Better Way to Invest 20K?

[LiseE]

Many moons ago when I was a young lassie I worked for GE and was able to contribute to the stock purchasing plan.  I was young and new to investing but was very pleased that the stock split twice within the 5 years that I was there .. once a 2 for 1 split and the other a 3-1 split.  All I know if that I had a lot more shares! :)

When I left the company I decided to leave it as it was with the thinking that GE in and of itself is a highly diversified company and I had the hopes that at least one of it's sectors would perform well.

In February 2009 it hit an all time low and has been clawing it's way back up but it's still just not performing as I'd hoped.

What would you do?  I've been reading through MMM posts and just read about REITS of which I do not own any .. thought that might be a good option to add to my portfolio.  I'm not even sure if it's possible to transfer these funds as they are part of a pension plan.

Thought?
- Lise

[Louisville]

I'd probably leave the GE shares where they are and count them as Large Cap Domestic in my overall asset allocation. GE isn't going anywhere.
But, that's me. Without knowing anything about the rest of your investments and your overall asset allocation, it's hard to say.

[divinvestor]

Lise, I agree with Louisville, I'd just leave the GE stock alone until it's time to access the pension fund. It pays a nice dividend and barring another financial crisis, it probably won't suffer a big drop. It was hit hard during 2008-2009 as just about every stock was, and they are still standing today and probably will be for another 100 years. One could argue that they are better off now than they were before the financial crisis since they have largely divested itself of the finance arm of the company, and focusing more on its core industrial operations.

As far as REITs are concerned, be mindful of where you hold them. It's generally better to buy them in a tax-advantaged account (Roth or Traditional IRA) as opposed to a taxable brokerage account because of the high dividends they pay, and the fact that those dividends count as ordinary income on your taxes. Also, be sure to do your DD on which to buy. You can do really well with a quality REIT, like Realty Income (O), but a bad one can put a damper on your portfolio. I would put no more than 10% of your entire portfolio in REITs.

I hope this helps, and good luck!

[divinvestor]

I just want to add that if it's possible, find out if your GE stock is set up to reinvest dividends, or if they are received as cash. Be sure to have the dividends reinvested (if possible of course) because that will make a huge difference in the long term return.

[LiseE]

Thank you for the feedback ... I like holding GE for some reason so I'm glad to keep it as is .. the dividends are set up to be reinvested (whew!). 

Thanks Again!

[NP]

Be sure to have the dividends reinvested (if possible of course) because that will make a huge difference in the long term return.

What makes a huge difference is simply having your assets invested instead of letting them collect dust as cash. Dividends are just another one of your cash flows, there's nothing special about them, assuming they get no preferential tax treatment if reinvested directly. Whether you reinvest dividends into the same stock or fund that paid those dividends or into something else makes absolutely no difference except for your asset allocation. For example, if one of your investments has grown too much relative to your asset allocation plan, having dividends go into another investment is sometimes a good way to rebalance gradually without selling shares and incurring taxes. The caveat is that you might have to consider transaction costs and if the reinvesting isn't automatic, then you better not forget to do it manually at regular intervals.

If I had some old stock that I wouldn't want to sell right away because of tax implications, that's exactly what I'd do: Direct at least the dividends into diversified investments. Then in the next extended bear market if the share price drops enough to make capital gains taxes negligible, I'd just sell it all and buy diversified investments immediately. The point is, if you need to ask a basic question like this here (it's good you asked), then dealing with individual stocks is very risky for you (just like for most people) because you clearly aren't experienced enough to evaluate individual stocks or to judge the quality of advice about individual stocks. The question you should ask isn't whether GE is a stable company (though even that isn't as simple as it might seem) but whether it's likely to outperform the market. You'll find that such a question is incredibly hard to answer even if you train yourself to become a very knowledgeable investor.

The above did not take it into account that your shares are in a pension plan, which might limit your choices. You should figure out what rules apply. Perhaps you could transfer those shares into a brokerage account tied to a pension plan at a provider like Vanguard where you'd have more freedom. My advice is that you should convert as much of your individual stocks into diversified investments as you can without incurring a loss.