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With recent events ranging from a catastrophic earthquake in Japan and unrest in northern Africa and the Persian Gulf to sovereign debt fears in Europe and price worries in emerging markets around the world, striving for a safe, secure retirement for you and your family may seem more difficult than ever. But with the right portfolio of stocks, you can weather whatever storms come your way and put yourself in the best position to achieve financial security in your golden years.
After the stock market has enjoyed a big rally, it's always hard to figure out how best to invest. With many stocks on the expensive side, you never want to be the last one without a chair when the music stops and stocks finally start to correct after their huge gains. Yet as many investors have found over the past two years, getting left on the sidelines is far from comfortable during a bull market -- and it's impossible to tell how much longer stocks could continue to advance.
The (too) popular answer
The easiest thing to do when you're in doubt about where to invest your money is to follow the crowd into the most popular investments. Often, that leads ordinary investors into the stocks that have had the biggest gains recently. If you're trying to reduce your risk, piling into momentum stocks after they've already enjoyed their biggest gains can be a major mistake.
For retirement investors, though, perhaps the most popular trade has involved blue-chip dividend stocks. Plenty of the largest, best-known stocks in the market trade at reasonably low valuations and pay decent dividend yields. Johnson & Johnson (NYSE: JNJ ) , Wal-Mart, and ConocoPhillips (NYSE: COP ) are just one example of a diversified trio of industry leaders all of which trade at P/E multiples of 13 or less and pay dividends of 2.5% or more.
It's hard to argue against solid stocks at attractive valuations. But unless you already have all the money you'll ever need, you probably want to add some other stocks to your portfolio -- stocks that lean a bit further toward the growth side of the income/growth spectrum without giving up on stability or value entirely.
Spice it up
To add some diversification to a big-cap dividend portfolio, I went in search of small- and mid-cap stocks that combine reasonable earnings multiples, good dividend yields, and stable stock performance. Here are some of the best picks I came up with:
|Molson Coors (NYSE: TAP )||$7.15 billion||2.5%||11.7||0.72||Add|
|Alliance Resource Partners (Nasdaq: ARLP )||$2.7 billion||4.7%||11.0||0.81||Add|
|Harris (NYSE: HRS )||$5.83 billion||2.2%||9.3||0.91||Add|
|Hillenbrand (NYSE: HI )||$1.36 billion||3.5%||14.9||0.72||Add|
|Scana (NYSE: SCG )||$5.12 billion||4.8%||13.4||0.58||Add|
Source: Motley Fool CAPS. Data current as of March 14.
These stocks come from a variety of industries, from funeral services provider Hillenbrand to energy and utility plays like Scana and Alliance. Molson Coors has brewed up dividends going back decades, while communications equipment maker Harris boasts connections with government defense-related agencies around the world.
If you're trying to save for retirement, these stocks certainly aren't the only ones that could fit the bill. But what these stocks would accomplish is to go beyond the everyday blue chips that dominate so many investors' portfolios. Although those large-cap stocks have rightfully earned their reputations as secure places to invest, it's easy to fall into the trap of believing that they're the only stocks you need.
In uncertain times, it's easy to think there's no point in striving so hard to reach financial independence. But don't let a harsh economic environment knock you off your stride. By staying open to stocks that aren't popular enough to make the front pages every day, you'll stand a better chance of helping your retirement portfolio grow big enough to meet all your retirement needs.
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