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With CD yields so low, dividend stock might be worth the risk – Austin American


What’s a good alternative to certificates of deposit in the $75,000 to
$100,000 range, assuming there is one? – J.O., by email

If you are looking for something with similar (but not identical) risk, you’ve
basically got two choices. First, you can shop harder for the best CD
offers. Some institutions will offer higher-than-average yields when they
need new money to fund a particular investment. You can do that shopping on
websites such as www.bankrate.com.

The second option is to do similar shopping for CD-like annuity products.
Though these don’t carry FDIC insurance, they have the guarantee of the
issuing company, and state insurance programs usually cover them. You can
search for these on www.directannuities.com. If you visit www.mrannuity.com,
you will find a chart comparing the average yields of five-year CD-like
insurance annuities and the average five-year bank CD. It has been a close
race in many time periods, with the two switching positions, but five-year
CD-like insurance annuities currently beat the average bank CD.

Higher-yield investments carry significantly greater risks, so if you are
thinking you might need to use the money in a few years, things such as
preferred stocks, REITs and high-quality dividend stocks would not be
candidates. Those who can invest with a long horizon, however, should
consider accepting some risk with some of their CD money and using dividend
stocks to augment their income.

The easiest, relatively low-risk way to do this is to buy shares of an
exchange-traded fund that specializes in quality dividend stocks. The SPDR
SP Dividend ETF (ticker: SDY), for instance, has a current yield of 3.38
percent and an expense ratio of 0.35 percent. It invests in an index of the
60 highest dividend yield stocks in the SP 1500 index that have increased
their dividends every year for at least 25 years.

I need your help on making a decision on Social Security. I turned 65 in
August. Should I take my check now, or wait till next year at 66 to receive
full benefits? It would be about $100-a-month difference. I am still
working. – C.M., by email

If you are still working, it would be a good idea to wait the additional year.
If you were to try to produce that $100-a-month difference from an
investment portfolio, you would need about $30,000 in new investment cash.
That’s a very high Social Security benefit, so you are giving up a much
smaller amount of money for one year to secure a much higher lifetime income
– and you won’t have to give a moment’s thought to investment decisions.
Also, you won’t have to pay income taxes on the benefit you take while still
working.

My income consists of seven fixed annuities and other retirement income. It
amounts to about $15,000 per month. I have been receiving these annuities
since my husband’s death six years ago. We both received them for eight
years prior to his death. These annuities are for life, so I will have this
generous income until my demise. I have Medicare and Tricare, so basically,
I have no medical expenses.

I also have around $600,000 in liquid funds, CDs and money market funds. I
am 78 years old and would like to spend some of this money. I have always
been very frugal while helping my family, but I would like to spend some on
myself. How much should I keep in liquid funds, considering my income? I
have no debts. – M.J., by email

From what you say, the issue here isn’t how the money is invested; it is
finding the personal freedom to spend it on yourself. Many people have
plenty of trouble doing this, even when money is abundant. I suggest that
you earmark some amount of money that you want to provide for your heirs
upon your death, then divide the remaining money (which could be all of it)
into seven equal amounts with the intention of spending each amount over the
next seven years.

While there is a better than 50 percent chance that you will still be alive
then, odds are you may have enough infirmities that you will suffer remorse
if you HAVEN’T spent the money. And what if you haven’t spent the money in
any particular year? Give it away – use it or lose it, but lose it wisely
and kindly.

Scott Burns is a nationally syndicated columnist who has been writing about
personal finance since 1977. He also is the author or co-author of four
books and principal of a Plano-based investment advisory firm. Send
questions to business@statesman.com.

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