Create Your Own Retirement Portfolio with a Winning Combination of Growth and Dividends

2021-02-07     thesmartinvestor
Create Your Own Retirement Portfolio with a Winning Combination of Growth and Dividends

Everyone longs for a happy, comfortable retirement.

Retirement conjures images of a happy, white-haired couple lounging on a beautiful sandy beach while sipping refreshing cocktails.

Such pictures are probably etched firmly into our brains and give the impression of an idyllic existence free from worry.

But what these images don’t tell us is that we need to put in the required effort to make such a dream come true.

Saving diligently and investing prudently are some of the effective methods that will enable you to achieve that much sought-after retirement.

A common question arises, though, when it comes to building one’s portfolio to prepare for your golden years.

The question relates to how the portfolio should be constructed to enjoy optimal returns while providing peace of mind for the investor.

The answer is not as hard as it seems, so let’s delve into the important aspects.

A bedrock of dividend stocks

An important concept to remember is that a portfolio built for the long-term should contain a combination of both growth and income elements.

Let’s start with the income aspect.

This layer should form the foundation of the portfolio and consist of stable, dividend-paying stocks that offer a sustainable dividend yield.

Some examples of stocks that pay consistent dividends include REITs and blue-chip companies such as the local banks and Singapore Exchange Limited (SGX: S68).

These dividends constitute a flow of passive income and will serve a retiree well as he will require regular cash inflows to sustain his lifestyle.

Businesses that pay dividends traditionally also generate strong free cash flows, making them more resilient when faced with crises such as the current COVID-19 pandemic.

The defensive nature of such companies also offers peace of mind to investors when faced with the ebb and flow of economic cycles.

Layer on some growth

Inflation is a constant financial enemy that threatens your money, causing it to erode its value over time if you do nothing.

And this is exactly the reason why you should layer on some growth stocks in your investment portfolio.

Great businesses can grow over time at a pace that exceeds the rate of inflation, ensuring that your money grows at a steady clip without it being inexorably eaten away.

Global companies such as Nike (NYSE: NKE), Starbucks (NASDAQ: SBUX) and Apple (NASDAQ: AAPL) have demonstrated the ability to continue growing for years, even decades.

The fact that they are multi-billion-dollar companies doesn’t mean that they are destined to grow more slowly.

With favourable tailwinds and clear catalysts, these businesses can continue to extend their lead and capture more market share.

Even back home, companies such as iFAST Corporation Limited (SGX: AIY) and AEM Holdings Ltd (SGX: AWX) have shown that they have what it takes to grow.

Investors can choose to include such promising companies in their watchlist to enjoy long-term prosperity.

Rinse and repeat

At this point, you may be thinking that the process sounds deceptively simple.

Is there another catch to all this?

And the answer is yes, there is one more step you need to take to buff up your retirement portfolio.

The magic word is compounding.

Remember that the dividends you receive from your bedrock of dividend stocks need to be reinvested.

By ploughing this money back into the same stocks that are paying out the juicy dividends, we can, over time, increase the quantum of dividends we receive.

Stretch this period out to 20 years or more, and compounding becomes a powerful financial force that can multiply your wealth.

Not only will you receive increasing dividends as your ownership in these stocks increases, but these businesses may also declare a higher year on year dividend over time.

The combination of a higher future dividend per share and gradually rising ownership creates a virtuous cycle.

Kick-start the compounding process as early as you can, for time is your friend when it comes to owning great businesses that increase their dividends over the long-term.

Get Smart: Your ideal retirement is within reach

The idea of a comfortable retirement is well within anyone’s reach.

However, you need to expend the effort and commitment to building up a solid portfolio of income and growth stocks.

Once this is achieved, you can sit back and relax as your investment portfolio provides you with the financial freedom you deserve.

Which stocks will ride the unstoppable growth trends in 2021 and beyond? CLICK HERE to join us at this FREE webinar: Growth Stocks To Invest in 2021 and beyond to find out! 

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Disclaimer: Royston Yang owns shares in Singapore Exchange Limited, iFAST Corporation Limited, Nike, Starbucks and Apple.

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