3 Ways to Set Yourself Up for a Comfortable Retirement in 2021 and Beyond FREE SPECIAL REPORT

2020-12-17     thesmartinvestor
3 Ways to Set Yourself Up for a Comfortable Retirement in 2021 and Beyond

There’s been happy news all around in the last two months.

First off, several pharmaceutical companies reported promising trial results for their COVID-19 vaccines.

Of these, Pfizer-BioNTech’s vaccine has received approval for use in Singapore, setting in motion a plan to deliver and vaccinate the population by the end of 2021.

Buoyed by the vaccine announcement, there’s been a breath of fresh air running through stock markets as our local bourse has thundered up close to 20% since early November.

And on Monday, the Singapore government has announced that Phase III of the reopening will commence on 28 December.

This series of good news all points in one direction: we are slowly but surely winning the war against the dreaded COVID-19 coronavirus.

With things turning positive, planning for your eventual retirement could become easier as businesses enter a period of recovery in 2021.

Here are three ways you can prepare yourself for a happy retirement.

Invest in certainty and strength

If there is one thing this pandemic taught us, it’s that blue-chip companies offer stability and certainty.

Take DBS Group Holdings Ltd (SGX: D05) for example.

The local bank has had to slash its dividends in light of the Monetary Authority of Singapore’s (MAS) recommendation for banks to cap their dividend payments.

But the group remains a bastion of strength as it continues to report year on year loan growth and healthy fee income for this year.

DBS is also sufficiently capitalised throughout the crisis such that investors need not worry about the bank collapsing under the weight of bad loans.

Another strong blue-chip company has been Singapore Exchange Limited (SGX: S68), or SGX.

The bourse operator’s transition from being a pure equities platform to a multi-asset one gained traction this year.

This gradual transformation has allowed it to offer a wide breadth of securities for clients to manage their investment portfolios.

And it has led to SGX reporting its highest-ever revenue of S$1.1 billion for the fiscal year 2020.

The group has also raised its quarterly dividend from S$0.075 to S$0.08 in a show of confidence about the future.

Investing in such resilient blue-chips means you get peace of mind during your golden years.

Dependable dividends

Speaking of dividends, the second way you can gear up for a comfortable retirement is to deploy some of your cash into consistent, dividend-paying companies.

Our active salary-generation capability declines as we age, and by the time we hit the retirement age of 65, we may need to turn to a stream of passive income to sustain our lifestyles.

Dividends can play an important role here as they can provide a passive source of income after you stop working.

REITs are one source of dependable dividends as most of them have remained resilient throughout this crisis and have continued to pay out 90% of their earnings as distributions.

Another effective method is to search for growth companies that have a long track record of raising their dividends.

Some of these companies, such as Nike (NYSE: NKE) and Starbucks (NASDAQ: SBUX) have raised their dividends for 10 years or more, through multiple crises, making them a dependable source of passive income.

The magic of compounding

The final, and arguably most important, way for you to build up that retirement nest egg is to compound your investment portfolio.

Compounding is almost magical as it involves a virtuous cycle of money generating even more money.

The process is simple yet powerful.

Armed with the dividends received from step two above, you then re-deploy the money back into strong blue-chip companies and more dividend-paying stocks.

By constantly reinvesting your money into both growth and income stocks, you will see your investment portfolio growing steadily over the years, setting you up nicely for your eventual retirement.

Get Smart: Time is needed to grow wealth

Preparing your portfolio for retirement requires patience.

By following the three steps above, you are that much closer to your cherished retirement.

Let the compounding effects of time grow your investment portfolio to a sizable stash.

And that blissful retirement will then be a dream come true.

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Disclaimer: Royston Yang owns shares in DBS Group Holdings Ltd, Singapore Exchange Limited, Nike and Starbucks.

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