When you're approaching retirement with a nest egg earned from your years of hard work and dedication, one thing in particular may be on your mind; "How do I protect my retirement funds while maintaining moderate growth?"
Part of the answer to this question is recognizing that keeping a long term perspective is still necessary and the "buy and hold" strategy still applies. After all, some retirements last at least 25+ years and growing! To help simplify things, here are a few retirement stock characteristics to look for, along with my top picks to include in your retirement portfolio.
Great retirement stocks have multiple characteristics in common. If you want the short version of noticing a great stock pick for your retirement portfolio, ask yourself this question: "Can you imagine a world without this company?"
This question will at least get you on a good track to find the companies with retirement attractive characteristics. Here are a few to look for:
As a company generates a profit from its product or service, it will often share a percentage of the profit by giving some of it back to the shareholder. This is called a dividend. While many companies offer dividends, the ones with a long history of increasing dividends is a good sign of a stable retirement stock whose profits may continue growing in perpetuity. After building up a significant position, many retirees can actually use their dividend payments as a form of income too.
Larger companies are attractive for retirement portfolios because their size and market impact are often considered "too big to fail." This is more of an expression than a reality, but the suggested message has some truth. Larger companies are less likely to fail in different market conditions, including recessions. Large cap (companies with a market cap of at least $10 billion) and Mega Cap (companies with a market cap of at least $200 billion) companies are often great retirement picks.
As your portfolio matures and you near retirement, you should start moving your investments towards more low risk, large-cap companies and possibly even ETFs.
This is simply referring to their performance in previous years and different market conditions. The longer the track record of continual growth, the better. This doesn't mean it never had a negative month or year, but rather, it means the company has increased in value over the long run, usually 10+ years at least.
The quickest way to get a good idea of a company's financial well being is by taking a look at its balance sheet. The balance sheet will give you an overview of total assets, liabilities and shareholder equity. Signs of healthy finances are increasing cash, decreasing debt, and increasing shareholders equity. Furthermore, comparing long term debt to how much cash it has on hand gives you an idea of how leveraged it is, and whether it is in control of its bank account or if its creditors are.
The above characteristics are great signs of potentially great picks for your retirement. Keep in mind that a great stock pick doesn't necessarily have to carry all five listed above (although the more, the better):
Founded in 1923, its safe to say that most of us had a childhood that included Walt Disney (NYSE: DIS) movies and animations, and perhaps some of us even have children who can't get enough of it! With a market cap of just over $260 billion, an ever increasing dividend for decades, and $6.73 billion of cash on hand, Disney makes a great retirement portfolio pick.
2. Berkshire Hathaway
Owning a piece of Berkshire Hathaway (NYSE: BRK.B) gives you access to Warren Buffett's investment empire. Berkshire Hathaway owns many of the top companies in its respective industries including Geico, Dairy Queen, Brooks, Clayton Homes, Duracell, Fruit of the Loom, Pampered Chef and Oriental Trading Company, among many others. When you buy shares of Berkshire Hathaway, you're purchasing investments in what some people may consider the best investor of all time's top picks.
On the note of Warren Buffett, he commented on his reasons for investing in Apple (NASDAQ: AAPL) saying "I do not focus on the sales in the next quarter or the next year," he said. "I focus on the ... hundreds, hundreds, hundreds of millions of people who practically live their lives by it [iPhone]."
He is also quoted saying: "I have a plane that costs me a lot, a million dollars a year or something of the sort," he said. "If I used the iPhone -- I use an iPad a lot -- if I used the iPhone like all my friends do, I would rather give up the plane."
Now considered the second-largest company publicly listed in the US, Apple has a market cap of more than $1 trillion. Furthermore, it has an ever increasing dividend for decades on end, and its strength lies in the fact that there are 1.4 billion active Apple devices in use today. That's nearly 1/7th of the entire world's population!
Microsoft (NASDAQ: MSFT) provides computer software, apps and cloud services for businesses, students, employees and families around the world. You may be familiar with some of its top products such as Windows, Microsoft Office, Bing, and the Xbox gaming console. Some estimates state that more than 1 billion computers around the world are powered by Microsoft's computer software, Microsoft Windows. And that's not considering the use of its other products and services.
In other words, Microsoft powers a large percentage of computers, apps, and tools that businesses and consumers may not be able to function without.
Microsoft is currently is valued at $1.2 trillion today. Their continual earnings growth of 21% year over year combined with a hefty bank account ($136 billion to be exact), relatively little debt as compared to their cash (long term debt of $85.57 billion), and a long history of increasing dividends, Microsoft makes a prime stock for your retirement portfolio.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
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