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As of March 31, 2024

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Best and worst St. Louis stocks of 2017

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These 5 Vanguard Index Funds Are All You Need

Originally published April 2015
If you’re not an investing hobbyist and you don’t employ an adviser, you simply have no reason not to invest in index funds—funds that track broad market indexes rather than try to beat them.
See My 2017 Picks: 6 Vanguard Index Funds to Buy and Hold Forever
But which index funds? Surprisingly, there’s little information about building a diversified portfolio of good index funds and adjusting it as your goals change. Standard & Poor’s 500-stock index is fine for tracking the performance of large U.S. companies, but it’s not a complete portfolio.

This article will help you construct a simple but powerful package that also includes bonds and stocks of small companies, as well as foreign stocks. It’s a long-term buy-and-hold portfolio, so I deliberately didn’t fine-tune it to meet current market conditions.

You would have had to be living in a cave the past year to miss the clamor over index funds. Everyone from Warren Buffett to Dilbert has extolled their merits lately.

I don’t believe, as some do, that index funds are the only sensible way to invest. But they are a sound method. Thanks primarily to their rock-bottom costs, index funds have outperformed roughly two-thirds of actively managed funds across all kinds of markets—and they’ll almost surely continue to do so. What’s more, picking the one-third of funds that will beat their indexes is exceedingly difficult; many argue that it’s impossible.
How to build an index portfolio? To start with, stick to Vanguard-sponsored mutual funds and exchange-traded funds. Vanguard practically invented index funds and has decades of experience running them—virtually without a hiccup. Don’t kid yourself: It takes real expertise to manage an index fund well, which means coming as close as humanly possible to matching the return of the underlying index.
More importantly, Vanguard funds are frequently, though not always, the cheapest. When you’re buying funds that seek to track broad market indexes, there’s simply no excuse for overpaying due to high expenses.

The Vanguard cost advantage comes about because Vanguard isn’t a for-profit company; it has no shareholders who want dividends. Blackrock or Schwab may offer some funds or ETFs at slightly lower prices — but over time, I expect those prices to rise.

Below are the only index funds or ETFs you need to achieve your goals. Choose ETFs or conventional funds depending on what works best for you; if expenses are equal, there should be essentially no difference in performance between a mutual fund and an ETF that tracks the same index. All the indexes are weighted by their holdings’ market values—in other words, the most popular securities get much bigger weightings. For each fund, I list the symbol for the mutual fund version first and then for the ETF. The mutual fund symbols are for Vanguard’s admiral shares, which require a minimum investment of $10,000. You can buy into Vanguard’s Investor share class for as little as $3,000, but you’ll pay a slightly higher expense ratio for the privilege.

Vanguard Total Stock Market Index (symbols VTSAX, VTI) gets 40% of your assets. This fund gives you the entire U.S. stock market—large, midsize and small companies—for 0.05% annually. (That means you pay $5 a year for each $10,000 invested to cover expenses.) The fund tracks the CRSP U.S. Total Market Index, which includes some 3,800 stocks—making it much broader than the S&P 500. Still, large companies dominate the index, and the fund’s return rarely deviates from the S&P by more than one percentage point or so in any calendar year. Over the past 10 years, the fund earned 8.6% annualized, an average of 0.6 percentage point per year more than the S&P 500. (All returns are through March 31).

Put 10% of your portfolio’s assets into Vanguard Small-Cap Value Index (VSIAX, VBR). It invests in many of the stock market’s smallest, cheapest and least-popular companies by tracking the CRSP U.S. Small Cap Value Index. There’s overwhelming academic evidence that suggests that these stocks will outperform their more popular brethren over the long term, as they have in the past. But you need patience here. Over the past 10 years, the fund returned 9.1% annualized. Expenses are 0.09% annually.

Vanguard FTSE All-World ex-U.S. Index (VFWAX, VEU) gives you the rest of the world’s bourses for 0.14% annually and deserves 20% of your assets. The fund tracks the FTSE All-World ex-U.S. index by investing in about 2,500 stocks from 44 countries. Roughly 20% of its assets are in emerging markets. U.S. stocks have trounced foreign stocks over the past five years, so it’s not surprising that the fund’s performance is anemic: an annualized 5.0%, or an average of 9.5 percentage points per year less than the S&P 500 over that period. But don’t count on U.S. stocks to continue to outpace the rest of the world’s. In investing, extrapolating the recent past into the indefinite future is a common and costly error.

Putting 5% into Vanguard Emerging Markets Stock Index (VEMAX, VWO) brings your overall investment in developing markets to 9% of assets when combined with the fund above. Roughly half of the stocks in the FTSE Emerging Index, which the fund tracks, are in China (25%), Taiwan (14%) and India (12%). Emerging markets have been dismal performers over the past five years, which explains this fund’s pathetic return over that period of 1.8% annualized. But emerging-markets stocks are cheap, and the long-term argument for these fast-growing lands remains strong. Expenses are 0.15% annually.

