A couple of weeks ago, I explained that if in your golden years you place too little of your portfolio in stocks, then live too long, you run a high risk of running out of money before you run out of time.
For older people, their fear is permanent loss of principal.
Although people in their 60s, 70s, and 80s all know they need growth of principal, the fear of loss keeps many of them from getting enough growth to meet their rising spending needs.
And because of that fear, they get hoodwinked into participating in the stock market with index-based CDs and variable annuities.
The marketers of these costly and lousy products make promises to the old folk that they can get the returns of the market with no downside risk. Yeah, right.
Ken Fisher in his Forbes column said this about variable annuities in September 2005: "Buying a deferred annuity proves you are a serious dupe ... you should never, ever again make any financial decision."
That is a bit harsh, but both indexbased CDs and variable annuities have internal costs and high tax consequences that make them a bad deal.
Here is a better way to create income and not be a dupe.
Buy a stock with a history of raising dividends and give yourself a pay increase every year.
Here is an example. Five years ago, Bank of America Corp. paid a shareholder $350 per year in dividends for every $10,000 invested.
That $10,000 today would be paying you $683 every year and your original $10,000 would be worth more than $16,000.
There is no guarantee Bank of America will even pay you a dividend, but it has been paying one for more than 100 years, so the precedent is there.
And there also is no guarantee the company will raise the dividend, but it has done that for at least 15 years in a row.
Of course, the risk of any stock is that it can tumble in value.
The only way to mitigate that risk is to spread it out among several stocks.
But how do you find the dividend payers that have a history of giving increases every year?
Mergent Inc. is a research group that provides this information.
The firm sorts through all 3,300 U.S. companies that pay a dividend. It has identified the 314 of those that have raised their dividend every year for the last decade.
This list of 314 companies is what the company calls its Dividend Achievers index.
You can read about this list at www.dividendachievers.com.
The list is further broken down into subgroups of the 50 or 100 highest-yielding stocks as well as the NASDAQ dividend achievers, a socially conscious list, and even international group of dividend achievers.
Mergent has then licensed this list to be used by mutual fund groups and exchangetraded funds groups to create investment products based upon rising dividends.
Funds have been created by Blackrock, Powershares and Vanguard.
One product that is interesting and pays a high yield is the Blackrock Strategic Dividend Achievers Trust. It pays a 6-percent dividend rate.
There are no guarantees with the dividend achievers, except one. Nobody will call you a dupe.
David Sheaff Gilreath is co-owner of Sheaff Brock Investment Advisors LLC, a money management firm specializing in separate account management. Views expressed are his own. He can be reached at 705-5700 or firstname.lastname@example.org.