Blue-Chip Dividend Growth Stocks Today's Strong Option For Retirement Portfolios - Part 1
http://news.morningstar.com/articlenet/SubmissionsArticle.aspx?submissionid=144075.xml
There is a confluence of factors that are painting a very odd picture of current investor behavior. Common sense and a careful analysis of the market dynamics between equities and bonds today would indicate that investors should be acting in the exact opposite manner than they are. Interest rates are hovering at a 100-year low, which creates two problems for investors. First, there is not enough return from bonds to fund a retiree's income needs or to fight inflation. Second, investing in bonds with interest rates so low makes it riskier to own bonds today than it has been in over a century.
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Nevertheless, investors are not only making a classic mistake, I believe they are making a very obvious and thus quite avoidable mistake. It is an undeniable fact that bond prices go down when interest rates go up. Since interest rates cannot go to zero or below, it logically follows that interest rates have nowhere to go over the long term but up. Perhaps, as many believe, federal intervention may keep rates low for another year or so. But in the longer run, the powerful forces of the market can only be contained for so long.
Yet given what I've already said, we continue to see that bond mutual fund inflows remain at a record high, while simultaneously equity fund outflows are some of the largest on record.
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In searching the Internet for a long-term graphic on 10-year U.S. Treasury notes I came across the following 110-year chart courtesy of the financial blog Observations. Although the chart from 1950 through 2010 illustrates a clear mirror image of interest-rate behavior, the portion going back to 1900 is even more illuminating. This is not statistical mumbo-jumbo showing correlation without causation, this is a factual depiction of interest rates spanning over 110 years.
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To summarize, the only rational reason that people are eschewing stocks in favor of bonds is fear. The precipitous drop in stock prices during the great recession has yet to be forgotten. On the other hand, what is forgotten is the fact that the same thing can happen to bonds as well. Therefore, I believe the irrationally exuberant confidence in bonds is ill-gotten. The only reason bond prices haven't fallen in 30 years is because interest rates have been falling since the early 1980s. When interest rates fall, bond prices go up and therefore an even greater aura of safety surrounds bonds. Keep in mind; although prices on pre-issued bonds will go to a premium as interest rates are falling, the premium vanishes at maturity.
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Additionally, there are several facts regarding the long-term ownership of quality dividend paying equities that many people either overlook or forget. But perhaps the most important fact is that any of the damage that the great recession caused was only temporary in nature for the prudent and intelligently patient investor. The prudent investor is defined as one who in the first place, was careful to only invest in blue-chip equities when valuations made sense. This is especially true for the best-of-breed blue chips that continued to generate strong earnings during the recession and consequently raised their dividends. Inevitably, the stock prices on quality companies whose earnings held up eventually return to fair value.
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In other words, as long as the stocks were not panic sold out into price weakness, existing shareholders soon recovered their temporary losses while continuing to enjoy a steadily growing dividend income stream along the way. As I also stated before, it’s not the volatility itself that represents risk, but rather the emotional reaction to volatility which is where the real risk sits.
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As I have contended in this article, and others, as long as solid operating results remain intact, then I believe that shareholders have little to worry about except fear itself. Stock price volatility is often more a function of the emotional response than it is the rational response in the short run. However, in the longer run, I have long believed that dialectic thinking will prevail and rational behavior will follow. In other words, I was confident that stock prices will inevitably return to their fundamentally justified valuations.
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There are many pundits and prognosticators that never weary of attempting to convince investors on how risky it is to invest in equities, even high-quality dividend blue-chip paying equities. Invariably, they will always point to volatility as the evidence supporting their thesis that stocks are too risky of an investment for retirees. Personally, I believe this is a great travesty that is prominently promogulated upon an unwary investing public. Hopefully, it is more out of ignorance of the true facts than it is by bad intentions. The inevitable interruptions in the business cycle have conditioned people into believing that stocks are riskier than they really are, at least in my opinion.
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As I have discussed in this article and many previous articles, I believe investors should behave according to the advice of legendary hockey star Wayne Gretzky who taught us "I skate to where the puck is going to be, not where it has been." In that vein, I believe that tomorrow successful investors will follow Wayne Gretzky's lead.
For the past several decades bonds have been a great refuge of safety and attractive return, especially for the investor desirous of income. But I believe a careful examination of the 110-year-old 10-year Treasury bond history presented in this article indicates that that is about to change. Conversely, I believe the future for US based dividend paying equities is quite bright. At least that is where I recommend skating in today's investment environment.

