redevelopment. In January 2013, the Company sold Walgreens on Michigan Avenue in Ypsilanti , Michigan. In January 2013, it acquired Dick's Sporting Goods and Petsmart in St. Joseph, Missouri. In March 2013, it acquired three single tenant assets leased to retailers.

American Capital Agency Corp (AGNC) - $32.79 annual dividend/yield $5.00/15.31% American Capital
Agency Corp. (AGNC) is a real estate investment trust (REIT). The Company earns income primarily from investing on a leveraged basis in agency mortgage-backed securities. These investments consist of residential mortgage passthrough securities and collateralized mortgage obligations (CMOs) for which the principal and interest payments are

guaranteed by government-sponsored entities, such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), or by a United States Government agency, such as the Government National Mortgage Association (Ginnie Mae) (collectively, GSEs). It may also invest in agency debenture securities issued by Freddie Mac, Fannie Mae or the Federal Home Loan Bank (FHLB). The Company is managed by American Capital AGNC Management, LLC, which is an affiliate of American Capital, Ltd.

Clorox Corp. (CLX) - $86.61 annual dividend/yield $2.56/2.94% The Clorox Company (Clorox) is a
manufacturer and marketer of consumer and professional products. Clorox operates in four segments: Cleaning, Household, Lifestyle and International. Clorox sells its products primarily through merchandisers, grocery stores, other retail outlets, distributors and medical supply providers. Clorox markets some of the brand names, including its namesake bleach and cleaning products, Clorox Healthcare, HealthLink, Aplicare and Dispatch products, Green Works naturally derived home care products, Pine-Sol cleaners, Poett home care products, Fresh Step cat litter, Glad bags, wraps and containers, Kingsford charcoal, Hidden Valley and K C Masterpiece dressings and sauces, Brita water-filtration products, and Burt's Bees and gud natural personal care products. During the fiscal year ended June 30, 2012 (fiscal 2012), Clorox acquired HealthLink, Aplicare, Inc., and Soy Vay Enterprises, Inc.

Johnson & Johnson (JNJ) - $82.04 annual dividend/yield $2.44/2.96% Johnson & Johnson is a holding
company. The Company is engaged in the research and development, manufacture and sale of a broad range of products in the health care field. The business of Johnson & Johnson is conducted by more than 275 operating companies located in 60 countries, including the United States, which sell products in virtually all countries throughout the world. The Company's primary focus has been on products related to human health and well-being. The Company is organized into three business segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics. The Company's subsidiaries operate 146 manufacturing facilities occupying approximately 21.6 million square feet of floor space. In March 2013, Johnson & Johnson's Cordis Corporation announced the acquisition Of Flexible Stenting Solutions, Inc.

Kimberly-Clark Corp (KMB) - $99.31 annual dividend/yield $3.24/3.29% Kimberly-Clark Corporation
(Kimberly Clark), is engaged in the manufacturing and marketing of a range of products made from natural or synthetic fibers using advanced technologies in fibers, nonwovens and absorbency. The Company operates in four segments: Personal Care, Consumer Tissue, K-C Professional & Other and Health Care. The Company has manufacturing facilities in 36 countries and products sold in approximately 175 countries. Its products are sold under brands, such as Kleenex, Scott, Huggies, Pull-Ups, Kotex and Depend. The Company's geographical areas cover the United States, Canada, Europe, and Asia, Latin America and other. In April 2013, it announced the acquisition of the anesthesia business of Life-Tech, Inc.

Kinder Morgan Energy Partners L.P. (KMP) - $88.05 annual dividend/yield $5.16/5.85%. Kinder Morgan
Energy Partners, L.P. (KMP) is a pipeline transportation and energy storage company in North America. KMP. The Company operates in five business segments: Products Pipelines, Natural Gas Pipelines, carbon dioxide (CO2), Terminals and Kinder Morgan Canada. In August 2012, the Company acquired Tennessee Gas Pipeline (TGP) and a 50% interest in El Paso Natural Gas (EPNG) pipeline from Kinder Morgan, Inc. In November 2012, Tallgrass Energy Partners, LP acquired Kinder Morgan Interstate Gas Transmission (KMIGT), Trailblazer Pipeline Company, the Casper-Douglas natural gas processing and West Frenchie Draw treating facilities in Wyoming, and KMP's 50% interest in the Rockies Express Pipeline (REX). Effective March 1, 2013, Kinder Morgan Energy Partners LP (Kinder Morgan Energy) acquired the remaining 50% interest, in El Paso Midstream Group Inc

Lockheed Martin Corp (LMT) - $94.53 annual dividend/yield $4.60/4.82%. Lockheed Martin Corporation is
a global security and aerospace company principally engaged in the research, design, development, manufacture, integration, and sustainment of technology systems and products. The Company also provides a range of management, engineering, technical, scientific, logistic, and information services. It serves both domestic and international customers with products and services that have defense, civil, and commercial applications, with its principal customers being agencies of the United States Government. It operates in five business segments: Aeronautics, Information Systems & Global Solutions (IS&GS), Missiles and Fire Control (MFC), Mission Systems and Training (MST), and Space Systems. In November 2012, the Company acquired Chandler/May, Inc. In December 2012, the Company acquired CDL Systems Ltd.

