3 ways I aim to increase my retirement income with stocks
I will start receiving my state pension at age 67. But that will not be enough for me to live comfortably. Thus, since the age of 20, I have paid regular monthly contributions to build up a second pot. And I will draw on it in retirement to increase my income in parallel with the state provision.
Over the years, my monthly contributions have always been made to tax-efficient investment vehicles. To begin with, I invested in my employer’s pension plan. Then, in personal pension plans that put the money in managed funds. And now in a Self-Invested Personal Pension Plan (SIPP) and in a stock and stock ISA.
The theme underlying all of these investing wrappers is stocks and stocks. Initially, the fund managers invested in company stocks and I invested in my pension fund funds. But there was little choice on which funds received my money. However, now with SIPP and ISA I have full control. I am the manager of my own fund and I make all the investment decisions. And I like it a lot better.
I use three ways of aiming to maintain the growth of the investment pot. First of all, a focus on shareholders’ dividends. And because I’m in the building phase of my retirement pot, I’m putting all that money back into my investments to help with the funding process.
Successful investor Lord John Lee is also focused on dividends. In his book How To Make A Million – Slowly, he told us that when he first invests in a stock, that is his main consideration. And he believes that we can say a lot about the state of a company by looking at the decisions of directors about dividends – have they increased them, kept them stable, reduced them? This is all good information to help me with my investment decisions regarding company stocks.
And well-known fund manager Neil Woodford has come through his successful career as a fund manager focusing on dividends. He used to look for opportunities based on a company’s consistency in paying dividends to shareholders. And also how much the dividend increased each year.
Second, I am looking for growth. If a business grows profitably, it could make a decent investment. I’m looking for a record of multi-year increases in income, earnings, cash flow, and of course, shareholder dividend. And to find companies in the growth phase, my research often takes me to the smallest ridings of the FTSE 100 index.
I am also looking for opportunities in the FTSE 250 and in the London Small Cap Indices. Some investors are wary of small businesses because they perceive them to be riskier. But all stocks have the potential to make bad investments, even the big caps of the FTSE 100.
My point is that small businesses can make smart investments as long as I research them thoroughly and choose stocks carefully. Even then, a positive investment result is not guaranteed.
Third, I want to increase my retirement income by investing in stocks and funds outside the London market. For example, I have investments backed by US stocks and emerging market companies around the world.
If I started investing today, I would start here …
5 actions to try to create wealth after 50 years
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Kevin Godbold has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.