Reply to @kevindow: There's a general dislike towards equities by much of the retail population, it seems, which now includes rich people (according to a poll CNBC was discussing yesterday), who are buying diamonds and other things - hard assets (http://www.cnbc.com/id/47446781). "A recent survey from Harrison Group and American Express Publishing found that the wealthy have cut back their allocations to stocks dramatically since the economic crisis."
Personally, my view:
If you are near retirement age, it's understandable not wanting to take considerable risk and focusing on fixed income.
Otherwise, as I noted in another thread, I really don't understand buying treasuries here, and while corprates and dividend paying stocks are fine and great, the race for yield is an immensely crowded trade - everyone and their cousin wants yield. That trade could go on for years, potentially, but I think it gets to a point where people may look at yield first and fundamentals second.
People definitely don't like stocks (please, someone start liking stocks so CNBC can STFU about how the retail investor hasn't come back - it's getting to the point where I can't even have it on in the background - and now CNBC's number one idiot, Steve "Baghdad Bob" Leisman just said that the US is better off than the rest of the world, because look at this great Facebook IPO we're doing), and while the sentiment could be an indicator in favor of them, I think people have to be able to deal with what I think will be continued significant volatility because problems (like Europe) continue to be postponed and keep coming back.
I don't think many people are willing to deal with that kind of volatility and furthermore, I think people see what's going on and - whether they're eventually going to be proven right or not - it just reinforces their view that the market is rigged, the market is too risky, the market is... (fill in the blank.) I will say that - and I've said this before - if the market really cracks again there will be tumbleweeds blowing through the NYSE - you'll lose the interest of another large portion of the population, both wealthy and not.
Personally, I have some funds and a number of individual holdings where I think there's a compelling long-term story/theme and fundamentals (as I noted yesterday, largely overseas.) What else can ya do?
As for rich folks, I think their view and their pulling money is why you've seen a number of hedge fund managers looking for "permanent capital" (Ackman: "... with permanent capital we can be more opportunistic during periods of market and investor distress.”) by either going for a public fund (Loeb, possibly Harbinger and Ackman now apparently early in 2013 - http://www.insidermonkey.com/blog/ackman-to-go-public-with-pershing-square-holdings-in-2013-11985/) or a reinsurance company (Loeb, Einhorn, SAC) or are funds converting to mutual funds (RLSFX and the new Pimco Long/Short fund.)

I fully believe that you are doing what is right for you and I fully agree that those in/near retirement age should be conservative. I have a lot of concerns about a move to treasuries that does not seem sustainable and could reverse in a rocky manner. However, solid investment grade bond funds that are well-managed are probably fine, at least for a while.
The only thing I really don't understand is the appeal of treasuries at these levels - I just think the fundamentals are terrible and you're not being paid for the level of risk.
Again though, I don't have any issue with what you're doing and believe that you've managed your portfolio in a way that's right for you - and you've posted the results, which - for the desired risk level - are very good and consistent.
I can not get treasuries at these levels and I'm rather concerned that maybe the rush for yield by everyone and their cousin will cause problems down the road (some dividend stocks still seem a little overbought after the recent market tumble), but at my age - different situation. I wouldn't want someone at/near retirement age to take some of the risks I'm taking.
I do think - and agree with an excellent article from Pimco All Asset manager Rob Arnott that was posted a while back - those near retirement age are not going to take risk and that's going to create headwinds for assets.
I don't think you should sell TEGBX or FNMIX (especially the former), but everyone knows their own desired level of risk.
Bad News For Boomers (Arnott/WSJ)
http://online.wsj.com/article/SB10001424052970204795304577223632111866416.html

Howdy,
For what it is worth...............
Regardless of the current mood swings in the equity sectors, I do not like the implications of EM bonds having larger down day percentages than many equity funds. This action will continue to follow through strongly today with a likely -1% range. I see this action as twitchy money moving to other places with less credit quality risk and related.
Our FNMIX holdings have been greatly reduced; as well as TEGBX, which has followed the EM bond sector decline very closely. As we have some limited choices in some retirement accts.; the monies from these sells were moved either to FBNDX and FTBFX.
Tomorrow we'll take another review of the equity holdings, too. And Greece is still in the picture, eh? Asia should hold some better clues with the Tuesday open there.
U.S. retail sales and a few other reports will be presented this week. Whether the numbers are of value to the market place remains a mystery.
Scott and Hank, the above should cause some head shaking from both of you. Regardless, if either of you ever threaten to stop posting or leave MFO, you better have a darn good reason.........I'll track you down to change your mind. All here need and enjoy your continued input.
Regards,
Catch

At this point in my life and retirement, I only use asset allocation as a tool and while I have slowly been increasing fixed income with a goal of 25-30%, I don't make changes from technical indicators.

