5 Great Investments That Will Make Baby Boomers Comfortable Forever
The Baby Boom Generation is currently 60 to 78 years of age, making them either deep into retirement or just on the edge of it. As such, their investment profiles have likely changed significantly since they were younger.
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Once out of the workforce, most investors look for more income than growth out of their portfolios while simultaneously desiring to protect their principal. A combination of the investments listed below can help to achieve all of these goals — but there’s a caveat.
Each investor is an individual with their own investment objectives and risk tolerance, and what works for one might not be the solution for another. With that in mind, here are a series of investment options that may help you enjoy a comfortable retirement. Review them with your own personal needs and ability to handle risk in mind.
Rental Real Estate
Rental real estate can be a great investment for boomers because it can provide both income and appreciation. Rents generally don’t fall but rather tend to rise over time, helping provide an income stream that keeps up with or even exceeds the rate of inflation. You can choose to be hands-on both to keep yourself busy and to maximize your return, or you can hire a management company to handle everything for you and enjoy truly passive income.
If you don’t have the capital or the desire to purchase additional property, another option is to rent out an extra room or two in your house on a platform like Airbnb. This can be an easier and less risky process than laying out capital for a separate property, although it comes with certain drawbacks such as the potential loss of privacy.
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High-Dividend Stocks
Blue-chip stocks that pay high dividends are a good way to generate both a reliable income stream and the potential for capital appreciation. Quality companies known as “dividend aristocrats” have not only paid but raised their dividend annually for at least 25 consecutive years, making them a great place to start.
Many of the most well-known companies in the S&P 500 are on this list, from Coca-Cola and Pepsi to IBM, Clorox and Johnson & Johnson. Their days of rapid growth may be behind them, but in terms of providing a rising income stream and a less-volatile way to access the stock market, they check all the boxes for many boomer investors.
U.S. Treasury or CD Ladders
Treasuries are backed by the full faith and credit of the U.S. government, making them one of the safest investments in the world. Certificates of deposit are insured for up to $250,000 by the FDIC, making them another great option for those seeking capital preservation.
One popular strategy with Treasuries and/or CDs is to create a ladder, which can help smooth out fluctuations in interest rates. To create a five-year ladder, for example, you’d buy one bond or CD for each rung of that ladder. If you have $50,000 to invest, for example, you’d buy a $10,000 bond maturing in one year, a $10,000 bond maturing in two years and so on until you fill up all five years of the ladder. Then, as each bond matures every year, you’ll reinvest the proceeds into a new bond maturing in five years.
The basic principle behind a ladder is that you’ll earn a range of returns while helping protect yourself from changes in interest rates. If rates are rising, you’ll invest the maturing bonds at higher rates every year. If rates are falling, you’ll lock in the highest available rate for a number of years.
Target-Date Funds
If you’re looking for a hands-off type of investment, a target-date fund might meet your needs.
These funds automatically change their asset allocation based on your age, taking less risk as you get older. This is primarily accomplished by reducing the allocation to growth investments like stocks and adding more conservative options like fixed-income investments or even cash equivalents.
S&P 500 Index Funds
Most retirees shouldn’t have their entire portfolios in the stock market. But it can be an equally poor choice to withdraw from the market completely, depending on your investment objectives and risk tolerance.
Even 70-year-olds may have another 20-plus years of life in retirement to fund, and lower-yielding investments may not even provide a positive real return after inflation and taxes are taken into account. The S&P 500 has a long-term average return of 10%, helping provide the growth needed to sustain your nest egg, and it has never lost money over any 20-year period. While more volatile than some other assets, the longer you hold an S&P 500 index fund, the less likely you are to actually lose money, making it a good option for at least a portion of a baby boomer’s portfolio.
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