When people are in, or on the verge of, retirement, they're often advised to avoid stocks and to buy bonds. Bonds tend to be safer, so the story goes, because they take priority over stocks in the event that a company gets into trouble.
But the question for retirees shouldn't be reduced to stocks versus bonds. Neither all stocks nor all bonds are good or bad. Or risky or safe. Instead, there is variation within each asset class. There are speculative growth stocks, just as there are speculative junk bonds. And there are safe stocks, just as there are safe bonds.
The trick is to know the difference, which is especially important if you rely on your investment portfolio for living expenses, as retirees often do. To help in this regard, one safe stock you can consider for retirement is JPMorgan Chase (JPM +1.81%). It's not risk free -- no stocks are -- but it offers the security of a decent dividend combined with a history of prudent and profitable operations.
The JPMorgan Chase building in London's Canary Wharf. Image source: Getty Images.
Finding safe bank stocks
As a general rule, banks tend to be riskier than other types of companies. That's because they use an enormous amount of leverage, typically borrowing $10 in debt against every $1 in equity. This means that even a 10% decline in the value of a bank's assets can render the institution insolvent. It's for this reason that over 17,000 banks have failed since the Civil War, when the modern American bank industry took shape.
But not all banks are created equal, with some being safer than others. At the top of the list of safe bank stocks to own in retirement is JPMorgan Chase, the nation's biggest bank by assets. One of the guiding principles at JPMorgan Chase is the idea of a fortress balance sheet, designed to weather the most challenging economic environments.
"No one has the right to not assume that the business cycle will turn," implored Jamie Dimon, the chairman and CEO of JPMorgan Chase, in the lead-up to the financial crisis. "Every five years or so, you have got to assume that something bad will happen."
Jamie Dimon, the chairman and CEO of JPMorgan Chase. Image source: JPMorgan Chase.
JPMorgan's fortress mindset
This mindset positioned JPMorgan Chase to not only survive the crisis in 2008, but to work hand in hand with the federal government to arrest its descent. In March of that year, at the behest of the government, JPMorgan Chase bailed out Bear Stearns, the fifth biggest investment bank at the time. Six months later, JPMorgan Chase rescued Washington Mutual, a West Coast thrift with more than $300 billion in assets on its balance sheet.
If another crisis were to materialize, or even if the economy were just struck by a recession, it seems fair to think that JPMorgan Chase would be in a similar position to gain from the turmoil, as opposed to suffer. Just recently, in fact, the head of its investment bank went on record to say that the bank has already begun to take defensive measures in anticipation of just such a downturn.
This isn't to say that JPMorgan Chase's stock wouldn't suffer if the economy were to take a turn for the worse, as all stocks would. But the impact on shares of the New York-based bank would likely be much shallower and shorter lived than it would be for other stocks, particularly other bank stocks. When the dust settled and the recovery set in, moreover, JPMorgan Chase would, once again, be in a position to thrive, stealing market share from competitors who, instead, are focused on surviving.
Image source: Getty Images.
A decent and growing dividend
It's also worth noting that JPMorgan Chase's stock is attractive as a retirement holding for another reason -- namely, it pays a respectable and growing dividend. Its shares yield 2.26%. That compares to an average yield on the S&P 500 of 1.93%, according to data from The Wall Street Journal. And the bank has raised its quarterly payout every year since 2011, its first opportunity to do so in the wake of the crisis two years earlier.
Like a bond, in other words, JPMorgan Chase's stock not only throws off a steady stream of income, which can be used by retirees to supplement their Social Security payments, but the underlying principal is also safe, given the bank's penchant for prudent risk management. In short, if you're on the hunt for a safe bank stock to add to your retirement portfolio, you could do a lot worse than JPMorgan Chase.
