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It wasn't that long ago that most people had confident dreams of financial security for their golden years. With a booming housing market and stocks at record highs, the sky was the limit for investors' aspirations of a wealthy retirement.
In just a few short years, though, bad markets and the near collapse of financial systems on two continents have driven a stake through the heart of those dreams for many people. But even if you're not as confident about your future prospects as you were during better times, it's not too late to take steps to improve your investing -- and boost your chances of reaching your retirement goals after all.
Dealing with a scary future
Last month, Sun Life Financial (NYSE: SLF ) released the latest version of its annual study about how confident workers are about their plans for retirement. Though the study has shown surprising levels of stability in confidence over the past three years, the glum economic environment has finally taken its toll this year.
Overall, confidence levels about being able to meet basic living expenses after retirement fell by nearly half, from 42% last year to just 23% this year. Regarding confidence in retirement-targeted programs, only 9% see a secure picture for Social Security, and an even more discouraging 8% are confident about Medicare benefits. Whether workers were commenting on employee and government benefits, personal health and finances, or just broad economic conditions, drops in confidence were substantial across the board.
The Sun Life study ended with a positive note: Those who own annuities or long-term-care insurance products feel much more confident about their retirement prospects. But apart from the inherent conflict of interest involved -- Sun Life happens to sell insurance products like annuities and long-term-care policies -- there are other ways that workers can boost their confidence levels for a sunnier financial future.
Pick the right stocks
Even with the overall market's lackluster performance over the past decade, stocks remain the best bet for long-term growth of capital. With Treasury yields stuck near record lows and banks paying next to nothing in interest, it's clear that traditional savings won't get you the growth you need. Stocks, on the other hand, have the potential to give you impressive growth over your career, putting you in a better position to retire rich.
The challenge, though, is that as you get closer to retirement, the risk level among your investments should ideally go down. That doesn't mean you have to give up on stocks entirely, but it does mean that you should be careful before you add just any stock to your portfolio.
Since early this year, I've looked at dozens of stocks to see if they're suitable for conservative investors, those near retirement, and even current retirees. Among the factors I specifically looked for were stable sales and cash flow growth, low stock-price volatility, strong dividend histories, and reasonable valuations. The following stocks have reaped some of the best scores on my 10-point scale:
- Health-care stocks have done particularly well, with medical-device maker Medtronic (NYSE: MDT ) leading the way with its innovative corporate philosophy and decades-long history of dividend growth.
- Among oil giants, Chevron (NYSE: CVX ) stands out with its resilience even in the face of the commodity bust of 2008 and its above-average dividend growth in recent years.
- Popular choices McDonald's (NYSE: MCD ) and PepsiCo (NYSE: PEP ) both earned near-perfect scores. Pepsi's combination of soft drinks and snack foods gives it diversification benefits over its peers, while McDonald's not only remains true to its long-term traditions but also continually comes up with new ways to compete.
- Tobacco stocks traditionally combine great dividends with good value. Beating out Philip Morris International (NYSE: PM ) by a single point was British American Tobacco, its international competitor with many of the same attributes as the former Altria (NYSE: MO ) unit.
- And topping the list is Wal-Mart, the nation's largest retailer, which combines attractive value with solid dividends, slow but steady growth, and excellent stock performance even during bear markets.
Not all of these stocks have produced good returns lately. Many have struggled through the recession. But give them enough time, and these stocks and others with the same attractive characteristics can help you get rid of your worries and move forward toward a more secure retirement.
Don't let the doom-and-gloomers get you down
Keeping faith during tough economic times is always hard. But if you're truly investing for the long run, then these slow periods for stocks give you a great opportunity to load up at attractive prices -- potentially boosting your long-term returns in time.
If you want even more smart ideas about stocks you can retire with, take a look at five stocks the Fool put its own money into. We think they make great picks for you, too.
Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance. You can follow him on Twitter here.