Christopher M. Quigley
B.Sc., M.A., QFA
Propositions
Given that hyper inflation is here to stay any long term investment strategy must achieve good growth in order to protect future buying power.
Most people do not have the ability to devote a great deal of time and energy to the management of their financial affairs thus any system must be simple to use.
One of the best ways for a company to prove its "value" is to declare a solid and dependable dividend return.
Pension Strategy Elements
Growth With Security
In order to achieve optimal growth but without sacrificing financial security the universe of potential investment equities must be restricted to the following:
A. Large Cap. Companies
B. Enterprises that have a long track record of declaring solid and
growing dividends
C. Companies in growing markets that have a proven successful
management culture
D. Corporations that have an international presence thus providing
access to fast growing emerging markets coupled with foreign exchange diversity
E. Companies that have excellent return on capital and at least
an A+ financial rating
Diversification
For added security, given the investment is for pension purposes, the number of stocks in the investment portfolio should not be less than 10
and should be drawn from a wide range of markets and industries.
Dollar Cost Averaging
In order to protect the portfolio from wide swings in the market, and to allow for simplicity of management, ideally regular fixed amounts should be saved into the fund of stocks chosen.
Too much attention should not be focused on market timing under this strategy as research has shown that financially strong companies that pay good dividends do not suffer the worst in bear markets and are indeed very often the first to recover in bull swings.
Example: Potential Portfolio Mix
Based on the above, as an example for educational purposes, a good pension portfolio mix would look something like the following:
Dow Chemical (DOW)
Colgate (CL)
British-Petroleum (BP)
General Electric (GE)
Anheuser-Busch (BUD)
Johnson & Johnson (JNJ)
Coca-Cola (KO)
Proctor & Gamble (PG)
Wal-Mart (WMT)
Heinz (HNZ)