Dear Mr. Berko: I will soon retire with a good company pension, and my wife is a retired master sergeant with a comfortable payout from the Air Force. We have little debt, and the kids are on their own. We plan on remaining in our house so that we can be near friends. We bought at the bottom of the market and have no mortgage. Our problem should be simple but isn’t. We have $106,000 that we would like to invest in stocks, and we want at least a 5 percent return. Apparently, this is not enough money for brokers to work with. They all want to sell us mutual funds or annuities. One broker would charge us a 2 percent annual management fee. Another wants an upfront fee of $2,500. And another gave us a list, telling us that we should pick from the list and that he would buy what we pick for us. We visited one broker who seemed nice but then passed us off to some kid who was green behind the ears and wanted to sell us an annuity. In fact, this happened two more times, and both tried to sell us mutual funds and annuities. Don’t brokers sell stocks anymore? The young men are nice, but we don’t relate to them or think we can trust them for financial advice. Could you help us or recommend a broker who will allow us some of his time and give us recommendations that make sense?
— SM, Fort Walton Beach, Fla.
Dear SM: That paltry $106,000 is chicken feed, petty cash and peanuts for brokers, and some firms, such as Merrill Lynch, won’t allow their salesmen to open an account and waste time with that chump change. Merrill tells us that it loses money completing the paperwork and servicing an account for a modest $106,000. In fact, unless you have a minimum of $250,000, you cannot open an account with a Merrill man. And it’s not just Merrill Lynch, though it is in the forefront. Since the Federal Reserve, in its limited wisdom, initiated quantitative easing (proof that money does indeed grow on trees), many brokerages have increased their minimum account size, while many good private money managers have closed their practices to new business and increased their account size to $1 million.
Fortunately, there are still a few worthy private money managers who will gladly accept $100,000, treating you like a million and providing excellent advice. However, the green-behind-the-ears broker needs a dozen years of experience with folks like you to cut his teeth. Eventually, he will have learned good judgment, but in the process of acquiring that experience, he’ll also be making lots of bad judgments. And you will be his guinea pig! Yes, it’s difficult for folks such as you to relate to a handsome, fresh-faced kid with no worry lines or wrinkles on his face. This kid lives in a digital age, and you don’t speak the same language; he can’t relate to your concerns, fears, goals or risk tolerance. These kids don’t know borscht about stocks; they’ve been trained to sell high-commission mutual funds and annuities, and those are no-brainers.
Time to go it alone
So I’m going to give you an eight-stock portfolio that yields about 5.6 percent. These stocks are likely to raise their dividends most years. Buy the following issues through one of the big discount brokers, which probably will charge you $8 per trade. HCP Inc. (HCP-$37.50), a health care real estate investment trust, pays 5.8 percent and is recommended by UBS. AT&T (T-$34.10) yields 5.6 percent and is recommended by Argus Financial Services. W.P. Carey (WPC-$61.50), a huge REIT, yields 6 percent and is recommended by Thomson Reuters. AstraZeneca (AZN-$65), a pharmaceutical yielding 5.7 percent, is recommended by Paribus. The Blackstone Group (BX-$42), an investment manager, yields 8.1 percent and is recommended by Deutsche Bank. PotashCorp (POT-$31), yielding 5 percent, manufactures industrial feed products, and Morningstar is bullish on it. General Electric (GE-$27) yields 3.4 percent and is recommended by Credit Suisse. And Johnson & Johnson (JNJ-$98), yielding 3.1 percent, is recommended by almost everybody.
Put an equal dollar amount in each of these issues, and forget about finding a broker.