3 Ways to Avoid Ruining Your Retirement by Making Investment Errors

Retirement planning to a serious undertaking that leaves no room for error. For lasting income, the Bank of Montreal stock, the dividend pioneer, is a no-brainer.

| More on:
Bank sign on traditional europe building facade

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Dividend stocks are the investment centerpieces for would-be retirees. Apart from allowing you to build wealth, you’ll have recurring cash flows that becomes your active income in retirement. Moreover, investment income augment pensions like the Canada Pension Plan (CPP) and Old Age Security (OAS).

If you’re looking forward to your golden years, what you do with your money today will impact your financial future. It requires financial discipline and commitment to build a healthy amount of retirement savings. However, people commit missteps when investing. Better avoid these retirement killers to achieve your financial goals.

1. Cultivate a balanced approach

Losing money is always a possibility when investing. As such, investors must understand the risk and reward first and cultivate a balanced approach. You don’t invest randomly only because the dividends are high. Likewise, there are ways to alter or manage risks to increase your rewards.

Do your homework and perform some legwork. Focus on businesses with financial and competitive strength. These companies maintain their leading market positions in the long run, notwithstanding possible economic risks.

2. Maintain a long-term view

Long-term investing is a proven method to maximize returns at minimum risks. Famous investor Peter Lynch refers to investments that increase tenfold in value as “ten-baggers.” The author of best-selling investment books One Up on Wall Street and Beating the Street attributes his success to hanging on to stocks he thought have significant upside potential even after they’ve increased by many multiples.

3. Let go of under-performing investments

Many investors tend to hold on to stocks because they do not want to sell at a loss. Lynch admit making mistakes in selecting stocks. But he found out that holding on to underperforming companies could be detrimental to your portfolio’s long-term prospects.

Thus, it’s more logical to sell underperformers that deliver disappointing or worsening financial performance. Don’t wait for the price to go back up. Instead, bring your capital elsewhere and invest it in a business that has greater potential to produce capital growth. Lynch advises, “You have to know when you’re wrong. Then you sell.”

TSX ten-bagger

The TSX has ten-baggers for long-term investors. The Bank of Montreal (TSX:BMO)(NYSE:BMO) is the dividend pioneer. It hasn’t missed paying dividends in 192 years. BMO’s total return over the last 48.28 years is an incredible 26,329.63% (12.24% compound annual growth rate).

In 2021, Canada’s fourth-largest bank stands proud and remain the most investor-friendly stock for retirees and would be-retirees. Investors are winning by 27.18% year to date and enjoy a decent 3.55% dividend. The current share price is $120.85, while market analysts forecast a potential 12% upside to $135 in the next 12 months.

I’m not surprised that present-day investors regard a matured bank like BMO a momentum stock. The $78.05 billion financial giant has a significant upside potential and remains an excellent source of lasting retirement income.

Wealth-building strategy

Time is the most important element when saving and investing for retirement. BMO’s dividend yield, for example, could remain constant but your capital could still grow geometrically or exponentially over time.  Dividend reinvesting is a wealth building strategy. If the bank stock pays quarterly dividends, you have four opportunities in a year to accumulate more shares to compound your earnings.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

More on Dividend Stocks

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

Parents: Here’s Every Credit and Benefit You Can Claim From the CRA

Parents have it hard already, so make sure the CRA is doing everything for you by dishing out payments you're…

Read more »

edit Colleagues chat over ketchup chips
Dividend Stocks

3 Canadian Dividend Stocks to Buy and Hold for Life

These dividend-paying stocks have solid earnings base to support their payouts for decades.

Read more »

A golden egg in a nest
Dividend Stocks

Create a Million-Dollar TFSA With Just $1,000

If you have a TFSA, you can easily make a million-dollar portfolio by investing on a consistent basis in this…

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

3 Canadian Stocks With Over 6% of Dividend Yield

Boost your passive income with three safe dividend stocks.

Read more »

TFSA and coins
Dividend Stocks

TFSA Pension: 2 TSX Dividend Stocks to Buy Now and Hold for Decades

These top TSX stocks pay great dividends and look cheap to buy right now for a TFSA retirement fund.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

TFSA Dividend Income: 2 TSX Stocks to Buy on the Pullback

These TSX stocks look oversold and pay attractive dividends that continue to grow.

Read more »

oil tank at night
Dividend Stocks

1 Top TSX Energy Stocks for Summer 2022

TSX energy stocks have tanked recently, but they could enjoy a nice summer rally. Here's one top stock I'm eyeing…

Read more »

TIMER SAYING TIME FOR ACTION
Dividend Stocks

Market Correction: 2 Cheap TSX Dividend Stocks to Buy Now for a Self-Directed RRSP

These top TSX dividend stocks look cheap right now for a self-directed RRSP focused on total returns.

Read more »