I suggest placing the final 25% of your assets in Vanguard Intermediate-Term Corporate Bond Index (VICSX, VCIT). The risk-adjusted returns of intermediate bonds (that is, returns relative to volatility) have historically been stronger than those of both long-term bonds and short-term bonds. I prefer a corporate bond ETF over a total bond market ETF because the latter holds too many Treasury bonds, which yield less than corporate IOUs. Intermediate-Term Corporate Bond tracks Barclays Capital U.S. 5-10 Year Corporate Bond Index, and the average credit rating of its holdings is triple-B.

The fund returned an annualized 6.8% over the past five years, but with bond yields so low, don’t expect such generous returns to continue. Expenses are 0.12%.

This portfolio should serve you well until you’re about 15 years from retirement. At that point, I’d boost the bond fund’s allocation by five percentage points—subtracting one percentage point or so from each stock fund. Then add another five percentage points to your bond position every five years, reducing your stock fund allocation in the same manner, until you have 40% in bonds, a good bond weighting for the early years of retirement. Rebalance your portfolio annually to bring the funds back in line with the desired allocation.

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7 Good Energy Stocks for Your Retirement Portfolio
Retirement investors should be focusing on these steady energy stocks ... because they're among the very few options you can actually depend on.

September 21, 2016
Retirement investors want sure things. There isn’t enough time to make up for stocks that just fall into the ground, never to return. So considering how awful energy has been for the past couple of years, it’s probably surprising to see “energy stocks” and “retirement” mentioned in the same vicinity.
Sustained low oil and natural gas prices have negatively impacted energy stocks. OK, that’s putting it mildly. Low prices have outright strangled some companies right out of business, and has made life miserable for the vast majority of the sector.

And considering many retirement investors were sucked in by the plentiful dividends in the energy sector, they know the pain. And they’re probably not too forgiving.

But those planning (or even in) retirement might be doing themselves a disservice by avoiding energy stocks right now. There are a few — albeit not many — that you can count on to get you through your golden years. They have wide moats and huge asset bases, they can generate cash and they’re not shy about giving some of it back.

As far as “sure things” go, these energy stocks are about as good as you can get:

Exxon Mobil
Dividend Yield: 3.4%
A list of the best energy stocks for retirement has to begin with the kind of them all: Exxon Mobil Corporation (XOM). Exxon remains the powerhouse of integrated energy, and features tons of everything you could want in a long-term energy play — reserves, assets, cash flows, you name it.
On the production side of things, XOM continues to dive head-first into natural gas production and shipping. The fuel promises to be one of the primary ways we generate electricity in the future, and smart mega-buys — such as XTO and InterOil Corporation (IOC) — have made Exxon one of the world’s biggest players in nat gas.

Exxon isn’t going wholly overboard, though. Recent expansion projects have boosted Exxon’s so-called “oil cut” (the amount of production that comes from oil as opposed to natural gas and other sources) and balanced out liquids production.
Of course, retirement investors should love Exxon because it can profit even when neither energy source is doing well.
As an integrated giant, XOM has refining and petrochemical muscle. These operations feast on lower energy prices and help balance out weakness in production. That balance has actually saved Exxon’s skin over some of the past few quarters, allowing Exxon to still make money amid commodity hiccups.
Exxon is energy safety personified. Throw in a secure 3%-plus dividend, and you have as sure a thing as there is in the energy space.

Royal Dutch Shell
Dividend Yield: 7.3%
Great integrated energy stocks aren’t just limited to the United States. Europe has its fair share, too, and for retirement investors, I like Royal Dutch Shell plc (RDS.A, RDS.B)
The downturn hit Shell hard despite its integrated nature. RDS shares lost more than half their value between mid-2014 and their low point in January of this year. Heck, shares still are off more than 35%.
However, Shell learned from its mistakes, and it’s righting the ship.
Shell was once known for high-flying projects and massive capital expenditures. However, long-lasting low oil prices have forced Shell to trim cut the fat. RDS has cut back on spending, canceled potentially never-profitable projects and sold assets. Shell also has prioritized reducing its ballooning debt. That will make Shell leaner and meaner.
Retirement investors should be encouraged that despite whispers that Shell might cut into its dividend, it never did. Its generous payout has survived. And now that RDS has new plans in place and smaller spending on deck, its dividend — which yields more than 7%! — looks like the deal of the century for long-term buy-and-holders.

In the end, Royal Dutch Shell is about as good an international play as you could want.

