Retirement Investing: Playing The Long Game

There are many long-term investment options to help you save for retirement. Here are some of the most common ones:

- Stocks: Stocks are a well-known long-term investment option with strong historical performance. They represent a small ownership stake in a company, and their value rises with the company's revenue and earnings growth. Stocks can be further categorised into growth stocks, value stocks, and dividend stocks.

- Bonds: Bonds are a type of fixed-income investment where you lend money to a government entity or company for a set period, and they pay you a fixed interest rate. Bonds are considered less risky than stocks and can provide stability to your investment portfolio.

- Real Estate: Investing in real estate is a popular long-term investment strategy. While buying property directly can be expensive and illiquid, you can also invest in Real Estate Investment Trusts (REITs), which are public companies that own and operate a diversified portfolio of real estate properties.

- Commodities: Commodities are raw materials like gold, oil, or agricultural products. Investing in commodities can provide diversification and hedge against inflation, but they can also be volatile.

- Funds: Investment funds pool capital from multiple investors to invest in a diverse range of stocks, bonds, or other securities. Mutual funds and exchange-traded funds (ETFs) are common types of investment funds that offer professional management and easy diversification at a relatively low cost.

- Retirement Plans: There are various retirement plans available, such as 401(k)s, IRAs (traditional and Roth), pensions, annuities, and more. These plans often provide tax advantages and can be an effective way to save for retirement.

Growth stocks

When it comes to long-term retirement investing, growth stocks are an attractive option for those seeking higher returns. These stocks are typically associated with companies experiencing rapid growth in profits or revenues and are often found in innovative sectors like technology, healthcare, or e-commerce. While they come with higher risk and volatility, growth stocks have the potential for significant returns over time. Here are some key considerations regarding growth stocks as a long-term retirement investment option:

Higher Potential Returns:

Capitalizing on Innovation:

Growth companies are often found in cutting-edge industries, such as technology, healthcare, or e-commerce. Investing in these sectors allows individuals to capitalize on breakthrough technologies and trends that can lead to substantial gains over time.

Long-Term Focus:

Diversification:

Including growth stocks in a portfolio can provide diversification benefits due to their low correlation with value stocks and other asset classes. This helps balance returns while reducing overall portfolio risk.

Risk and Volatility:

The higher return potential of growth stocks comes with greater risk. Growth stock prices are susceptible to market volatility, higher interest rates, and economic downturns. As a result, they may experience significant fluctuations. Diversification and a long-term investment horizon are crucial to mitigating these risks.

Mutual Funds and ETFs:

To gain exposure to growth stocks while enhancing diversification, consider investing in mutual funds or exchange-traded funds (ETFs) that focus on this asset class. These funds provide access to a diversified portfolio of growth stocks, reducing the impact of individual stock volatility.

Individual Stock Analysis:

If you choose to invest in individual growth stocks, thorough analysis of the companies is essential. This requires time and effort, as you need to assess the company's financial health, growth prospects, and competitive advantages.

Robo-Advisors:

Robo-advisors offer a convenient and cost-effective way to invest in growth stocks. They use algorithms to build diversified portfolios based on your goals, time horizon, and risk tolerance. While they may have limited investment options, robo-advisors remove emotional biases and provide disciplined, data-driven strategies.

Dividend stocks

When looking for dividend stocks to invest in, look for companies that have paid steady, increasing dividends for years (or decades), and have not cut their dividends during recessions. A good rule of thumb is to look for stocks with an average dividend yield of 3%, and positive average annual dividend growth. Many stocks increase their dividends over time, helping to offset the effects of inflation.

• Ameren (AEE): Currently shelling out a dividend of $0.63 per share, with a dividend yield of 3.15%.
• New Jersey Resources (NJR): Paying out a dividend of $0.39 per share, with a dividend yield of 3.61%.
• Peoples Bancorp (PEBO): Paying a dividend of $0.39 per share, with a dividend yield of 5.7%.
• Caterpillar (CAT): The world's largest construction equipment manufacturer, Caterpillar has paid a cash dividend every year since 1925 and has raised its dividend annually for 29 consecutive years. Its current quarterly dividend is $1.20 per share, equating to an annual yield of 2.12%.
• Hershey (HSY): Hershey has paid a quarterly dividend since 1972 and has raised its dividend each year except in 2009 during the Great Recession. Its most recent quarterly dividend was $1.036 per share, for an annual yield of 1.62%.
• Lowe's (LOW): Lowe's is a leading home improvement retailer in the United States and has paid and increased its dividend for nearly 49 consecutive years. It currently pays a quarterly dividend of $1.10 per share, representing a 2.1% dividend yield.

It is important to note that while dividend stocks tend to be less volatile than growth stocks, they can still rise and fall significantly, especially during rough periods in the stock market. Additionally, if a company doesn't earn enough to pay its dividend, it may cut the payout, which can cause its stock price to plummet. Therefore, it is crucial to consider the quality and sustainability of dividend payments when investing in dividend stocks for the long term.

