With the national pension continually declining in value, anything you can do to improve your retirement income should be a good thing. Corporate pension plans, private pension plans, they all help provide unearned income.
My preferred approach is to invest in shares of UK companies that offer regular dividends after retirement. And there are some impressive dividend yields these days, especially from U.S. stocks. FTSE100.
But buying stocks is risky, right? So what’s the best way to keep your long-term investments as safe as possible while building a comfortable passive income stream?
do your own research
First and foremost, each individual investor needs to develop their own strategy. Each of us needs to be happy with what we do and happy with knowing it. I’ve read headlines like this:trust me this is a clear winner“? I dismiss such nonsense out of the blue.
My long-term investment success depends solely on me. I have 100% credit that my investment worked. And all responsibility for those who failed.
And this is something that really needs to be emphasized. Even the best investors sometimes suffer big failures. I’ve had several 100% wipeouts in my decades of investing.
This brings us to the number one, most important approach to risk management. Diversification. I have always spread my invested cash across different stocks in different sectors.
I owned bank stocks when the financial crisis hit. But I also had stocks in multiple other sectors, so only a relatively small portion of my retirement income was damaged.
Dividend or Growth?
If you’re investing for passive income, you’re tempted to buy only dividend stocks. I think that’s the best way to be your final source of income after retirement. How much easier could it be than just sitting and waiting for the cash to arrive?
But even though I’m building it up, I don’t want to make any income just yet.But that’s mostly because I see them as a mature and relatively safe company. relatively Because you only need to look at the year of Covid and the economic crisis to see how even the best of people can suffer.
Now I let the dividend accumulate. And if it’s enough to buy, buy more shares. So why go for growth stocks and look for stock accumulation instead and think less about reinvesting dividends? Dividends or growth? I don’t think it matters. Quality matters.
My approach to building long-term passive income pots is based on two key principles mentioned above. I do my own research and never let anyone else decide for me.
I also have a third cornerstone, a long-term investment. Following billionaire investor Warren Buffett’s advice, if you don’t want to own a stock for 10 years, don’t hold it for even 10 minutes.
The article first appeared in The Motley Fool UK, How to Pick Stocks for Passive Retirement Income.
The views expressed in this article are my own and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering diverse insights makes us better investors.
Motley Fool UK 2023