Exit strategy

To retire early, sales manager adds a little risk to his portfolio

Steve Lowe wants to retire at age 60. As a means to that end, the 49-year-old sales manager at Cendant Mortgage, in Mount Laurel, New Jersey, has made diversification the name of his investment game.

He derives income from several asset classes, while limiting his overall financial risk. Although Lowe describes himself as a “relatively aggressive,” investor, he adds, “I have to realistically balance my portfolio with some conservative stocks.”

He began building his retirement nest egg three years ago with $50,000 from the sale of property he owned. That sum eventually grew to $80,000. At the time, he opened 13 different equity mutual funds, but he had little exposure to other vehicles.

Since then, he liquidated six funds totaling $30,000, and reinvested that money in stocks and unit investment trusts (UITs). He still owns seven funds-among them Oppenheimer Mainstreet Income & Growth (Nasdaq: OMSBX) and Oakmark Select (Nasdaq: OAKLX).

Bank stocks have been the most troublesome of all of Lowe’s investments. A flurry of consolidation in the banking industry has created some uncertainty for the surviving entities. He eventually plans to sell some of his underperforming stocks like Sovereign Bank (Nasdaq: SVRN). He bought Sovereign shares at $11 and $8.50, but the stock hasn’t done too well. It recently closed at $7.09.

With only 11 years until retirement, Lowe contributes 7% of his salary to his 401(k) plan, and 5% to Cendant’s employee stock purchase program. The 12% chunk does little to diminish his net salary, but goes a long way toward achieving his early retirement goal, which includes golfing, traveling and possibly establishing a part-time citizenship in Ghana, West Africa. “It’s money that I pretend I don’t have,” lowe says.

Three years ago, he made a real estate investment. He purchased a new home for $135,000 in Clayton, New Jersey, using savings to finance a $4,050 down payment. Besides his mortgage and car loan, Lowe pays off his credit card balances monthly, a rule of thumb he says goes hand in hand with wealth accumulation.

Family Snapshot: Steve Lowe
Household Income
Annual gross income: $ 85,000
Investment portfolio (securities): 26,000
IRAs/401(k): 35,000
Mutual funds: 50,000
Retirement savings: 10,000
Life (face value): 150,000
Debt/Liabilities (monthly)
Mortgage: 1,460
Car payment: 648
Charitable contributions: 2,400/yr

Expert Advice
Financial Expert: Jerome Norwood, retirement specialist, assistant vice president, Janney Montgomery Scott L.L.C., Mount Laurel, New Jersey.
Norwood’s Recommendations:
Lowe should build a balanced, diversified portfolio. It will alleviate investment anxiety caused by overexposure to red-hot but risky investments. Also, it will help Lowe achieve the proper income stream he needs currently and in retirement.

  • Explore UITs: Norwood advises that Lowe put 70% of his portfolio in unit investment trusts and mutual funds. UITs are growing in popularity among moderate-risk investors ages 40 to 55, like Lowe. unlike mutual funds, UITs represent fixed portfolios. They are free of short-term capital gains, Norwood points out. At the same time, UITs give Lowe access to a particular sector, such as healthcare, that he doesn’t already own.
  • Contribute to 401(k) Program: Norwood calls 401(k)s “imperative,” and suggests that the average, middle-aged employee contribute at least 10% to employee retirement programs. He
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