Are you worried about your retirement savings?
If so, you're hardly alone. Lots of folks saw their retirement accounts get absolutely hammered during the economic crisis of 2008. While the market has since made up some of that lost ground, many folks are still looking at balances well below where they thought they'd be by now.
With the market once again looking less than robust, many investors, particularly folks in their 50s and 60s, have responded by moving assets to more stable investments. This seems like the right thing to do: Your returns might be lousy, but at least you won't lose more -- and you can just work a little longer to make up the difference. Right?
Not so fast. It turns out that there are problems with that approach -- and a better way to go.
Short-term thinking for a long-term problem
It's true that if you measure from right before the economic crisis started -- January 2007, say -- returns on stocks look pretty lousy. The Dow Jones Industrials (INDEX: ^DJI) is still down about 13% over that time, and many stocks and mutual funds have been hit much harder.
But that's an awfully short view, given that saving for retirement (and hopefully, for most of us, being in retirement) is a decades-long process. Over longer time periods, returns on stocks have beaten those of just about every other asset class, and over time, that pattern is likely to continue. Simply put, for the best chance of wealth-building growth, you need to be in stocks. A CD or bond fund might look like a "safer" option, but the returns you give up are likely to cost you more in the long run.
I know, that's easy to say. I know, the market's truly epic gyrations in recent years have you worried. I know, you can't afford to lose much more and still have a comfortable retirement. I've heard all this, from family, from friends, and from readers. Heck, I'm living it -- I'm 44, and I want to keep my own nest egg growing as well as possible.
The thing is, investing in stocks doesn't have to mean putting up with outrageous, gut-churning volatility. You can buy stocks that will let you sleep at night -- while still giving you returns that should handily outpace those of the CD or bond fund you were going to buy instead.
Which stocks? Dividend stocks.
Why dividends are a better answer
Let's go back to something I mentioned earlier. The Dow is down 14% since the beginning of 2007, and many stocks have seen bigger price declines. But here's the thing: Factoring in dividends can alter that picture significantly. Looking just at price, Procter & Gamble
One of my favorite recession-resistant companies, Kleenex maker Kimberly-Clark
Kimberly-Clark, like Procter & Gamble, is a big, conservatively run company in a "defensive" industry -- one that's likely to continue to generate profits even when consumers are cutting back. That's important, because continued profits mean continued dividends, and those dividends are what we'll be counting on to keep our portfolios growing. Telecom giant AT&T
If you'd like more suggestions for dividend stocks that can power your retirement portfolio without keeping you up at night, take a moment to check out The Motley Fool's free special report "13 High-Yielding Stocks to Buy Today." You can download all of the research for free.
Fool contributor John Rosevear holds no position in any company mentioned. Motley Fool newsletter services have recommended buying shares of Sysco, Kimberly-Clark, Procter & Gamble, and AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.