Mutual Funds Should Be Part of Investment Mix

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Posted: May 24, 2017 12:01 AM

DEAR BRUCE: I recently retired at age 62. I have no major debts. Between my wife and me, our pensions and Social Security cover our mandatory costs, including medical insurance and taxes.

I have $850,000 in a pre-tax IRA to be used for inflation of our mandatory costs and also discretionary expenses, which I consider to be important to my mental health. You've been very clear about your preference for investing in a limited number of large, dividend-paying companies. Do you do so at the exclusion of mutual funds such as S&P 500 Index, dividend-oriented, international or bond funds? Most advisers recommend a greater variety than you do. Thank you for providing an informative column. -- D.F.

DEAR D.F.: You're correct when you observed that my preference in investing is large American companies paying a 2 percent to 4 percent dividend, plus a growth rate of 2 percent to 3 percent a year. This is not in any way at the exclusion of mutual funds -- S&P 500 Index and international or bond funds.

In my opinion, over the long haul, the investment in solid, dividend-paying American companies is the best way to go. However, please don't follow my advice to the exclusion of these other possibilities, all of which have something to recommend them.

DEAR BRUCE: I read in a recent column where you recommended to a first-time investor that he spend six months to a year studying investing before he decided where to put his money. What if one has no interest in learning about the science of investing and instead puts their money in a managed account such as what Schwab and other companies offer?

My husband always says that just as the people who work at this have no interest in teaching neuroscience, as he does, he has no interest in studying their field. I'm sure you would argue that he would have a much greater personal investment in managing his own money than an adviser would. My husband feels that an experienced professional would be more likely to make better choices than he.

What is your opinion of managed investment accounts for those of us who don't care to study and spend so much time working on our portfolio? -- C.M.

DEAR C.M.: I have no quarrel with your husband's notion of hiring a professional to handle your account. In no way am I suggesting that with smaller accounts you can't find someone to manage the money, but the reality is, unless you're investing at least close to seven figures, you want to be very careful. A smaller sum is not enough to legitimately hold the attention of the investment adviser.

Assuming the account is large enough, by all means contact three or four companies, explain your situation and have them make suggestions as to what they would advise if they were handling your account. Choose the one you feel best suits your needs.

(Send questions to bruce@brucewilliams.com. Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.)

(The Bruce Williams Radio Show can now be heard 24/7 via iTunes and at www.taeradio.com. It is also available at www.brucewilliams.com.)