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Fund Family Shareholder Association
INTERVIEW
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DONALD KILBRIDE
care less about retirement. He’s more
interested in Instagram and Snapchat.”
Maybe. Maybe not. Last year I
helped a number of 25-year-old friends
of my daughter with some fundamen-
tal financial and investment planning.
They needed it; they knew they needed
it; and they were very appreciative of
the help. In fact, one of them wrote a
blog post about it, then went on to put
hermoney towork for her future.
It’s too bad more people don’t help
the young get started early on their
investment careers, because the perfect
time to learn about saving and invest-
ing is when your portfolio is small
enough that your mistakes won’t kill
you. Also, it’s a time when a new
investor can begin to develop lifelong
habits that will stand them in good
stead as they pass through their 30s,
40s and beyond.
Time is on a kid’s side, and by help-
ing them start to build aRoth IRAwith
earnings from summer and part-time
jobs, youmay be able tomake amean-
ingful impression on him or her. Then,
next March andApril, you can tote up
what Mr. or Ms. Millennial earned in
2014 and fund that IRA account before
theApril 15 deadline.
I know that it would be nice if junior
spenders could take on this chore them-
selves, but how many teens do you
knowwho read investment newsletters?
And if they did, where would they get
the money to stash in an IRA? Most
spend what they make, and then some.
That’s why parents (or grandparents)
were invented.
When I first opened an IRA for my
then-teenaged son, bothheandmywife
looked at me like I’d just announced
my intention to run for President. My
daughter just smiled and kept reading
her book.
The joke ison them,ofcourse.Thanks
tomematchingmy son’s summer earn-
ings and putting the money away in a
Roth IRA, the now almost-30-year-old
has already built up a tidy sum that
will continue to grow for many years to
come. It won’t pay for a nursing home
just yet, but then again, he’s got a few
years before that becomes an issue.And
he’s learned the value of early and long-
term investing and compounding.With a
good job, he’s already savingoutside his
IRAand is fundinga401(k) atwork.My
daughter’s IRA, smaller because she’s
younger, is also growing (I matched her
earnings, too).Unfortunately, in thestart-
up where she currently works, 401(k)s
are still anunknown.
Okay. That’s my kids. What about
yours? Let’s go back and review my
thinking on the teenage Roth IRA, so
youwon’t put thisoff. It’s important and
especially timely given that the April
15 deadline for contributions seems to
sneak up quickly on those who’ve pro-
crastinated aboutmaking their deposits.
The Roth IRA is an excellent retire-
ment savings vehicle for younger peo-
ple. Since their introduction in 1998,
Roth IRAs have been garnering respect
(and dollars) from knowledgeable
investors for the advantages they have
over traditional IRAs.
While a traditional IRA allows you
to deduct your contributions pre-tax,
it also locks your money in until you
are 59½ years old (unless you feel like
paying a 10% fee onwithdrawals, plus
income taxes), and forces you to take
distributions upon reaching the age
of 70½, paying income taxes at your
future—and possibly higher—tax rate.
RETIREMENT
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CautiousConcentration
YOU’VEHEARDME call the stocks in
Dividend
Growth
’s portfolio battleship balance-sheet
companies. The admiral watching over this con-
centrated fleet is Don Kilbride, 49, a growth and
incomemanager atWellingtonManagement who
talks fast and thinks even faster. He, Jeff DeMaso
and I recently spoke about the portfolio, the state
of theworld’smarkets andDon’s cautious outlook concerning future
attempts to rein in an unprecedented level of global central bank liquid-
ity. Listen in…
Don, ona relativebasis, valuations in the large-capandparticu-
larly themega-cap space seem tobe themost compelling. But
are theycompellingon their own?
I think about valuation in the portfolio as sort of eclectic. Some stocks
in the portfolio, from a classic valuation standpoint, look really, really
inexpensive tome. Generally, they are pretty attractive, and I think that
probably applies to themega-caps broadly. I don’t traffic in themid- and
small-cap areas—but it feels tome like [mega-cap stocks] are relatively
more interesting than just about anything else in themarket.
What is it thatmakes your companiesattractive?
The companies thatwe own are the best sources of total return that
I can find. They are the ones that best balance the two dimensions I
always talk about—value creation and value distribution.
Look atMicrosoft, for example. Set asidewhat is happening in the
business right at themoment—you’ve got a company that I am very con-
fident is going to continue to create valuewhen youmeasure it by the
steadiness of its profitability, their ability to convert earnings into free
cash, and low capital intensity. They continue to do it every, every year.
Taking that engine of value creation and translating it into value distribu-
tion, which is the thingwe are trying to solve for—dividend growth—it’s
a compellingmodel.
Forme, wealth creation is two things: Can you create value?And can
you give it back tome?
Are therebetterorworsepocketsof valuationout in themarket, if
any?
Forme, it comes down to—brick by brick—individual companies.
Having said that, there are certainly areas or pockets of themarket or
industrieswhere one could argue there is potentiallymore value. That
would largely be in industries that have lagged.
Tome, the one that leaps out off the page themost is energy. But I
