Q&A Alert: How Will These Plays Affect Your Retirement?

Happy Friday!

It seems like each week that our family is sequestered lasts a little bit longer…

Here at the Scheidt house, it’s getting just a bit tougher to find ways to keep everyone occupied and happy, without leaving our house or visiting friends.

But fortunately, we’re starting to see some positive discussions about when we can start to re-open our economy and what that post-coronavirus world will look like.

There are still a lot of questions to be answered. But the market moved higher this week in response to optimism that the process for returning to normal could begin. And that’s great news for many of our income investments.

Over the past few weeks, I’ve been checking in with our Daily Edge members and asking how you’re doing with this whole situation.

Today, I wanted to take some time to share responses from your fellow Daily Edge family members and to answer a few questions. So let’s jump in!

More Time to Catch Up!

Here’s a great note from Pamela S.. She’s already inspired me to use some of this extra time to catch up on things I’ve been putting off!

Zach, I am LOVING this “shelter in place” business! There have been so many times in my life (I’m 66) when I’ve thought, “If only the world could stop for just a bit so I can catch up!”

I have divided my daily/weekly efforts to include those that require physical activity, and those that require sitting at a computer or desk, and other administrative tasks. This “plan” seems like a way to accomplish all those things that “I didn’t have time for”, as well as to balance sitting with activity, and to create/maintain some structure to my days.

One of the things I can add to my days, is investing as you recommend…with regularity, rather than “as time permits” (which is hit or miss)!!! Maybe my results will reflect the effort!!!

What a great time to be putting a little more effort into investing! Since the market pulled back sharply, many of my favorite stocks have gone on sale, while the underlying companies are still in good shape!

Pamela, I hope you enjoy the satisfaction of getting more things done. And yes! I believe your investment results will be very good now that you’ve taken advantage of some of these special opportunities.

What Dividend Aristocrats Do You Suggest?

Speaking of special opportunities, here’s a great question about some of my favorite stocks from Tom…

Zach mentioned in his video on Monday, that investing is one of the two approaches to growing wealth, with trading being the other approach. 

For investing, does he recommend investing in Dividend Aristocrats, or other dividend paying stocks, and if so, are there some Dividend Aristocrats that are currently at “bargain basement” prices that are likely to rebound well in the next several months and/or years?  Thank you!

For those of you who don’t know, the term “Dividend Aristocrats” refers to companies that pay dividends, and have increased those dividends annually for at least 25 years.

At last count, there are 66 stocks in the S&P 500 that fall into this category. And with such a long track record of paying out reliable income, this is a GREAT place to start looking for new investment opportunities.

As a general rule, I heartily endorse picking up Dividend Aristocrat stocks — especially since we can buy most of these income payers at a discount price.

The only caveat I have is that a few areas of the economy are under more stress than others. In particular I’d avoid Dividend Aristocrat stocks in the energy space and in travel and leisure businesses. These two areas of the economy may take a lot longer to bounce back and we may see some major dividend cuts.

Some of my favorite Dividend Aristocrats include: Procter & Gamble (PG), Kimberly Clark (KMB), AT&T (T) and I think we could be seeing a new season of growth for Caterpillar Inc. (CAT).

Riding out the Pullback

Johan — like many of us — is riding through a pullback for his investments. But I love the way he’s been protecting his wealth!

My stocks/shares/bonds portfolio has indeed taken a beating. Luckily I had gradually bought several kilos of gold coins between 2001 and 2010 (30% of my total savings now) because I had very little trust in the stock markets.

I am looking forward to using your recommendations to take advantage of volatility in the coming months.

Great job Johan! Diversifying your into other areas like precious metals can be a great way to protect your wealth during times of uncertainty. After all, during this coronavirus crisis, the price for gold has moved sharply higher. And that means your gains from gold should have helped to offset the pullback from your other investments.

Now, we’ve got a great opportunity to buy some of the best income stocks at very attractive prices.

And with our leaders starting the conversation about getting the economy back on track, its only a matter of time until the best stocks move back up to their previous highs.

Johan, we’ll keep digging to find the best ways to take advantage of the opportunities out there. And I hope you’ve already started nibbling at some of the 5G stocks that we’ve been talking about!

How Will 5G Cash Affect My Retirement Taxes?

Olivia C. is thinking ahead when it comes to her retirement. And I love how she’s looking at the whole picture when it comes to managing her finances…

I am 63 years old and looking to build my portfolio. Can you explain how the REIT stock’s dividends, as CCI, will affect my taxable income when I retire?

Great question Olivia!

I’ll start by saying that I can’t give out any personalized investment or financial advice. So in some cases it might make sense to check with your tax accountant.

But I can give you some broad information that will help you plan for taxes down the road.

In the case of Real Estate Investment Trusts — or REITs (like our 5G Cash plays that I’ve been talking about) — a portion of the dividend that you receive is often classified as ordinary income. And you’ll have to pay taxes at your regular income tax rate on this cash.

But another portion of the cash you receive will likely be categorized as “return of capital.” For this portion you won’t have to pay any tax right away.

Instead, that cash will actually lower your cost basis for the stock.

So if you paid $165 for your shares of CCI, and $2.00 of the dividends that you receive are classified as “return of capital,” your new cost basis will then be $163.

This only matters when it comes time to sell your position. The lower cost basis will result in you recognizing a larger gain when you sell your shares. And that gain will also be taxed.

But remember, if you hold your shares for more than a year, that gain will be taxed as a long-term investment. Which should save you money on your tax bill.

It’s also important to remember that REITs do not pay corporate taxes. So there’s a lot more cash available for you as an investor. The extra cash you receive as a result of this benefit should more than make up for any additional tax consequence from the portion that is qualified as ordinary income.

I hope that this helps to explain your question.

And don’t worry… Each year your REIT investment will send you a K-1 form that explains exactly how to account for everything. You can use the company’s detailed instructions to fill out your own tax form, or simply hand the K-1 to your accountant who can put everything together for you.

That’s all the time we have for today, but please keep the questions and feedback coming in!

You can always reach me at EdgeFeedback@StPaulResearch.com.

I hope you have a great weekend!

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
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Zach Scheidt

Zach Scheidt is the editor of Lifetime Income Report, Income on Demand, Buyout Millionaires Club, and Family Wealth Circle — investment advisories dedicated to finding Wall Street’s best yields. He brings to the table impeccable investment management experience and a solid record of identifying oversized payout opportunities.

Zach previously edited Income and Dividend Report, which...

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