Hi Guys,
In its May 10, edition, the WSJ honored great stock analysts on an annual basis. The Journal prepared and published an extensive series of articles that featured a listing of the three top master stock pickers in 44 sub-sector equity categories.
These top performers were granted Olympic-like status, similar to the newly minted gold, silver, and bronze metals now awarded by Morningstar in their second ranking formulation. This second Morningstar scoring procedure is purportedly forward looking in character, and supposedly contrasts with its famous “star” system which is fully rear-mirror looking by design.
The WSJ rankings share the same attribute as the Morningstar Star system. The Star formula has revealed its mutual fund selection shortcomings over time. How useful is the WSJ assessments with respect to individual stock picks?
On an individual stock picker basis, the WSJ listings show impressive results for the few category winners. But this is using hindsight bias; the champions for 2011 clearly established their superior records for that calendar year. But could the Journal identify these potential winners before the record was accumulated and evaluated? How persistent is performance over time? An overarching question is how skilful are the stock picker elite as a group? Do they really benefit their clients as a total?
All stock analysts hired by financial firms are smart folks. They have great educations, super support staff, considerable on-the-job experience, and are highly motivated by personal pride, institutional recognition, and financial incentives. If anyone can successfully project future stock price movements, these guys should be the chosen ones.
Intelligence, training and experience do matter. But the impact of these positive factors are muted if the price movements are chaotic by nature because of unknowable exogenous events and by internal complex feedback loops that are not modeled, perhaps not even recognized. The problem is further aggravated by irrational and inconsistent public behavioral responses. Investors reactions change remarkably when confronted with identical decision scenarios. Patterns get distorted over even short timeframes.
Additionally, as Nassim Taleb and Daniel Kahneman observed in their respective “Black Swan” and “Thinking, Fast and Slow” books, luck is a key element in investment outcomes.
Therefore, it is not shocking to discover that, although winners always exist in the stock selection marketplace, that same space also includes a substantial number of losers. The WSJ metal awards do not address the other end of this results spectrum.
But I do. Here’s how.
Besides showing the three superior stock pickers for each of the 44 sub-sector equity categories, the Journal also provides the class median performance for each of these categories. I used that data to complete a simple statistical analysis that yields an overall assessment of the entire host of stock analysts who were included in the contest.
The WSJ scoring system is a little complicated so I have appended a Link to the Journal article that addresses the scoring methodology. It follows immediately:
http://online.wsj.com/article/SB10001424052702303404704577307901542943884.html?mod=WSJ_Investing_MoreHeadlines
In general, a positive score means that the stock pickers generated a net positive return for investors following their recommendations. Prescient sell signals were also incorporated into the evaluation by reversing the sign on the returns. The higher the net analyst score, the higher the likely client wealth enrichment potential. Note that many individual analyst and category scores were negative for the year, a wealth depleting likelihood.
My simple analysis did not incorporate any weighting factors to adjust for the very disparate expert numbers who populated the various sectors. That refinement would improve the analysis but requires additional work. Given that I’m a bit lazy and out of training after two decades of retirement, I punted on that task. Perhaps a more energetic MFO participant can carry that ball across the goal line.
Unfortunately, you must subscribe to the Journal to gain access to the overarching article titled “What Makes a Great Stock Analyst?” . Sorry about that. Perhaps you can identify an indirect avenue to secure access.
My simple global statistical assessment shows that the analysts as a complete cohort did not add wealth for their clients. All of us have been exposed to similar findings for active mutual fund management. Market experts and pundits promise much, but frequently deliver little.
The mean net return (gains minus losses) for adhering to the analysts’ recommendations was -1.11 units for 2011. Performance variability (standard deviation) was an unattractive 10.31 units. The maximum gain was 16.07, but the maximum underperformance was -23.33. Only 21 out of 44 category groupings (47.7 %) produced positive rewards. These results are disappointing given the talent and resources committed to uncovering attractive stock possibilities. Once again, luck seems to be a dominant factor.
Overall, the WSJ awarded 132 (3 X 44) metals. The awards were scattered among 66 institutional and research firms. Goldman Sacks collected the most metals, 9 out of 63 analysts who qualified from Goldman for the competition. From a research corporate perspective, Morningstar came in third place with 6 metals from a recognized 63 entries.
That concludes a summary of my crude statistical analysis of the WSJ survey. Now some interpretation.
All analysis must be placed in a context framework. How tough was the equity marketplace for the stock picking army? Was there major tailwinds or headwinds? With the benefit of perfect hindsight, it was a mixed bag. In the US, this is appropriately measured by the mixed Index returns for 2011. The S&P 500 returned 2.1 %, the Wilshire 5000 delivered 0.6 % on the positive side of the ledger. The NASD composite absorbed -0.8 % while the Russell 2000 eroded -4.2 % of wealth on the negative side. The recorded returns demonstrated that the marketplace was not easy pickings during the previous year. Perhaps that was anticipated by customers and encouraged them to more fully implement expert advice. Of course, that’s speculative on my part.
However, remember that the WSJ challenge was focused solely on a stock pickers ability to select specific stocks, not overall market behavior. His stock instincts and intuitions were being tested to determine his skill set in that arena alone. He was credited with a positive score both if his buy picks delivered profits and if his sell signals were properly aligned with subsequent performance. The WSJ constructed a fair test to gage stock picking acumen. They formulated a valid scoring method independent of the broad market direction.
Even with my incomplete statistical analysis, we are now in a better position to answer one of the original questions posited earlier: Do stock picking gurus globally reward their clients? My answer is “No”. Some do, but slightly more do not.
This analysis did not consider the costs associated with their task. That cost is a lot of money out of the pockets of the customers and into the deep pockets of the star pickers and especially into the coffers of their resident firms. That’s yet another drag on customers who often underperform annual market returns.
The WSJ’s series honoring star stock pickers is misleading since it highlights the winners but mostly ignores those pickers who subtracted from their client’s wealth. The rating and ranking game is a double-edged sword that demands a broad statistical interpretation that is frequently omitted when promoting an agenda. In his book, Daniel Kahneman described it as WYSIATI (what you see is all there is). The WSJ articles perpetuate this tendency to only deploy the intuitive portion of the brain when making investment decisions while ignoring statistical data that establishes a base rate to make a more informed decision.
So, I am under-whelmed by these findings as presented. Expert knowledge has its limitations, especially in a complex, chaotic environment with few consistent investment rules that survive time, and an unruly, emotional investing public. My analysis morphs the buyer beware bromide into a reader beware context.
What do you think?
Best Regards.

