Nearing Retirement? These Stocks Are as Cautious as They Come

These two blue-chip Canadian utility players can help buttress a retirement portfolio.

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For those nearing retirement, investment priorities shift from growth to focusing on capital preservation and generating income.

This change is necessary because, unlike younger investors who can weather market downturns, retirees rely on their savings for daily expenses and can’t easily replace lost capital through work. Additionally, with people living longer, there’s a pressing need to ensure savings last.

However, while bonds and Guaranteed Investment Certificates are traditionally safer, they often offer lower returns, posing a risk of outliving your savings if your portfolio is too conservative. It’s essential, then, to include some stocks in your retirement portfolio to seek growth without taking on excessive risk.

Here’s how I would personally go about finding these stocks and two picks for cautious retirement investors I like.

How to find lower-risk stocks

A great starting point for finding lower-risk stocks in Canada is within the utilities sector. This sector includes companies that provide essential services such as electricity, natural gas, water, and telecommunications.

These services are fundamental to daily life, meaning that demand for them remains relatively stable, regardless of the economic climate. This inherent stability is a key reason why utilities are considered defensive investments.

The utility sector is defensive and resilient to economic and market downturns due to its structural mechanics. First, the demand for utility services is inelastic; that is, consumers and businesses continue to use these services even when their budgets are tight.

Additionally, many utility companies operate under regulatory frameworks that allow for predictable revenue streams, often with set rates of return on the infrastructure investments they make. This regulation helps ensure consistent earnings, making utility stocks less volatile than those in more cyclical industries.

When searching for low-risk stocks, another metric to consider is the beta value, specifically looking for stocks with a beta of 0.5 or lower. Beta measures a stock’s volatility relative to the overall market. A beta of one means the stock’s price tends to move with the market.

A beta lower than one, such as 0.5, indicates that the stock is less volatile than the market. This is crucial for retirees or cautious investors because lower-beta stocks are less likely to experience large price swings, reducing the risk of significant losses during market downturns.

My two picks

For those seeking defensive, lower-volatility stock options, I think Fortis (TSX:FTS) and Hydro One (TSX:H) stand out as solid choices.

Fortis operates as a leading utility company with a focus on electric and gas utilities across Canada, the United States, and the Caribbean. Its extensive infrastructure and regulated nature of operations provide a stable earnings base.

Hydro One, on the other hand, primarily deals with the transmission and distribution of electricity across Ontario, owning and operating an extensive network that delivers reliable power to a substantial portion of the province’s population.

Both stocks exhibit low beta values, with Fortis at 0.18 and Hydro One at 0.3, indicating their prices are much less volatile compared to the broader market. This makes them particularly attractive for retirees or those seeking to minimize risk in their investment portfolios.

Additionally, Fortis offers a decent yield of 4.49%, and Hydro One provides a yield of 2.96%. These yields make them perfect candidates for retirees in search of steady income streams from their investments without exposing themselves to high market volatility.

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 Tony Dong has no position in any of the stocks mentioned. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

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