This is another chapter is the series of how to not wake up broke in your 80s.
Since the 2008 crash, the tendency of almost all small investors is to be too conservative. The result is what I call a safety trap, and it will devastate a portfolio just as being too aggressive will. It just takes a little longer.
The culprit is inflation, and if your money isn’t growing faster than the long-term inflation rate, you’re in line for a huge, very bad surprise.
One of the best solutions for retired persons is a stock that acts like a bond with a kick: companies such as The Coca-Cola Company (NYSE: KO), Pepsico (NYSE: PEP) and The Procter & Gamble Company (NYSE: PG).
None of these will set the world on fire. But all of them are growing dividends faster than inflation is eating up your spending power. And their all-weather, long-term performance makes them essentially AAA-rated undervalued bonds.
They are as dull as drying laundry, but you can’t argue with their results.
They have incredible business models, worldwide name recognition and high return on assets, and they continue to develop their international exposure.
They all have high market share. In fact, 80% of Coke’s business is outside of the U.S. in high-growth areas. And Pepsi makes most of its money in snack foods, which has the highest margins in the food industry.
But investors shun them because they are, believe it or not, too recognizable, and not seen as big-return investments.
But they are perfect for the gun-shy retired investor. These three behemoths may return only 8% or 9% annually, long term, but that is far in excess of what a CD, money market account or guaranteed 30-year Treasury will ever pay. And in reality, these slow-growing money printers are virtually as reliable as a bond but with enough growth to keep your head above water.
These are companies that are safe enough to satisfy the exaggerated fear factor that is dominant in this market but are paying enough to beat inflation.
Either beat inflation or it will beat you.