Daily Gains Letter

Build a Solid Retirement Portfolio in Less Than 60 Minutes
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By for Daily Gains Letter | Mar 25, 2013

250313_DL_clarkGood investing doesn’t have to be complicated. If you want to save for retirement using the stock market, most individual investors would likely choose a selection of mutual funds or exchange-traded funds (ETFs).

Going forward, a lot of people are viewing the stock market as very vulnerable; unless there is another war or the euro currency really does come apart, the next big pullback is likely to be an attractive buying opportunity for those able to put away some savings for retirement.

A portfolio investment strategy is always crucial, and over the years, I’ve learned to be very conservative with equities. There’s always room for a few highfliers, but I don’t bet the farm on anything.

Putting together a stock market portfolio is easy, and you can just write it down on paper in anticipation of the next big correction.

In retirement planning, it’s highly likely that capital preservation is a top priority, so a stock like The Southern Company (NYSE/SO) or another utility stock might be a good pick. The Georgia-based electric utility has a history of paying increasing dividends to shareholders and capital appreciation on the stock market.

For me, an important group to include in any retirement portfolio with equities is consumer staples. Companies like The Procter & Gamble Company (NYSE/PG), Wal-Mart Stores, Inc. (NYSE/WMT), and PepsiCo, Inc. (NYSE/PEP), to name just a few, are well-managed dividend paying stocks that are highly likely to survive any major shocks in the global economy, and they will certainly benefit from population growth.

A pharmaceutical stock is often a good idea. There are a number of blue chips in this category. Any retirement portfolio dealing with the stock market would likely benefit from a large-cap dividend-paying technology firm and perhaps a conglomerate. Now you have five to seven blue chip picks ready to generate quarterly income.

While saving for retirement, you can choose to use dividend reinvestment plans (DRIPs), which compound your returns faster than you might think. When in retirement, you can reverse the DRIPs and live off the income.

Now you have room for perhaps one or two more aggressive stock market investments. Perhaps a restaurant chain and/or an emerging market ETF. And now you’re all done; you’ve created a fairly conservative stock market portfolio that a Wall Street broker would have charged you a lot of money to build.

Every quarter, after you receive your dividends, review your stock market holdings, and re-evaluate your picks based on earnings performance and valuation.

Over the last 12 years or so, there have been plenty of opportunities when the stock market was down to implement some kind of retirement investment strategy like this. Another good entry point will soon present itself.

One of the best attributes of the American economy is actually the prevalence of solid, blue chip companies that are global brands. Today, a lot of these companies are trading near their all-time highs on the stock market, but they aren’t overvalued.

Keep it simple. Follow this portfolio strategy for retirement savings with the reasonable expectation of decent investment returns and capital preservation.

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