The equity holdings in the eWorldvu Model Retirement Portfolio were selected with several important considerations in mind.

Since this is the money that many people will live on for the rest of their lives, long term safety is very important in any investment for the retiree. Therefore, all of our retirement holdings will not be speculative, low priced, lottery ticket gambles. 

If you are looking for a quick return and home run stocks, these are not the type of investments for you. Our experience shows that the odds for success are not stacked in your favor for this type of high stakes investment.

So, all of the eWorldvu Model Retirement Portfolio equity selections must have a long history of good relative performance. They must be a mature company, but one still positioned for growth. The ideal retirement investment should also have a predictable cash flow and the balance sheet must be in good shape. 

In addition, there must a vehicle for growth that will eventually be reflected in an appreciation of the stock price. The company must have a unique position in its industry, or have a compelling product that provides a long term catalyst.  Growth of principal is a very important characteristic for the retirement investor.

Since emerging markets have long term economic growth rates that will probably exceed the United States and the value of the dollar will probably decline over the long term, international exposure for investment growth becomes crucial in long term stock selection. 

Today, many analysts will recommend a portfolio that is twenty percent invested in foreign stocks. However, most of us do not follow foreign equities and the best type of investment in foreign holdings is through a well managed Exchange Traded Fund (ETF) or mutual fund. The good news is that many large multinational companies can provide this same type of foreign exposure with limited risk because of sheer size.

Finally, an excellent investment for retirement must also provide income. We have already discussed the problems with investing in bonds for income during the next few years (Buying Bonds Now Puts An Investor At Risk). This strategy has become much too risky for the average retirement portfolio.

As a result, the retirement portfolio must have dividend income to replace the lost yield from not holding treasury bonds.  Ideally, the Model Retirement Portfolio would have a dividend yield around 3-4%. In fact, all of our selections except one meet all the criteria outlined above.

Abbott Labs was selected because it is a world class company with a diversified position in the health care industry. The stock of the firm has increased its dividends for years and has just announced another small increase.  It currently yields 3.24%.

ADP is an industry leader in payroll outsourcing and is a leading technology firm with a great balance sheet. It is well positioned for growth with an improving job market. The company currently pays a dividend of 3.27%.

British Petroleum (BP) is a world leader in oil and gas. It also is a world leader in alternative fuels. The stock is priced in the mid 50's and has a generous current yield of over 6%.   GE is leveraged to an improving international economy. The company cut its very generous dividend last year during the deep recession. However, it still pays 2.50 percent and the dividend will grow again as earnings recover in the years ahead. 

Florida Power and Light is an important international leader in alternative power like wind and nuclear energy. It has bright prospects and it currently yields 4.31 percent. Pepsi is a great brand and has  excellent growth prospects in emerging markets. Meanwhile the blue chip company pays a generous dividend of 2.88 percent.

The only selection that does not pay a healthy dividend is in an industry that was a leading dividend payer in the past. The deep recession of the last year with the mortgage meltdown changed all that. Our investment in Bank Of America was for short term capital appreciation and long term growth and income since the price of the stock was historically cheap.  

However, the company needs to reinstate a good dividend this year or eWorldvu will take profit in the stock (currently up 7%) and invest the proceeds elsewhere.  This would coincide with an investment philosophy which acknowledges that the road to retirement needs both income and growth.

(Look for another recommendation for the eWorldvu.com Model Retirement Portfolio on 3/1/2010).

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