Retirement is not the end of your investing days. Managing your nest egg throughout those golden years can be just as demanding as building those retirement savings in the first place. As always, the first place to look for investment advice would be around the Oracle of Omaha, Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) CEO Warren Buffett.
So we asked a trio of your fellow investors here at The Motley Fool how Buffett's sage advice could work for retirees today. Read on to see why they zeroed in on Buffett favorites Costco Wholesale (NASDAQ:COST), Phillips 66 (NYSE:PSX), and Mastercard (NYSE:MA).
Make a refined choice for your portfolio
Dan Caplinger (Phillips 66): Retirees like stocks that have a combination of growth potential and reliable income. Even though the refinery industry might seem like a risky proposition because of the considerable volatility in the energy sector in recent years, Phillips 66 carries the Warren Buffett seal of approval and has held up well regardless of crude's movements.
In 2015, Buffett made a big purchase of Phillips 66 stock, timing his entry well in light of the fact that crude oil had already fallen to about $40 per barrel. Refining has a clear competitive moat, because getting approvals for new refining facilities is almost impossible in the current regulatory environment. As it turned out, cheaper crude gave Phillips 66 a chance at potentially wider spreads and margin figures, boosting its profitability. Buffett added to positions subsequently, and the stock has fared quite well.
Phillips 66 hasn't just hit new all-time highs recently. It also continues to pay a solid dividend that currently yields 3%. With prices at the pump having followed the recently upward track of crude oil prices, Phillips 66 looks poised to keep its margins wide and its profits healthy for the foreseeable future. That's good news for any retiree looking for conservative growth.
How to change the world and still turn a profit
Anders Bylund (Costco): Buffett holds a modest 1% stake in Costco, and Berkshire Hathaway Vice Chairman Charlie Munger has held a seat at the retailer's board of directors since 1997. In an old Forbes article, Munger had nothing but praise for Costco's impact on the business world:
"It's hard to think of people who've done more in my lifetime to change the world of retailing for good, for added human happiness for the customer," Munger said. "Generally speaking, I believe Costco does more for civilization than the Rockefeller Foundation."
Costco's spin on retail operations is indeed a unique one. The company is known for its generous salaries and high-quality benefits packages, making it one of the best places to work in 2017 according to Glassdoor. Retail is a notoriously low-margin business in the first place, and Costco's willingness to spend more on its employees adds even more pressure to those slim profit margins.
The company gets around the lack of retail profits by charging an annual premium for Costco memberships, which are required if you want to go shopping at these stores. Those fees added up to $2.9 billion over the last four quarters with no related expenses to speak of, so memberships accounted for a staggering 71% of Costco's pre-tax profits. From a different angle, Costco's free cash flows would have been a negative $700 million without the membership dues. This is par for the course, a pattern that repeats, year after year, over the long run.
So Costco makes the world a better place by taking active care of its workers, and find innovative ways to pay the bills and also power a modest 1.5% dividend yield. The company has millions of loyal fans and is likely to stay healthy for decades to come. If you're looking for a solid and safe investment that helps you sleep at night, Costco might be it.
Even retirees should invest for growth
Jason Hall (Mastercard): If you're retired (or close to it), there's a good chance you're 65 or older. According to the Social Security Administration, the average man who lives to 65 will live another 19-plus years, while the average woman will live almost 22 years longer.
Considering how many retirees will outlive their retirement savings, investing a portion of your portfolio in high-quality growth stocks can make a huge difference in your quality of life in later years. Mastercard in an excellent place to start.
As one of the world's biggest electronic payments processors, the company is already a key partner for thousands of financial institutions and hundreds of thousands of merchants worldwide. Mastercard also has strong brand equity and recognition with consumers. These two things have already paid off for the company as it works to grow its global reach.
And the global growth prospects for electronic payments are extraordinary. Over the next decade and change, the global middle class will expand by 1 billion people, a number that will drive the growth of electronic payments from its current levels of less than 15% of all transactions.
There will be plenty of competition along the way, but Mastercard is so well-established, trusted, affordable for merchants and profitable for financial partners, that it should be one of the biggest beneficiaries from this global trend. Retirees should consider Mastercard as a cornerstone stock for their growth portfolio.