Investing In Stocks For Retirement

There is no certainty in investing, whether you invest in stocks, bonds, mutual funds or annuities. But over the longer term, stocks have offered returns superior to almost every other asset class. When you invest for retirement, whether through your employer, an individual retirement account, mutual funds or other investments, it is important to understand stocks: what they are, how they work and how they help grow your portfolio. On this page, we define “retirement stocks” as stocks that an investor purchases as part of their retirement portfolio.

Basics of Retirement Investments

How should you allocate your short- and long-term investments? That depends on factors such as your life expectancy and that of your heirs, how much money you have saved, your risk tolerance levels and income and cash-flow needs. A registered investment advisor can help you determine your short and long term goals. For example, some retirees want to focus on simply maintaining a standard of living adjusted for inflation, others prefer to spend down all of their assets before they pass while others want to continue to grow their portfolio during retirement to fund additional spending or leave a legacy to heirs or charities. We believe having the correct asset allocation significantly improves the chances of meeting your long-term objectives.

Retirement Stocks

Before deciding which retirement stocks to invest in, you should define your retirement goals and determine the right asset allocation based on your income needs, time horizon and other factors. Once you have these set, you can then determine which retirement stocks are best to achieve your growth goals.

Types of Stocks 

Stocks can be either common or preferred. Both represent a slice of ownership of a company and both can pay dividends, but there is one important difference. While common stock holders are entitled to vote at shareholder meetings, preferred stock holders don’t have voting rights. To make up for their lack of voting rights, preferred stock is senior to common stock, which simply means their dividends are paid before common stock holders’ dividends are, and they are less likely to be cut or reduced—though both can happen.

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See Our Investment Guides

The world of investing can seem like a giant maze. Fisher Investments has developed several informational and educational guides tackling a variety of investing topics.

Many investors believe stocks with a history of dividend growth are “safer" than non-dividend paying stocks. However, that is not necessarily the case—there are no fundamental risk differences between dividend paying stocks compared with those that don’t.

The stock market can be broken down into several categories. Take the MSCI World Index as an example. It has 11 sectors, which separate companies into groups based on the products and services offered by the particular company. The 11 sectors that make up the MSCI World Index are Information Technology, Health Care, Consumer Staples, Telecommunication Services, Financials, Consumer Discretionary, Energy, Utilities, Real Estate, Materials and Industrials.

There are indexes that track the performance of particular sectors. Investors can choose to invest in specific sectors, individual stocks or the broader stock market through exchange-traded funds (ETFs), index funds or actively managed stock mutual funds.

Investment Style

Companies are often classified according to style—value or growth. Growth companies are typically expected to deliver profit growth rates above the average rate of broad economic growth. Value stocks are those that may be viewed as underpriced and depend more on macro-economic growth trends to drive profit growth.

Market Capitalization

Companies are further categorized according to their market capitalization or size. Market capitalization is calculated by taking the number of shares outstanding and multiplying that number by the company’s current stock price. Below is broad example of how companies might be broken down by size:

  • Mega-Cap: Companies with market capitalization of over $100 billion
  • Large-Cap: Companies with market capitalization between $20 and $100 billion
  • Mid-Cap: Companies with market capitalization between $2 and $20 billion
  • Small-Cap: Companies with market capitalization between $250 million and $2 billion

Employer Retirement Stocks

Some employers offer compensation to employees in the form of company stock. While taking advantage of certain match programs and allocations may maximize your yearly compensation, Fisher Investments generally advises against concentrating your portfolio with stock from any single company—even if it’s your own.

We believe you should limit exposure to any single company to at most about 5% of your total investments. Though you may know the company well, higher concentrations increase risk dramatically. After all, if you are actively working, your salary should be tied to the business’s health. Tying your future wealth or retirement to its health by loading up on employer stock is essentially “doubling down” which is not ideal. Diversification is key. It’s about staying humble and avoiding the potential for a big mistake.

Learn More About Investments for Retirement

Fisher Investments can help you craft a retirement plan that includes an appropriate allocation of retirement stocks in your retirement portfolio, based on your needs, time frame and assets. We will review various investment options and help select those that will increase the likelihood of achieving your long-term goals.

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