Phillips 66
Dividend Yield: 4.1%
Refiners and downstream energy stocks have really gone to town as oil prices have listed lower in a relatively tight range. Phillips 66 (PSX) is among those winners.
Spun off from energy producer ConocoPhillips (COP) a few years back, PSX has quickly become one of the downstream industry’s biggest players. Refiners earn profits based on the difference between feed stock costs (Think oil and natural gas prices) and the price for refined products such as gasoline, jet fuel and heating oil. Those inputs remain low, and Phillips 66 is minting cash as a result.
As PSX has grown as a refining outfit, it has added midstream assets — pipelines, terminals, rail lines and storage farms. Owning pipelines and gathering systems is a great way to generate cash flows. Phillips enhanced that by placing them inside of its master limited partnership, Phillip 66 Partners LP (PSXP). That way, PSX is preparing to keep its profits even when oil does inevitably rise.
In short, Phillips 66 is balancing its portfolio so it can thrive through thick or thin. That makes PSX a great play for the long haul.
Kinder Morgan
Dividend Yield: 2.2%
Kinder Morgan Inc. (KMI) has 84,000 miles of pipeline under its midstream umbrella.
That’s a big number.
Kinder Morgan also boasts 180 terminals, fractionation and processing facilities, coal depots, tankers and other pieces of infrastructure. Wrap it all together, and you literally have the largest midstream firm in North America.
That’s why you buy KMI. That asset base and all the energy its touches is one of the widest moats when it comes to energy stocks. Period.
In fairness, that wide moat hasn’t always paid off. Mighty Kinder Morgan has stumbled on some major points in recent quarters, and amid the crash in oil and natural gas prices, KMI was forced to cut its once lucrative and reliable payout at the end of 2015.
Longtime investors will find that very difficult to forgive. However, that dividend cut should be seen as a necessary and ultimately good thing. Certainly, new money can’t complain about it. You see, the cut from 51 cents per share to 12.5 cents helped KMI shore up its balance sheet, clean house and get its cash back up to snuff.
Kinder Morgan still is a work in progress, but its wide swath of midstream assets will help it survive the current malaise. And when energy prices perk back up, expect Kinder Morgan to start sweetening the income deal once more.

Schlumberger
Dividend Yield: 2.5%
Energy demand can ebb and flow, but over the long-term, the direction is north. And whether you’re drilling for natural gas or crude oil, onshore or off, it takes a lot of technical know how to tap the power of the mighty hydrocarbon.
That’s why Schlumberger Limited (SLB) is a winning play for retirement.
Schlumberger provides the equipment necessary for companies to find and drill for energy sources. That includes things such as seismic services, well completions, drilling equipment and pressure pumping. Schlumberger makes it much, much easier to drill for oil, and that’s a powerful position to be in.
But what really differentiates SLB from rivals such as Halliburton Company (HAL) is its client list.
Instead of focusing on North America, Schlumberger has a global portfolio, and thus its revenues are … well, “worldlier.” That’s important, because state-owned energy firms can have a different mandate than publicly traded energy stocks. They often drill despite losses. Plus, the multitude of operating regions means some could be profitable, covering for when others are not.
Schlumberger can be profitable during some pretty lean times. This isn’t a major income play, but SLB provides decent dividends with the ability to provide market-beating returns when oil roars back.

Duke Energy
Dividend Yield: 4.2%
Technically speaking, the utility sector is not the same thing as the energy sector.
You can take that difference up with your local sector fund provider. Because to me, if I’m thinking about stocks that deal with energy, utilities come to mind, and they absolutely have a place in any retirement portfolio.
Utilities are the steady Eddies of the investment universe. They’re not bonds, but for stocks, they’re awfully reliable. That’s because no matter what the economic environment looks like, we still need to heat our homes and keep the lights on.
Duke Energy Corp. (DUK), the largest generator of electricity in the nation, is awfully steady.
DUK has more than 7.4 million customers located in hotbeds of growth, and it boasts a generating capacity of 52,697 megawatts. The firm also provides natural gas distribution in many of its main service areas, so Duke is a double threat in that way. Cold winter? Nat gas provides more oomph. Hot summer? Electricity demand spikes.
Duke also recently has expanded on its natural gas efforts, and will add numerous more natural gas customers when its buy-out of Piedmont Natural Gas Company, Inc. (PNY) goes through.
And as for its generation fleet, DUK has taken rising regulation head-on. Duke has been closing coal plants and has been adopting solar and wind energy. Duke already owns 500 MW worth of solar capacity and has long-term power purchase contracts for another 1,300 MW. Duke just made agreements with more than 30 solar developers to add up to 3,300 additional megawatts.

Duke can keep providing energy long into the future, and its predictable profits will continue powering a predictably generous dividend.
iShares U.S. Energy ETF
Dividend Yield: 3.4%
As we said when we started this, retirement investing is about finding sure things. Well, while the stocks on this list are pretty good, catastrophes can and do happen.
Thus, perhaps the most guaranteed lock in energy is to never bet on one single energy company. Instead, put your money into a collection of them, via an exchange-traded fund such as the iShares U.S. Energy ETF (IYE).
IYE provides investors with access to nearly 80 North American energy stocks with one single buy order. That’s instant diversification across different parts of the energy “stream,” mostly focused across the sector’s large-cap stocks. Naturally, IYE holds a couple of bad eggs, but most of the firms in this fund have survived the duress as well as can be expected.
The nice thing about IYE is that if one or two energy stocks collapse, you don’t lose your whole investment. The ETF will suffer, sure … but it won’t suddenly disappear, and it will bounce back when the sector writ large recovers.
This fund also features a very generous (for a plain equity ETF) dividend of about 3.4% currently. Meanwhile, expenses are moderate at 0.44%, or $44 annually per $10,000 invested.

Read more at http://investorplace.com/2016/09/7-energy-stocks-to-buy-retirement/view-all/#.V9MkrfkrJ9N#LtQUFSjAklvSEGDX.99