Retire Rich With 4 Portfolio-Building Tips

Setting practical and reasonably ambitious retirement goals and creating a portfolio that resonates with those goals could guarantee you a financially healthy retirement.

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A golden egg in a nest

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Saving and investing for retirement is something most people understand the importance of but few give the right attention to. With the right approach to retirement portfolio building, you might not have to save too aggressively to impact your current lifestyle expenses, and you can still have a great retirement (from a financial perspective).

Keep as little cash in your portfolio as possible

Your retirement portfolio should not double your emergency reserve. Keep a separate emergency fund for a rainy day. As for your retirement funds, they should (ideally) be most invested into growing and income-producing assets. And if you are worried about the preservation of capital and want to keep part of your portfolio in cash or safe but low-potential assets, like bonds, consider investing in a safe stock like BCE (TSX:BCE)(NYSE:BCE).

As the largest telecom company by market capitalization, BCE holds a competitive edge in a market where there is already an established oligopoly of three giants. BCE has a stellar dividend history, and it offers a juicy 5.2% yield, which you can reinvest or divert towards other assets. It also has a modest capital-appreciation potential (10-year CAGR of 10.5%).

The stock is not perfectly safe, but it’s probably one of the safest TSX stocks and a significantly better choice than cash that’s essentially “depleting” at the rate of inflation.

Hedge your portfolio for market downturns

Market downturns are inevitable, and though it does eventually recover, you usually have to go through a window where most of your assets are trading at or near their worst.

That’s not an issue when you are growing your retirement portfolio, but when you are retired, and you have to liquidate 50 units to produce the same amount of cash that took 30 units before the crash, a “hedge” like the golden stock Franco-Nevada (TSX:FNV)(NYSE:FNV) might be a great alternative.

In June 2020, when the S&P/TSX Composite Index was still 11% down from its pre-pandemic peak, Franco-Nevada was up more than 10% from its pre-pandemic valuation. And it’s (ironically) one of the few gold stocks that offers decent long-term growth potential and is useful for more than just hedging your retirement portfolio.

Slow and steady is good

You can add both buy-and-forget types of securities in your retirement portfolio as well as rapidly moving growth stocks or cyclical stocks that you need to actively track. And while the latter seems very exciting, the former type might be better off forming the “core” of your retirement portfolio. These types of reliable growth stocks are available in every sector (which is good from a diversification perspective), including the relatively volatile tech.

Open Text (TSX:OTEX)(NASDAQ:OTEX) is one example. This tech stock, which is currently quite attractively valued (considering the valuations common in the tech sector), has been a steady grower for well over a decade. Its consistency of growth is just as much an asset as its capital-appreciation potential, represented by the 10-year CAGR of 17.5%.

Think ahead of the times

When you are adding assets to your retirement portfolio, don’t just focus on the proven/historical growth potential of the companies you are investing in but also on the possibility of decent growth in the future due to their business focus. Many renewable stocks, like TransAlta Renewables (TSX:RNW) might not look as attractive right now, but as the world turns more aggressively towards renewables, these companies are likely to flourish.

And if you see the whole package — i.e., capital appreciation plus growth — the asset is a decent enough bet, even now. It is currently offering a juicy 5% yield. The price, while not ideal, is not too far from the fair line.

Foolish takeaway

The most important tip of all, when you are learning to invest for your retirement (or other financial goals), is to start as early as possible. The sooner you start, the more time you will have to grow your investments, and the more experience you will gain by managing your own portfolio.  

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends OPEN TEXT CORP.

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