Forget the headlines about rapidly growing tech stocks and digital currencies, like bitcoin, that are shooting higher by the hour. These types of investments can certainly be exciting, and lucrative if they work out in your favor, but they're also highly volatile and can lose your hard-earned money if things turn sour. Therefore, they're best left for money you can afford to lose -- not your retirement portfolio.
The smartest way to build retirement wealth is to take advantage of the long-term power of compounding gains, while taking steps to manage risk and avoid volatility. While it's impossible to completely eliminate risk, the following two stocks offer the type of risk-reward profile that you should look for in retirement investments.
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A proven track record, and even more long-term potential
Healthcare real estate investment trust (REIT) Welltower (HCN 1.63%) has a pretty impressive track record of delivering outstanding performance for its investors. Since its 1971 IPO, the company has averaged annualized total returns of 15.6%, a remarkable level of performance to sustain for more than four decades. To put this into perspective, consider that a $10,000 investment into Welltower at its inceprtion would be worth nearly $8 million today.
While Welltower's past performance doesn't guarantee that similar results will occur in the future, there's reason to believe that the company's brightest days are ahead of it. There are two specific reasons why this could be the case.
For one thing, the healthcare real estate industry is highly fragmented and is still in the early stages of REIT consolidation. Most healthcare properties are still owned by smaller companies, physicians, private investors, and other entities. Just about 15% of healthcare real estate is REIT-owned. This means that there's lots of growth opportunity in the existing $1.1-trillion market, especially for the largest, and most financially flexible players in the industry, like Welltower.
Second, demand for Welltower's bread-and-butter property type, senior housing, should steadily rise for the next few decades. To put it in simple terms, the U.S. population is aging. The massive baby-boomer generation is starting to reach retirement age, and people are generally living longer lives. In fact, the 85-and-older population, which is the main demographic that utilizes senior housing, is expected to roughly double over the next 20 years.
Image Source: Welltower investor presentation.
For rock-solid, high-dividend bank stocks, look north of the border
There are several U.S. banks I like, and I own shares of a few in my personal portfolio, but in terms of solid risk management and consistent returns, Canadian banks simply have a better track record. While the U.S. banking system has faced several crises over the past 200 years, the Canadian banking system has faced just two -- and the last one was in the 1800s.
My favorite Canadian-based bank stock is Toronto-Dominion Bank (TD 0.83%), which is known to most consumers simply as "TD Bank." TD is the fifth-largest North American bank by assets, and has a vast presence in both the United States and Canada.
As far as being a high-quality institution, TD has one of the highest credit ratings (Aa2) in the industry. The bank prides itself on its sound risk-management practices, which are evident in its low charge-off rates. And the bank was named the "Safest bank in North America" by Global Finance magazine.
TD's low-risk, customer-oriented banking strategy has produced some pretty impressive results. Over the past five years, TD has grown its earnings at an 8.4% annualized rate and believes it can sustain this growth rate going forward. TD's annualized total returns over the past decade have been more than double those of its North American peer group, and the bank has been able to increase its dividend at an 11% annualized rate since 1995.
Image Source: TD Bank investor presentation.
Finally, the reason I prefer TD to the other Canadian big banks is for its growth opportunities. The bank has a huge market share in Canada, where it's the largest bank by assets, but its U.S. presence isn't nearly maxed-out just yet. In fact, TD's U.S. retail-banking business accounts for just over one-fourth of the company's earnings.
The bank has about 1,260 U.S. branches, most of which are concentrated on the east coast, leaving lots of room for expansion. And with the company's track record of responsible growth, both organically and through acquisitions, I wouldn't be surprised to see the bank expand its footprint significantly over the coming years.