I'm in retirement and reinvest dividends on all mutual funds in my retirement accounts. I take cash dividends on ETFs and individual stocks. I'm years away from having to do RMD on my main portfolio. However, I do have an inherited IRA where I do have to do RMD, but I keep enough cash in that account to more than cover it. I have a taxable account with a mutual fund in it that also reinvests; in this case I'm not concerned about calculated the cost basis since it's now the responsible of the brokerage to do that, and Fidelity's site does a nice job of that.

Reply to @Old_Joe: I'd agree with that, and I think the more I have CNBC on in the background and the more I hear, "WHY ISN'T THE RETAIL INVESTOR PARTICIPATING OMG!", the more I agree with that. They don't get why people are upset, they don't get why many retail investors have lost trust and the anchors stare blankly when they are told that some retail investors would honestly rather go to Vegas than put money in the market and trust Vegas more. They also - as you said - don't get the reality many people are facing.
Either they don't get it, or - and Jim Rogers said it - CNBC is primarily a PR firm for the market. (http://www.zerohedge.com/article/jim-rogers-calls-cnbc-market-pr-agency-whose-sole-purpose-make-stocks-go-higher) CNBC just said people's anger at banks was "unfocused" and disorganized and are whining about the occupy movement and how they don't "get it." "I know people are frustrated, but why take it out on the financial services industry?" lol.
Meanwhile, CNBC is facing its lowest ratings in many years.
I think there are exciting companies that I want to be involved in, especially in the developing world. People aren't going to be pulled into risk again, and those hitting retirement age are going to value capital preservation over appreciation and it wouldn't stun me if you see continued movement into fixed income. That's not to say that people shouldn't invest in stocks, but I do think people have to keep expectations in check and the volatility is going to continue to cause people to exit.
I do think that the emerging consumer has the potential to do better over time, and that's part of the reason why you're seeing moves like you are in some of the Brazil consumer names (AMBev) and Mexico's FEMSA and elsewhere. That'll be a bumpy ride, but the emerging consumer - I think - remains a potentially very good long-term theme (ECON etf is a broad way to play.)

Once you are in retirement, taking the RMD, and no earned income, do you take or reinvest? Seems that if you are using the RMD, you have a decision of earning enough dividends and interest to cover the cash needed for RMD or having to sell shares. Does it still make sense to reinvest dividends? Or better to take the dividends and invest it in a cash account? Reinvesting makes it vulnerable to a market meltdown and having to sell shares at the worst time. Your thoughts?

Hi OJ,
From the article, "The advent of online advice"; kinda reminds one of this site, an investment home away from home and the many gracious and enlightening discussions.
As to an advisor; I'm thinking about retiring this chore. What's a fella to do?
'Course on the other side of this coin is that I continue to calculate (for enterainment purposes only) how many hours per year is spent regarding investments and using this number to divide into a given year of dollar returns; to find this house is paying ourselves a most decent hourly rate of pay. A tough decision to forgo such a good paying job in today's economy.
A most valuable and side benefit from operating an in-house advisor group is the amount of knowledge gathered. It is difficult to place a value upon this.
Lastly, the advisory staff at this house's operation are a friendly bunch and most flexible with work hours.
Part of the subject was to be a Fund's Boat topic; but will just it be here and now.
Lastly, an interesting article; and on the bright side, if one is a practicing investment advisor with a decent track record, this is one area that a retiring advisor would not have to deal with upon retirement, eh?
Take care of yourselves,
Catch

Hi Derf,
I don't automatically reinvest dividends form my stock, bond and mutual fund holdings.
In my taxable account, I often use this as spiff money to my pocket; and, in my IRA account I pool the money until I have enough to buy a meaningful position in a trageted fund. By doing this I feel it has reduced the hassells of tracking cost basis in my taxable account and it has also been an aid to me in better positioning money in my retirement account. I do not like to buy at the market top as I feel it better to buy during market pull backs. So, by pooling the money I feel I can better direct it.
Good Investing,
Skeeter

