2035 Here We Come

In the last couple of years, target date retirement funds have become extremely popular with investors. Plunk down your money and the mutual fund company takes care of the rest. The thought of retirement got me thinking of my own, and quick addition suggests a 2035 target-date fund should be my weapon of choice. With little knowledge of mutual funds (I write about stocks), I'll take the top five stock holdings from the T. Rowe Price 2035 Retirement Fund (the best-performing five-year return for a 2035 target date fund) for a ready-made portfolio. (For more, see The Pros and Cons Of Life-Cycle Funds.)

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Why Should You Buy These Stocks?
Amazon.com continues to disprove the critics who said it would never make enough money. In 2008, it made $645 million on more than $19 billion in sales. Amazon also recently released version two of its Kindle reader and it's, apparently, better than the first. In addition, Amazon recently announced it was going to sell Kindle eBooks on Apple's iPhone and iPod devices. This is a timely move as Barnes & Noble (NYSE:BKS) just bought eBook retailer Fictionwise, which already has an eBook application on the iPhone.

Some estimates put the eBook market in the U.S. at $100 million annually and growing rapidly. It will be interesting to see what happens in the future, but Amazon is likely to garner its fair share of the market. BusinessWeek recently named it the best company in the U.S. for customer service. No wonder it keeps growing.

Cash Is King
Jason Zweig of the Wall Street Journal makes the point in his March 14 column that companies are hording too much cash in this economic storm, possibly to the detriment of shareholders. Zweig believes corporate managers will feel they can afford to take extra risks in this environment to weaken their competition, ultimately producing worse results than if they'd simply paid off debt, repurchased shares and increased dividend payments. The five stocks we're dealing with currently have $37.8 billion in cash, with Apple holding the lion's share at $25.7 billion. Personally, I have a hard time understanding why Apple isn't paying a $2 dividend annually. It might not be the highest yield going but it's better than nothing. The payout would amount to 20% of its annual earnings and less than 10% of its current cash horde. Shareholders should demand more from Mr. Jobs. (For further reading, see Diving In To Financial Liquidity.)

Big Is Beautiful
Certainly the large cash positions will help the companies listed above benefit once the economy is able to turn around. There was good news for Genentech and Gilead Sciences shareholders this past week. Genentech announced Swiss pharmaceutical giant Roche Holdings was buying the remainder of the company for $46.8 billion. Gilead Sciences announced it is buying CV Therapeutics (Nasdaq:CVTX), maker of heart-related drugs Ranexa and Lexiscan, for $1.4 billion in cash. The acquisition helps strengthen Gilead's position in the cardiovascular field.

Bottom Line
Owning this five-stock portfolio to 2035 should provide a healthy retirement. However, the loss of Genentech due to the Roche buyout means the portfolio is alredy one man down. My suggestion would be to add a small cap fund to the equation, as a 2035 retirement scenario should allow investors to take a few more risks than the large caps provide.