Some people may assume that as they approach retirement, they should move their money out of stocks completely to take the risk out of their portfolios, but that’s not as smart a move as they may think. After all, you could be retired for 25 to 30 years or more, and over such a long time frame, it would be good to have at least some, if not much, of your portfolio in the kind of asset that’s arguably the best at building wealth.
However, as you close in on the day when you’ll start drawing down on those assets to cover your living expenses, what you don’t want in your portfolio are companies that are liable to suddenly surprise you with plunging revenues or earnings, or free-falling stock prices. Instead, you should look to steady, solid performers — like these three.
Just about everyone is familiar with Walmart (NYSE: WMT). It has more than 10,000 stores in 24 countries, not to mention a massive e-commerce operation. Many people are familiar with it because they have worked there — it employs some 2.2 million people, a whopping 1.6 million in the U.S. alone. It boasts 210 distribution centers and a fleet of 9,000 tractors and 80,000 trailers. It’s big — with a market cap recently topping $385 billion.
Despite its massive size, Walmart is still capable of growing at a respectable clip: In its fiscal third quarter, sales at stores open for more than a year jumped by 9% year over year, with grocery sales rising by 10% as the discounter took market share from traditional supermarkets.
This stock can serve well in retirees’ portfolios because the company is built to profit in good times and bad. When recessions strike, consumers looking to tighten their purse strings will be more inclined to shop at discount retailers like Walmart. Better still, the company is expanding in new directions, such as e-commerce, advertising, and even healthcare — it’s adding in-store clinics to its pharmacy and optical offerings.
2. NextEra Energy
Retirees would be wise to invest in so-called defensive companies — businesses that may not have huge growth prospects, but which are also unlikely to see their revenues shrink a lot even during economic downturns. Utilities are great examples of this type of company, as people will largely keep paying for their electricity and gas no matter the state of the economy. A fine one to consider is NextEra Energy (NYSE: NEE), which has a strong focus on renewable energy. That’s an extra reason it’s likely to do well in the long run, assuming that our gradual pivot to renewable energy sources continues.
It’s actually the world’s largest utility company. And as its website states: “NextEra Energy also owns a competitive clean energy business, NextEra Energy Resources, LLC, which, together with its affiliated entities, is the world’s largest generator of renewable energy from the wind and sun and a world leader in battery storage. Through its subsidiaries, NextEra Energy generates clean, emissions-free electricity from seven commercial nuclear power units in Florida, New Hampshire and Wisconsin.”
The company is actively expanding the scope of its renewable energy operations, constructing green hydrogen projects that can convert water into hydrogen and oxygen without generating emissions that are harmful to the environment. It’s getting into the water game, too. “We are optimistic about the strong growth anticipated in this new market and the potential for clean water solutions to generate additional contracted renewables opportunities going forward,” said CFO Rebecca Kujawa in October.
NextEra Energy is also a solid dividend payer, with a yield of nearly 2% at recent share prices. Management has boosted the payout by an annual average of 12% over the past five years, too. (Retirees would do well to have plenty of solid dividend-paying stocks in their portfolios to generate regular income.)
3. Berkshire Hathaway
Anyone who has ever wished their portfolio would perform like Warren Buffett’s has a good option: Simply invest in his company, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B). He’s rightfully famous as an investor, as he has grown the conglomerate at a compound annual rate of 20% over more than 50 years. The company is so massive now, though, that it’s unlikely it will be able to keep up quite so strong a growth pace — but for retirees and those close to retirement, it’s more important that Berkshire Hathaway is solid, with a host of assets likely to keep performing well. (Buffett is 91 now, and the company’s stock price may hiccup when he moves on to the stock market in the sky, but he has a succession plan in place, and the conglomerate’s many businesses aren’t going anywhere.)
Berkshire Hathaway is focused to a large degree on the insurance, energy, and transportation industries, but the wide array of companies under its umbrella includes Benjamin Moore, Brooks Sports, International Dairy Queen, Johns Manville, Justin Brands, McLane, Business Wire, Clayton Homes, Forest River, Fruit of the Loom, GEICO, Nebraska Furniture Mart, NetJets, Pampered Chef, See’s Candies, Shaw Industries, and the BNSF railroad. Berkshire Hathaway also has a stock investment portfolio worth well over $300 billion, with major stakes in Apple, American Express, Bank of America, and Coca-Cola, among other companies.
As of the end of the third quarter, the conglomerate also had a cash stockpile of about $149 billion at the ready, which will allow it to make additional big acquisitions when it sees good opportunities. Buffett has always said that Berkshire Hathaway will never institute a dividend payment. But shareholders should still profit over the long term via its stock price appreciation.
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American Express is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Selena Maranjian owns American Express and Berkshire Hathaway (B shares). The Motley Fool owns and recommends Berkshire Hathaway (B shares). The Motley Fool recommends NextEra Energy and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.