Howdy,
Again, a thank you to all who post the links and also start and participate in the many fine commentaries woven into the message threads.
For those who don't know; I ramble away about this and that, at least once each week.
NOTE: For those who visit MFO, this portfolio is designed for retirement, capital preservation and to stay ahead of inflation creep. This is not a buy and hold portfolio, and is subject to change on any given day; based upon perceptions of market directions. All assets in this portfolio are in tax-sheltered accounts; and any fund distributions are reinvested in the funds. Gains or losses are computed from actual account values.
While looking around..... The Big Hmmm... for we investors, eh? This weeks thoughts are prefaced with the assumption that the machines and/or those who use them for trading; reportedly, are major factors for 85% of investment markets activity. Whether you agree with this or not; the large market forces do move our investment fortunes. If we had a 4' x 8' lcd screen upon the wall that displayed the various sector groups; this is what I would see traveling the days of last week: The U.S. found strength in retail, biotech, housing, consumer staples, air trans., tele-com. and utilities, until Friday. Real estate, both U.S. and Int'l kept some strength for the week; with some utilities closing slightly positive on Friday. The biggest gains on Thursday & Friday were the inverse funds in almost every equity/commodity sector globally; followed with smaller, but positive gains in most bond sectors. Overall, it appears the largest U.S. equity sector losses were lg. and small cap value. Bonds found the largest gains in IG areas; being some corp., Treasury (including TIPS) and muni bonds, as well as surprising support for many HY types; with most EM bond areas maintaining. Recently arriving home early Sunday evening and also finding Sarkozy has lost his bid for renomination in France. Some of this outcome may be factored into markets last week; but may have other implications, come Monday.
Overall, many equity sectors globally are a little stinky; and many bonds the opposite direction. Obviously, the duration and strength of these moves will hold more short/medium term clues.
As to sector rotations below; for the past week: (Note: any given fund in any of these sectors will have varing degrees of performance based upon where the manager(s) choose to be invested.)
--- U.S. equity - 1.9% through - 5.3%, avg. = -3.2%
--- Int'l equity + .7% through - 4%, avg. = - 2.3%
--- U.S. eq. sectors + .1% through -5.4%, avg. = - 3%
--- U.S. IG bonds + .8% through +.0%, avg. = +.3%
--- HY bonds - .1% through +.8%, avg. = +.4%
The 5 best groups among the U.S. equity sectors: real estate, utilities, telecom, con. staples and air trans, although few finished the week positive; but with smaller losses. Int'l equity found China with slight positives, and Canada (commodity and U.S. exposure?) being the worst this week at about a -4%; with all other somewhere in between. There is an obvious large spread among some of the areas listed above. Now if we can only discover the forward paths.
You may consider our portfolio to be quite boring, but you may be assured that it moves and bends about each and every day; from forces beyond our control. We retail investors will find many interesting investment periods to ponder, as usual, in the coming years.
I have added a few blips related to our portfolio and market observations at the below SELLs/BUYs and Portfolio Thoughts.
SELLs/BUYs THIS PAST WEEK:

