Debt Free

Of course, everyone wants to retire rich, or at least financially secure, unless you never quite recovered from your stint in that No Cal commune in the ‘60’s. You’ll hear countless methods thrown around that purport to allow just that; a retirement supported by a nice, steady cash flow. There are countless vehicles in which to invest your retirement money. You can invest in residential real estate, commercial real estate, large cap stocks, small cap stocks, bonds, mutual funds (within the mutual fund category, there are countless sub-categories), commodities, commodity funds, REITS, your brother-in-law’s business, your own business; the list is endless.

 To decide how to allocate your retirement assets, you can try countless options; pick amongst the choices yourself, solicit help from your friend that knows everything about money, seek real professional help, hang out at the Starbucks in the financial district and hope to overhear the latest investment tips, or just let your employer take out the maximum allowable contribution from your pay each pay period.  There are nearly as many methods to determine where to put your retirement investments as there are places to put them. How are you supposed to even decide how to decide?

 

Thankfully, there is more information than ever available at your fingertips. You should be able to find the vehicle or combination of vehicles that will meet your personal criteria. It should generate the return you need while staying within appropriate guidelines for risk and expenses. In my post on June 12^th, I opined why “Boring Stocks Can Be Oh, So, Sexy”. That post dealt with using solid, dividend paying stocks and continually reinvesting those dividends. It turns out that’s a fairly safe way, as investment vehicles go, to generate a healthy retirement fund. Investors such Warren Buffet favor these types of equities. To further sweeten the pot, this method can ensure you have a steady cash flow with which to enjoy your declining years.

 So, how are you supposed to find these healthy, dividend paying stocks? There are some guidelines you can look to for assistance.

 

1.                  Corporate Health - This is a must. If the company isn’t fundamentally sound, it may pay dividends today, but you may not be able to count on them for the long term. Obviously, counting on an investment for the long term is key if you are looking to them to provide a stable, retirement income. The company should have a history of delivering actual products or services and making a regular profit while doing so. Two important components; a solid free cash flow history and consistent, sustainable growth.

 

2.                  Value - Look for undervalued companies. These are companies that have solid fundamentals, yet are trading below what expectations would dictate after evaluation of the fundamentals. Often these firms are sequestered away in boring, unexciting industries, yet are extremely solid businesses.

 

 

3.                  Realistic Dividend Payouts – If the company in question is paying out dividends way out of line with others industry, you should dig deeper. If they’ve done so for years, while maintaining profitability, this could possibly continue. However, if these payouts are a more recent development, it may signal trouble.

 

4.                  Solid Executive Team – Take a good look at who’s running the ship. If those at the helm have a history of good decision making and strategy over the years, this has a good chance to continue. Pay close attention to firms they managed before their current tenure. How did those businesses perform before they arrived, and did they improve when the executives in question took over? In this day and age, when executive management seems to have the lifespan of  a snowflake in Miami, you should have a management history to examine that encompasses a previous position or two. If the CEO and other top brass has been in place for many years, and the company has performed well, including dividend payouts, you have less to be concerned about.

 

5.                  Consistent Stock Price Appreciation – If other investors have smiled on this company in the past, maybe you should too. Obviously, Wall Street has seen something it likes. That’s important, because it shows perceived corporate health, and because the stock price must show consistent improvement in order to maximize your retirement fund. You’re looking for the powerful combination of consistent dividend payments you can reinvest, and stock price appreciation.

 

If you’re of a mind to roll your own investments, remember, stay solid and look for consistent dividends. As an added bonus, you’ll save on payments to Uncle Sam, as the IRS has relaxed tax rates on dividends down to 15%. You’re most likely paying more than this on your other sources of income. Regular contributions to such investments could allow you to retire in a style beyond what you’ve become accustomed.