When you're at or near retirement, your financial priorities look different than they did earlier in your career. While there's still ample time to ride out the inevitable market downturns, a shorter horizon means your portfolio should be tilted toward conservative investments like bonds and other fixed income instruments.
Yet stocks can play an important role in your financial planning in your 60s, as they offer the best chances at returns that significantly outpace inflation. The challenge is to avoid risky investments with volatile businesses and unproven dividend strength.
The consumer products titan
Procter & Gamble stock provides almost everything a conservative investor could want. The consumer products giant dominates the markets it competes in and is responsible for 65% of global razor sales and 25% of sales of diapers around the world. This prime position in a wide range of staple products protects its business from sharp swings. P&G is also one of the market's most efficient businesses, and an aggressive cost-cutting program has only widened its profit margin lead over smaller rivals lately.
What the company lacks is robust sales growth. Organic revenue inched higher by just 2% last year as P&G shed market share for a third straight year. It's possible that management's recovery plan will start improving results in 2018, but even if trends hold steady for a while, income investors will be compensated well for owning this stock, which today yields over 3.5%.
Fast food, big profits
The restaurant business is capital intensive, brutally competitive, and highly susceptible to shifting consumer tastes. Yet over the decades, McDonald's has crafted an operating approach that allows it to minimize those and many other risks that are typically associated with this difficult industry.
With help from promotions of its iconic menu items like the Big Mac and Egg McMuffin, the fast-food giant returned to robust revenue growth in 2017. Comparable-store sales shot up by 5.3%, with customer traffic improving in each of its geographic regions.
Better still, profitability touched a new high as Mickey D's sold off more of its corporate-owned locations to franchisees. That move lowered revenue, but in exchange, the company enjoyed an earnings pop as the sales base tilts away from food and toward high-margin royalty, rent, and franchise fee charges. McDonald's is using that extra cash to prepare for a fast-food future that's heavy on home delivery, but also dominated by the franchises that consumers have shown loyalty toward time and time again.
There's no place like home
Home Depot resembles more of a money-printing machine than it does a traditional retailer. Sales growth was a stellar 6.8% in 2017, which marked both an improvement over the prior year and a widening of the gap between the home-improvement giant and its closest competitor, Lowe's. Home Depot also trounced its peer in the key financial metrics of operating margin, cash flow, and return on invested capital.
With the stock having more than doubled over the past five years, and with the recovery in the cyclical home-improvement market dragging on, many investors are concerned about buying into shares ahead of a potential stock price decline.
That's always a risk, but Home Depot has routinely earned its premium throughout this latest expansion, whether by employing proven operating strategies like its "product authority" focus or through smart capital management that's sharply reduced its share count since 2008.
Since they are individual stocks, Home Depot, Procter & Gamble, and McDonald's shares will likely be more volatile than investments in bonds or diversified index funds. But that doesn't preclude you from considering them, even well into your retirement years, as part of a well-balanced portfolio.