AGNC Investment Corp. Or General Dynamics: Which Is Suitable For Retirement Accounts?

This is the third in a series of articles where I will be covering the historical performance and operating results of popular and highly recognized mREITs (mortgage REITs). In my first installment, I covered Annaly Capital Management (NLYfound here; in my second installment I covered Dynex Capital, Inc. (DXfound here; with this installment, I am covering AGNC Investment Corp (AGNC).

Hopefully, for anyone that has followed this series, they would recognize by now that although these are all mortgage REITs with very high current yields, they are far from high return investments. In my previous two examples, I did illustrate that these companies generate a lot of cumulative dividend income over time, but simultaneously have been destroying principal. Additionally, they all have histories of cutting their dividends significantly and doing it numerous times in lockstep with their falling earnings. Consequently, despite their high current yields, they have produced a rather anemic total return track records.

As a result, I have personally suggested that I do not consider them suitable instruments for retirement accounts. However, I want to clarify my position as well as clearly state why I don’t consider these suitable for retirees looking for or needing income to live off.

Characteristics of Suitable Investments for Retirement Accounts

In my personal experience working with and talking with retired investors I believe I have a pretty good handle on what most retirees want – and perhaps more importantly – need. Retirees have generally worked long and hard for their money, and their retirement accounts generally represent their life savings.

Consequently, most retirees that I have talked to and worked with have given a clear message regarding what they want and what they need. For starters, they would like to think that they could get their hard-earned money to now work for them as hard as they worked for it.

Additionally, and contrary to what many might suggest, retirement doesn’t need to mean a reduced standard of living. This notion is often associated with another notion suggesting that retirees should choose fixed income over equities. Therefore, when and if the retiree does overweight fixed income, their fixed future incomes will be ravaged by inflation, and therefore, their standard of living will potentially diminish with time.

Of course, the idea of recommending fixed income is further predicated on the notion that it is safer than equity. At first glance, this seems to make sense, because most retirees that I talked to also stress a need and desire for safety. They intuitively and intelligently understand that they will not have the luxury of many decades of time to recoup losses if they should occur. As a result, the concept of safety is most often attached to preservation of capital (not losing their principal).

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Disclosure: Long GD

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks ...

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Carol W 10 months ago Contributor's comment

Good distinction, $AGNC is not for the faint of heart. It's like $NLY or $PSEC, in that wars that been waged over these from both camps.

Beating Buffett 6 months ago Member's comment

Good point.

Michelle Bell 8 months ago Member's comment

Carol W, Well?

Michelle Bell 10 months ago Member's comment

How so?