The remainder of FSAGX was sold on May 3 with the proceeds equally moved to FNMIX and FRIFX. FSAGX was purchased on 8-11-11 with the first half being sold on 3-16-2011 (- 9.8%) along with all of FFGCX, which is 1/3 each of energy, metals and agriculture companies. The remaning 50% of FSAGX was sold with a -26%. We have been in and out of this sector about 10 times since the mid-80's and are still ahead of the curve in this sector. Not unlike any fund area you choose to review, the cycles have been and remain in place; as this is the nature of the investment beast.
Portfolio Thoughts:
Our holdings had a + .22 % move this past week. Sidenote: The average return of 200 combined Fidelity retail funds across all sectors (week avg = -1.72%, YTD + 8.09%). Still plodding along. We will retain our bond holdings; but will keep a close watch in the HY area, as well as any consideration of sells in the equity funds based upon recent and Monday market actions. Final note as to our funds. LSBDX and TEGBX did not react well with Friday's close. Both of these funds had downside pressures during similar market actions in 2011, but did recover. For we retail investors; it comes down to your risk/reward tolerance in conjunction with your skills, as well as how much money we can afford to lose and still maintain one's desired life style. We surely are not all in the same boat for this area. The so-called 1% and 99% exists here, and with other retail investors, too.
The old Funds Boat is at anchor, riding in the small waves and watching the weather. To the high praise of MFO and the members, it is very difficult to find a topic to note here that has not been placed into the discussion boards. Excellence, as usual.
I have retained the following links for those who may choose to do their own holdings comparison against the fund types noted.
The first two links to Bloomberg are for their list of balanced/flexible funds; although I don't always agree with the placement of fund styles in their categories.
Bloomberg Balanced
Bloomberg Flexible
These next two links are for conservative and moderate fund leaders YTD, per MSN.
Conservative Allocation
Moderate Allocation
A reflection upon the links above; we attempt to establish a "benchmark" for our portfolio to help us "see" how our funds are performing. Aside from viewing many funds within the balanced/flexible funds rankings (the above links), a quick and dirty group of 5 funds (below) we watch for psuedo benchmarking are the following:
***Note: these week/YTD's per M*
VWINX .... + .08 week, YTD = + 4.63%
PRPFX .... - .80 week, YTD = + 4.58%
SIRRX ..... + .43 week, YTD = + 3.14%
TRRFX .... - 1.00 week, YTD = + 5.90%
VTENX ... - 1.05 week, YTD = + 5.13%
Such are the numerous battles with investments attempting to capture a decent return and minimize the risk.
We live and invest in interesting times, eh? Hey, I probably forgot something; and hopefully the words make some sense. Comments and questions always welcomed.
Good fortune to you, yours and the investments.
Take care,
Catch
---Below is what M* x-ray has attempted to sort for our portfolio, as of March 9, 2012---
U.S.Stocks 10.5%
Foreign Stocks 6.8%
Bonds 78.5% ***
Other 4.2%
Not Classified 0.00%
***about 35% of the bond total are high yield category (equity related cousins)
---This % listing is kinda generic, by fund "name"; which doesn't always imply the holdings, eh?
-Investment grade bond funds 26.8%
-Diversified bond funds 20.5%
-HY/HI bond funds 23.2%
-Total bond funds 17.8%
-Foreign EM/debt bond funds 5.1%
-U.S./Int'l equity/speciality funds 6.6%
This is our current list: (NOTE: I have added a speciality grouping below for a few of fund types)
---High Yield/High Income Bond funds
FAGIX Fid Capital & Income
SPHIX Fid High Income
FHIIX.LW Fed High Income
DIHYX TransAmerica HY
---Total Bond funds
FTBFX Fid Total
PTTRX Pimco Total
---Investment Grade Bonds
APOIX Amer. Cent. TIPS Bond
DGCIX Delaware Corp. Bd
FBNDX Fid Invest Grade
FINPX Fidelity TIPS Bond
OPBYX Oppenheimer Core Bond
---Global/Diversified Bonds
FSICX Fid Strategic Income
FNMIX Fid New Markets
DPFFX Delaware Diversified
TEGBX Templeton Global (load waived)
LSBDX Loomis Sayles
---Speciality Funds (sectors or mixed allocation)
FRIFX Fidelity Real Estate Income (bond/equity mix)
FDLSX Fidelity Select Leisure
RNCOX RiverNorth Core Opportunity (bond/equity)
---Equity-Domestic/Foreign
FDVLX Fidelity Value
FSLVX Fidelity Lg. Cap Value
FLPSX Fidelity Low Price Stock
MACSX Matthews Asia Growth-Income

Good suggestions here already: munis and low-turnover stock in taxable, higher yielding/total return bonds in tax advantaged (Pimco & DoubleLine being two of the poster children on that score) is a standard suggestion for investors a ways from retirement, but if taking out income from bond funds is or ever becomes a need, then things can get a little murkier, and you may want some of the higher yielding bonds in a taxable account for easy access.
I was in the same situation about two years ago, and it took a while to get the inheritance positioned in a reasonable way. All I can offer from that experience is pretty much the obvious stuff: study up, consider multiple strategies before committing, and don't rush too much getting to a "final" solution.
Good luck, AJ
P.S. On brokerages, we went with Vanguard for reasonably cheap & low-minimum access to Pimco funds, integration with Vanguard fund holdings (Vwiax and muni funds, primarily), low trading costs, and free trading on V. etf's.
However, we've kept a few separate accounts too. To put everything under one roof, I think I'd probably go with Fidelity: they have a good selection of non-Fido funds, good muni funds of their own, they've cut the brokerage holding period to 60 days instead of the usual 180, and I don't hear any major complaints from their customers.
I'm sure there are others that would work well too - brokerages are complex animals, and it's hard for any one investor to know very many of them, especially when the rules, the deals, and the inventory change frequently.

I would suggest to putt tax-free income investments and low turn-over equities in your taxable account, and put your bond funds in your retirement accounts. Check the capital loss carryforwards (or gains exposure) for your equity funds. Many still have large losses that they are carrying so cap gains may not be an issue for a while.
Do you have a brokerage account for your retirement funds? If you're happy with them, keep it simple and stick with them. Many brokerages also have various fee breakpoints or premium service for meeting certain combined asset levels, so putting all the money in once place could be advantageous.
I have accounts at both Fidelity and Schwab and am very happy with both. Their websites are useful and easy to use, and their customer service is good. Scottrade has a good NTF mutual fund selection and their transaction fees for the non-ntf is reasonable, but their website isn't great.

