There’s a retirement crisis in this country.
And we need to act quickly if we want to spend our golden years on the golf course instead of behind a desk.
It’s no surprise that the Congressional Budget Office says Social Security is running out of money…
But the pace at which the program is failing is what’s most troublesome.
The current forecast is that Social Security will run out of money between 2031 and 2033. At the latest, it will run out of money in 2037.
That’s only two decades from now.
But there’s more…
More than 75 million working Americans don’t have a retirement plan. And half of all Americans have less than $10,000 in savings.
To make matters worse, over the last three decades, the S&P 500 Index averaged an annual return of 11.1%. Which isn’t bad… but the average investor is managing to eke out only a mere 3.7% annually.
The market is outperforming the average investor by more than twofold.
That means it’s a Mount Everest-type climb for almost anyone trying to prepare for retirement. And the later you get started, the worse off you will be.
Creating a Diversified Income Stream
For a while, I contemplated this problem and worked on various ways to beat it.
My goal was to create a “Set It and Forget It” portfolio that would continue to build over time. The more time it had to run – using the magical power of compounding – the better the end result would be.
To accomplish this, I needed a mix of dividend stocks – high-yield and growth – as well as companies that had good revenue forecasts.
Most importantly, I wanted to make sure these companies were spread out across a number of different industries. That way, because of the diversification, if something happens in one industry, it won’t drag down the entire portfolio.
Eventually, I came up with a list of five companies…
The “Set It and Forget It” Portfolio
| Company | Symbol | Industry | Current Yield |
|---|---|---|---|
| AbbVie | ABBV | Pharma | 3.23% |
| Vector Group | VGR | Tobacco | 7.84% |
| Omega Healthcare Investors | OHI | REIT | 10.09% |
| NuStar Energy | NS | Oil & Gas | 18.55% |
| Main Street Capital | MAIN | Capital Markets | 6.33% |
| Average Yield | 9.21% |
Now, there were a number of reasons these companies were attractive to me.
For example, AbbVie (NYSE: ABBV), a research pharmaceutical company, was a spinoff of Abbott Laboratories and just started to trade at the beginning of 2013. From 2013 to 2017, revenue grew from $18.7 billion to $28.1 billion and is projected to reach $32.1 billion in 2018. So it’s not explosive, but it’s steady growth nonetheless.
Vector Group (NYSE: VGR) is in the tobacco industry, a sector that offers high yields and, again, steady growth. Vector’s revenue has recently increased from $599 million per year to more than $1.26 billion.
Omega Healthcare Partners (NYSE: OHI) and Main Street Capital (NYSE: MAIN) have both been recommended in our extremely popular publication The Oxford Income Letter, and I’ve been a long-term fan of their growth and dividends.
Plus, there’s a nice mix of small cap, midcap and large cap dividend payers.
AbbVie has a market cap of $193 billion… NuStar Energy, (NYSE: NS) $2.2 billion… Omega Healthcare, $5.2 billion… Vector Group, $2.8 billion… and Main Street Capital, $2.1 billion.
It was also important that they had a mix of dividend yields. Currently, these range from 3.23% all the way to 18.55%.
The overall dividend yield has to be higher than the average rate of inflation, which is officially 2.65%. But in the four years prior to the financial crisis, it averaged 3.35% annually.
So the current average dividend yield is more than double the highest average annual inflation period since 2000.
Good investing,
Ryan Fitzwater
Director of Research
Liberty Through Wealth