McDonald’s Corp. (MCD) - $101.42 annual dividend/yield $3.08/3.06%. McDonald's Corporation
franchises and operates McDonald's restaurants in the global restaurant industry. These restaurants serve a menu at various price points providing value in 119 countries globally. As of December 31, 2011, of the 33,510 restaurants in

119 countries 27,075 were franchised or licensed (including 19,527 franchised to conventional franchisees, 3,929 licensed to developmental licensees and 3,619 licensed to foreign affiliates (affiliates)-primarily Japan) and 6,435 were operated by the Company. McDonald's menu includes hamburgers and cheeseburgers, Big Mac, Quarter Pounder with Cheese, Filet-O-Fish, several chicken sandwiches, Chicken McNuggets, Snack Wraps, French fries, salads, oatmeal, shakes, McFlurry desserts, sundaes, soft serve cones, pies, soft drinks, coffee, McCafe beverages and other beverages.

Martin Midstream Partners L.P. (MMLP) - $38.81 annual dividend/yield $3.08/8.04%. Martin Midstream
Partners L.P. is a limited partnership with a diverse set of operations focused in the United States Gulf Coast region. The Company's four primary business lines include terminalling and storage services for petroleum products and byproducts; natural gas services; sulfur and sulfur-based products gathering, processing, manufacturing, marketing and distribution, and marine transportation services for petroleum products and by-products. The Company operates through four business segments: Terminalling and Storage, Natural Gas Services, Sulfur Services and Marine Transportation. As of December 31, 2011, Martin Resource Management owned an approximate 28.5% limited partnership interest in the Company. In October 2012, it purchased certain specialty lubricant product packaging assets (the Packaging Assets) from Cross Oil Refining & Marketing, Inc. (Cross), a wholly-owned subsidiary of the Parent. On December 31, 2012, the Company acquired Talen's Marine & Fuel, LLC.

AT&T Inc. (T) - $38.02 annual dividend/yield $1.80/4.75%. AT&T Inc. (AT&T) is a holding company. AT&T is
a provider of telecommunications services in the United States and worldwide. Services offered include wireless communications, local exchange services and long-distance services. AT&T operates in four segments: Wireless, Wireline, Advertising Solutions and Other. Its Wireless subsidiaries provide both wireless voice and data communications services across the United States, and through roaming agreements, in a substantial number of foreign countries. Wireline subsidiaries provide primarily landline voice and data communication services, AT&T Uverse TV, high-speed broadband and voice services (U-verse) and managed networking to business customers. AT&T's Other segment includes customer information services (operator services) and corporate and other operations. On May 8, 2012, AT&T sold its Advertising Solutions segment.

Stocks to Watch for future purchase: Alliance Resource Partners L.P. (ARLP) - $64.00 annual dividend/yield $4.43/6.94%. Alliance Resource
Partners, L.P. (ARLP Partnership) is a diversified producer and marketer of coal primarily to major United States utilities and industrial users. ARLP Partnership operates 10 underground mining complexes in Illinois, Indiana, Kentucky, Maryland, and West Virginia, including the new Tunnel Ridge mine in West Virginia. The Company is constructing a new mine in southern Indiana, operate a coal loading terminal on the Ohio River at Mt. Vernon, Indiana and are purchasing and funding development of reserves, constructing surface facilities and making equity investments in White Oak's new mining complex in southern Illinois. It also constructing a new mine in southern Indiana, operate a coal loading terminal on the Ohio River at Mt. Vernon, Indiana. Its mining activities are conducted in three geographic regions: Illinois Basin, Central Appalachian and Northern Appalachian regions.

Cedar Fair L.P. (FUN) - $40.40 annual dividend/yield $2.50/6.21%. Cedar Fair, L.P. is a limited partnership
managed by Cedar Fair Management, Inc. (the General Partner). The Company, along with its affiliated companies (the Partnership), is an amusement park operator, which owns 11 amusement parks, six outdoor water parks, one indoor water park and five hotels. The amusement parks include Cedar Point, located on Lake Erie between Cleveland and Toledo in Sandusky, Ohio; Kings Island near Cincinnati, Ohio; Canada's Wonderland near Toronto, Canada; Dorney Park & Wildwater Kingdom (Dorney Park), located near Allentown in South Whitehall Township, Pennsylvania; Valley fair, located near Minneapolis/St. Paul in Shakopee, Minnesota; Michigan's Adventure located near Muskegon, Michigan; Kings Dominion near Richmond, Virginia; Carowinds in Charlotte, North Carolina; Worlds of Fun located in Kansas City, Missouri; Knott's Berry Farm and California's Great America (Great America) located in Santa Clara, California.

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