Mama tried to raise me better and nipped my sports writing career in the bud.

Temptation being what it is occasionally, I fell off the wagon. The Walton Sun lacks a dedicated sports section, but the uproar from the Green Bay/Seattle game combines sports and finances.

The National Football League locked out union officials in a dispute, in part, over retirement plans. People obviously are getting the message about planning for their retirement. NFL commissioner Roger Goodell took a page from Wisconsin’s Governor Scott Walker’s playbook.

Goodell proposed changing the officials’ defined benefit (DB) pension plan to a defined contribution plan like a 401(k). The officials however hunkered down. After the atrocious call against Green Bay, Wisconsin’s union-busting governor bemoaned the inequity, oh the irony. The official in charge toils as a loan officer for Bank of America. His decision pales when compared to Bank of America’s boneheaded purchase of notorious sub-prime lender Countrywide Financial.

Another painful example was the 1999 UGA/Georgia Tech game where Jasper Sanks scored a touchdown from the one-foot line with 13 seconds left in the game… then fumbled. Yes, the officials blew the call. The true culprit, however, was Georgia’s head coach, Jim Donnan, who inexplicably did not kick a chip shot field goal.

Investors, like football coaches, should avoid unnecessary risks (ask a Florida fan about Fourth and Dumb). Recently a couple, near retirement, showed up with a much too aggressive 90 percent stock portfolio. During the land boom, people borrowed against home equity for land speculation. Like Donnan, investors often take inappropriate risk.

Donnan earned greater infamy when the Securities and Exchange Commission (the other SEC) charged him and a partner with an $80 million Ponzi scheme. The indictment alleges Donnan and his partner promised investors returns ranging from 50 to 380 percent by buying leftover merchandise from major retailers and reselling the products to discount retailers.

Outlandish returns, as Donnan allegedly promised, should raise eyebrows. With record low interest rates, three to five percent dividend yields on stocks look promising. Short-term certificates of deposit and AA rated municipal bonds along with money market funds provide microscopic returns but your principal is secure, contrasted with stocks. I love stocks, but do not invest funds needed within three years in stocks regardless of the dividend yield.  More risk-averse investors may want a longer horizon.

Individual stocks also carry company specific risk.  Wachovia, AIG, General Motors, Eastman Kodak, to name a few, were companies people owned for dividends. Since March 2009, the S&P 500 has returned almost 25 percent-annualized. Even though the broad market has recovered nicely, stockholders in these companies missed the rally. 

Owning individual stocks versus mutual funds or exchange-traded funds limits diversification-the only free lunch available to investors. It is nigh impossible to build a diversified portfolio of small company U.S. stocks or international stocks — both essential asset classes — without using mutual funds or exchange-traded funds.

Individual stocks can outperform an index but only because of increased risk investors bear. Individual stock selection acumen can be a compensation gimmick where investors not the advisor carry the risk. 

Buz Livingston, CFP offers hourly financial planning and fee-only investment management to clients along Florida’s Emerald Coast.  He can be reached at 267-1068, Buz@LivingstonFinancial.netor