Value stocks

• Berkshire Hathaway
• Procter & Gamble
• Target
• FedEx
• Johnson & Johnson
• Coca-Cola
• JPMorgan Chase
• Shell
• Altria Group

Bond funds

IShares iBonds Dec 2026 Term Corp. ETF (IBDR): This fund matures in 2026, meaning it will terminate on or about Dec. 15, 2026, and investors will receive their share of net assets. In the meantime, it pays a 3.7% trailing 12-month yield through monthly distributions.

Fidelity Capital & Income Fund (FAGIX): This fund aims to provide both capital appreciation and income by adding equities to a predominantly corporate bond portfolio. It has a 5.3% trailing 12-month yield.

Dodge & Cox Global Bond Fund (DODLX): This fund emphasises corporate debt and has consistently outperformed its peers since 2016. Morningstar gives it five stars and a gold badge.

Kensington Managed Income Fund (KAMIX): This fund employs a unique investment strategy that allows fund managers to adjust their approach based on market conditions. During positive market cycles, they invest more in higher-yielding bonds, and in negative or volatile markets, they shift towards safer options like Treasurys and cash equivalents. The fund has a 4.4% yield, but a high expense ratio of 1.52%.

Sierra Tactical Bond Fund (STBNX): This fund combines riskier high-yield corporate bonds with stable U.S. Treasurys to provide total return while minimising downside risk. It has provided a nearly 5% trailing 12-month yield. However, it has a high expense ratio of 1.92%.

• Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
• PIMCO Total Return Fund (PTTAX)
• Dodge & Cox Income Fund (DODIX)
• PIMCO Income Fund (PONAX)
• Vanguard Total International Bond Index Fund Admiral Shares (VTABX)
• Columbia High Yield Bond Fund (CYLRX)
• Vanguard Short-Term Treasury Fund Investor Shares (VFISX)
• BlackRock High Yield Municipal Fund Investor Shares (MDYHX)
• IShares Core U.S. Aggregate Bond ETF (AGG)
• Vanguard Total Bond Market ETF (BND)
• IShares Floating Rate Bond ETF (FLOT)
• Schwab U.S. Aggregate Bond Index Fund (SWAGX)

Robo-advisor portfolio

Robo-advisors are a popular way to invest for retirement. They offer low-cost portfolio management that meets the needs of many investors, along with some extra features that are tough, if not impossible, for human advisors to match. Robo-advisors use the same decision-making tools as human advisors to select investments for you. Many robo-advisors allow you to set specific goals, when you want to meet that goal, and how much risk you're willing to take on. Then the robo-advisor selects the funds to create an investment portfolio that should meet that goal.

Robo-advisors are a good choice for those who:

• Want a professional to manage their money and develop a financial plan
• Are looking to start investing and want to go slowly and safely
• Want an alternative to a human advisor at a low cost
• Would prefer not to spend much time on investments
• Don't understand the markets or want to learn
• Want an account where they deposit money and everything is done for them
• Want a diversified portfolio that can help them retire

Robo-advisors use an algorithm to automatically select investments for you. The investment choices are based on factors such as:

• How much risk you're willing to bear
• What level of returns you want
• When you need the money

Robo-advisors typically select a portfolio of exchange-traded funds (ETFs) using sound investment theory. For example, a robo-advisor creates a diversified portfolio of ETFs, rather than investing it all in one fund. Extensive research has shown that diversification reduces your risk and can increase your returns.

Betterment

Betterment is one of the pioneers of the robo-advisor approach to investing. It offers automatic rebalancing, tax-loss harvesting, a personalized retirement plan, a variety of portfolio options (such as impact investing) and fractional shares in funds. It also has a premium plan that gives you access to a human advisor.

Wealthfront

Wealthfront offers goal-based investing that helps you understand how your financial choices today affect your future. It also provides tax-loss harvesting and hundreds of ETFs that you could add to your portfolio. It also has a competitive interest rate on its FDIC-insured cash management account.

Charles Schwab

Charles Schwab's automated investing service, Schwab Intelligent Portfolios, is ideal for high-net-worth investors because it requires a $5,000 minimum deposit to open an account and because Schwab has more than 300 brick-and-mortar branches across the U.S. for in-person banking needs. It offers rebalancing, automatic tax-loss harvesting and 24/7 access to U.S.-based customer service.

Ellevest

Ellevest has become a leader in the personal finance space for women because its algorithm considers important realities of women's lives, such as pay gaps, career breaks and longer life expectancy, so women can get a true sense of where they stand financially. It also provides women investors with access to online workshops, email courses and video resources from its team of financial planners and career coaches.

SoFi Automated Investing

SoFi has expanded into the realm of robo-advisors with an incredibly investor-friendly service. SoFi doesn't charge a management fee and has an average fund fee of less than 0.10%. The company provides automatic rebalancing and goal-based planning to help you reach your life objectives. Plus, you'll get career services, access to financial advisors and discounts on other SoFi products for no extra cost.

Frequently asked questions