Reply to @Ted: Agree that Catch is using the term "benchmark" differently from how a fund manager would. However, he certainly has a right to use the term as he chooses in comparing his weekly performance with an array of conservative or retirement-oriented funds. A number of us on the board do similarly for ourselves from time to time for whatever value it may hold. I've extracted two definitions (from among many) from an online dictionary believing they best reflect the meaning Catch intends -
-bench·mark  (bnchmärk) - 1. A standard by which something can be measured or judged - 2. To measure (a rival's product) according to specified standards in order to compare it with and improve one's own product.http://www.thefreedictionary.com/benchmark -
While I disagree with Catch on some issues, this is not one of them. In fact, he recently broadened his choice of benchmarks, in response to member suggestions, to reflect a greater diversity of investment approaches. The fact approximately 500 viewers have accessed this thread suggests a great many find his weekly commentary of interest.

Event-Driven is a multi-strategy fund that is more risky than Arbitrage (ARBFX), but still not something that is likely to generate more than singles on a yearly basis. AQR also offers a rather similar fund and there is the former Penn Ave Event-Driven, Quaker Event-Driven, which is a more volatile (in comparison) fund - if things haven't changed - pretty much by one dude.
I think it's an interesting, low-key strategy but certainly one has to keep expectations low in terms of returns, which are going to be consistent, if minor.
I also like Sierra Core Retirement (SIRIX), which is a fund-of-funds with a conservative (hence the retirement title), absolute return-style approach. It also has provided a pretty decent yield, although I can imagine that possibly changing at times depending on significant shifts in holdings.
There's also Pimco Unconstrained (PUBDX).

Reply to @MaxBialystock: Catch has mentioned in the past that the rather larger number of fund stemmed from several tax-deferred accounts.
I used to have duplicating funds in my tax-deferred IRA versus 401(K). It took quite a while to trim back to less than 12 funds. Now the retirement bucket is much easier to manage.

Reply to @Investor:
Hi Investor,
You make two keen observations regarding fund manager sex and the business cycle length to better understand fund manager performance. Thanks for your insightful contribution. I completely agree.
Numerous academic studies have concluded that statistically women are better investors than men. They tend to be more conservative in their investment philosophy and more cautious in their decision making. Maybe that can be attributed to their longer life span after retirement and their reduced overconfidence that I suppose is correlated to testosterone levels.
Surely a fund manager benefits from experiencing the uncertainties of a complete business cycle. All fund managers look good when the tide is rising. However, experience is only a great teacher if the student is prepared to learn, adapt, and adopt to changing conditions. Let's hope most of us are in this category.
Once again, thank you for your fine contribution.
Best Wishes.

Howdy,
Again, a thank you to all who post the links and also start and participate in the many fine commentaries woven into the message threads.
For those who don't know; I ramble away about this and that, at least once each week.
NOTE: For those who visit MFO, this portfolio is designed for retirement, capital preservation and to stay ahead of inflation creep. This is not a buy and hold portfolio, and is subject to change on any given day; based upon perceptions of market directions. All assets in this portfolio are in tax-sheltered accounts; and any fund distributions are reinvested in the funds. Gains or losses are computed from actual account values.
While looking around.....May-Be there will be the Go Away in May within the next 30 days and return again in October, eh? 2010 and 2011 had these cycles; with special help from Europe, and in particular, Greece's situation, let alone mention the U.S. debt downgrade in July, 2011. Ted recently noted that he will be off-loading equities and moving to cash at the end of May. For the numerous investors at MFO who have the skills to move monies in a timely fashion; they may find equity returns of +20 through +40% for 2012, depending on the equity sectors and percentages involved in their holdings. I sincerely salute all who will be able to attain these goals.
To the "lite" side of life. I will soon begin my special weekend project helping the local school band boosters raise monies for various projects with selling raffle tickets for the "cow pie" drop. The annual town carnival will be in place the first week of June. A young cow, will be inside a small corral; with numbered squares placed upon the ground. As a "cow pie" is produced, the square number will be noted. From a box of sold raffle tickets, the related number ticket will be drawn for the winner. "Cow pie on number 4 and the 4th ticket drawn is the winner. Winners will be drawn on Sat. and Sun.; as pies are produced. A $1 ticket = a $100 chance win.
As to sector rotations below; for the past week: (Note: any given fund in any of these sectors will have varing degrees of performance based upon where the manager(s) choose to be invested.)
--- U.S. equity +.55% through + 3.2%, avg. = +.4%
--- Int'l equity -1% through + 1.9%, avg. = +.34%
--- U.S. eq. sectors - 3.5% through +3.9%, avg. = +.4%
--- U.S. IG bonds -.08% through +.46%, avg. = +.03%
--- HY bonds +.20% through +.87%, avg. = +.18%
The 3 best groups among the U.S. equity sectors were retail, nat. gas and biotech. The best in the IG bonds were TIPS funds, with Ginnie Mae's being slightly down and in last place. Int'l equity (generally Europe) performed the best overall, with Latin America and China regions being weakest with losses. There is an obvious large spread among some of the areas listed above. Now if we can only discover the forward paths.
You may consider our portfolio to be quite boring, but you may be assured that it moves and bends about each and every day; from forces beyond our control. We retail investors will find many interesting investment periods to ponder, as usual, in the coming years.
I have added a few blips related to our portfolio and market observations at the below SELLs/BUYs and Portfolio Thoughts.
SELLs/BUYs THIS PAST WEEK:

--- NONE ---
Portfolio Thoughts:
Our holdings had a + .67 % move this past week. Sidenote: The average return of 200 combined Fidelity retail funds across all sectors (week avg = +.29, YTD +10.2%). Plodding along. While IG bonds are not setting returns on fire; they are not giving ground to the recent equity rally. Among the writing and talking head professionals, one will find enough folks in both camps who won't own anything but equity or bonds. These folks are always at war to make profits. Both camps, using the best of their skills will make a profit. For we retail investors; it comes down to your risk/reward tolerance in conjunction with your skills, as well as how much money you can afford to lose and still maintain a most comfortable life style. We surely are not all in the same boat for this area. The so-called 1% and 99% exists here, and with other retail investors, too.
The old Funds Boat is at anchor, riding in the small waves and watching the weather. To the high praise of MFO and the members, it is very difficult to find a topic to note here that has not been placed into the discussion boards. Excellence, as usual.
I have retained the following links for those who may choose to do their own holdings comparison against the fund types noted.
The first two links to Bloomberg are for their list of balanced/flexible funds; although I don't always agree with the placement of fund styles in their categories.
Bloomberg Balanced
Bloomberg Flexible
These next two links are for conservative and moderate fund leaders YTD, per MSN.
Conservative Allocation
Moderate Allocation
A reflection upon the links above; we attempt to establish a "benchmark" for our portfolio to help us "see" how our funds are performing. Aside from viewing many funds within the balanced/flexible funds rankings (the above links), a quick and dirty group of 5 funds (below) we watch for psuedo benchmarking are the following:
***Note: these week/YTD's per M*
VWINX .... + .72 week, YTD = + 4.67%
PRPFX .... + .81 week, YTD = + 5.66%
SIRRX ..... + .22 week, YTD = + 2.69%
TRRFX .... + .84 week, YTD = + 6.98%
VTENX ... + .80 week, YTD = + 6.24%
Such are the numerous battles with investments attempting to capture a decent return and minimize the risk.
We live and invest in interesting times, eh? Hey, I probably forgot something; and hopefully the words make some sense. Comments and questions always welcomed.
Good fortune to you, yours and the investments.
Take care,
Catch
---Below is what M* x-ray has attempted to sort for our portfolio, as of March 9, 2012---
U.S.Stocks 10.5%
Foreign Stocks 6.8%
Bonds 78.5% ***
Other 4.2%
Not Classified 0.00%
***about 35% of the bond total are high yield category (equity related cousins)
---This % listing is kinda generic, by fund "name"
-Investment grade bond funds 26.8%
-Diversified bond funds 19.8%
-HY/HI bond funds 23.2%
-Total bond funds 17.8%
-Foreign EM/debt bond funds 4.3%
-U.S./Int'l equity/speciality funds 8.1%
This is our current list: (NOTE: I have added a speciality grouping below for a few of fund types)
---High Yield/High Income Bond funds
FAGIX Fid Capital & Income
SPHIX Fid High Income
FHIIX.LW Fed High Income
DIHYX TransAmerica HY
---Total Bond funds
FTBFX Fid Total
PTTRX Pimco Total
---Investment Grade Bonds
APOIX Amer. Cent. TIPS Bond
DGCIX Delaware Corp. Bd
FBNDX Fid Invest Grade
FINPX Fidelity TIPS Bond
OPBYX Oppenheimer Core Bond
---Global/Diversified Bonds
FSICX Fid Strategic Income
FNMIX Fid New Markets
DPFFX Delaware Diversified
TEGBX Templeton Global (load waived)
LSBDX Loomis Sayles
---Speciality Funds (sectors or mixed allocation)
FRIFX Fidelity Real Estate Income (bond/equity mix)
FDLSX Fidelity Select Leisure
FSAGX Fidelity Select Precious Metals
RNCOX RiverNorth Core Opportunity (bond/equity)
---Equity-Domestic/Foreign
FDVLX Fidelity Value
FSLVX Fidelity Lg. Cap Value
FLPSX Fidelity Low Price Stock
MACSX Matthews Asia Growth-Income

Reply to @Old_Joe: I will calculate the return with cash if that cash is part of my retirement portfolio and can be used to purchase other asset classes in my retirement portfolio. Otherwise, if the cash is in a bank account and dedicated for something else (paying my taxes, mortgage, health expenses etc.) it is not going to be in portfolio calculations.