5 Key Traits of a Great Retirement Investment

How will you spend your golden years? Photo credit: Author

Retirement is probably the one concept I think least about. I have at least three decades until I'll be even close to retirement age. Even when I reach it, like most Americans, I'll probably continue to work in at least some capacity. That being said, the key to being in the position to choose what I'll be doing in my golden years are the decisions I make today.

That's why I'm always on the lookout for great stocks that I can hold on to for the long-term. While these exact companies might not stay in my portfolio for the next thirty years, the foundation upon which they are built is strong enough to last a lifetime. One company with a foundation built to endure is Vanguard Natural Resources (NASDAQ: VNR  ) . There is actually a great lesson to be learned by taking a closer look at the foundation Vanguard is building by reviewing the five key strategies (link opens a PDF) that drive its business. 

High quality, low risk asset portfolio
Vanguard's business model is to buy up known oil and gas reserves that will produce strong cash flow for years to come. It's usually not shopping in the clearance isle, nor is it looking to pay a premium for the choicest of assets. Instead, it's in the Warren Buffett mode of buying great assets at fair prices. So, while Vanguard might be buying an oil well, the same can be said for any asset an investor buys, quality over quantity will go a long way to ensuring retirement bliss.

Disciplined acquisition strategy
Far too often companies grow for the sake of growth. The American natural gas industry led by Chesapeake Energy (NYSE: CHK  ) has for years outspent its cash flow in order to grow its production. That was working when natural gas prices where high, but when prices crashed all the debt the company racked up forced it to sell assets just to pay its bills. Only more recently has Chesapeake become more disciplined and has decided to live within its cash flow. Vanguard on the other hand has remained disciplined, while it reviews nearly 150 deals each year, it might only close on two of them. Bottom line, invest in a company that's disciplined in how it spends money. 

Active hedging program
Another facet of Vanguard's business model is to lock in its cash flow several years into the future. While it might not earn as much if prices spike, it also won't lose its shirt if prices collapse. The company takes a long-term view, something few companies or investors do today. Managing for the future is the first step toward ensuring that there actually will be a future for the company, so look for companies that are looking out over the long-term.

Strong credit profile
Far too many companies and individuals run right up to the edge when it comes to debt. This can work out so well when times are good, but it's devastating when the tide turns. Vanguard knows its limits and is committed to maintaining a strong enough balance sheet to ensure that it endures when tough times arise. Invest only in the companies with a balance sheet built to last. 

Management team with extensive experience
The most often overlooked area by investors when picking a stock is the management team. That's a shame because the right management team will see things that others missed. Take a look at what the CEO and co-founder of Vanguard peer Breitburn Energy Partners (NASDAQ: BBEP  ) had to say about why he and his partner started the company:

[We] had a theory, a thesis, that technology was going to allow us to increase recoveries of oil and gas and we thought that, it would work very well in the United States and that the exodus from United States by all the major oil companies in the late 80's was a mistake. We felt that new technologies would allow us to continue to grow production here in the United States and so we built the business on the back of that. We acquired interest in large oil and gas fields, embracing technology to increase the reserves, the production, the cash flow and therefore the value.

This same spirit is alive and well at Vanguard. The company's management team knows that one of the keys to its future is to be a capital provider to the oil and gas companies driving the shale revolution. However, it pursues this by remaining disciplined in what it acquires, striving to pay a fair price for great assets, while not being overly aggressive. That has enabled the company to deliver 45% growth in its distribution to investors since going public in 2008. Invest in companies with management teams that offer more than just promises. 

Final Foolish thoughts

Investors will do very well to look for these same five strategic traits in a stock that's being bought with retirement in mind. That's  because the best investing approach is to choose great companies and then sticking with them for the long term. With that in mind, The Motley Fool would like you to have a free report "3 Stocks That Will Help You Retire Rich." The report names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.


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  • Report this Comment On September 09, 2013, at 10:58 AM, mr091468 wrote:

    While I tend to agree with your article on VNR, I have two CEF's in the energy sector, TPZ, TYG. Also have KMR, which has been attacked by another hedgeax x jerk like LINN energy has been. These stocks tend to be descimated and financial lives of families ruined is the result. That's the trouble with owning individual company stocks. Some jerk like Icahn comes along and the next thing you know, your family's financial future is ruined. The SEC will do nothing, of course. Would like to hear the writer's comments on this, but this does not often happen with the Motlely Fool articles.

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