For pre-retirees, or those persons who are roughly 10 years or less away from full retirement age, there are countless traps to fall into which can thwart their ability to retire comfortably.
One common trap -- especially in recent years considering the wild volatility in the stock market -- is investing too conservatively, or simply choosing not to invest at all. While these methods can preserve or possibly even grow a pre-retirees' nominal cash value, there's a very good chance that putting money under the mattress or buying only bonds and CDs is going to net a negative real money return due to the effects of inflation on other goods and services.
Instead, pre-retirees need to approach their retirement investment portfolio as if they have two or more decades of growth potential left. Life expectancy in the U.S. is at an all-time high, meaning retirement funds need to go further than ever; and it's never a smart idea to rely on Social Security benefits to be your primary source of income in retirement.
With that in mind, today we'll take a closer look at three stocks that pre-retirees can buy right now which can work toward protecting their capital and growing their nest egg for the next 20 years. As always, keep in mind these are suggestions on my part, and you should do your own research to determine if these stocks match your investment goals and risk tolerance.
Without further ado, three stocks pre-retirees can buy and hold for the next 20 years.
1. Gilead Sciences (NASDAQ:GILD)
Although Johnson & Johnson is the default healthcare stock that most retirees will opt for, Gilead Sciences changed the game recently when it announced it'd begin paying a $0.43 per quarter dividend. This new dividend yield of 1.7% isn't going to knock the socks off income investors, but it's the icing on the cake for pre-retirees who need some exposure to growth stocks in their portfolio.
Why Gilead? Because it's a diversified drug powerhouse that holds the key to treating two of the most serious infectious diseases on this planet: hepatitis C and HIV/AIDS. Gilead's Sovaldi and Harvoni both bring a major improvement to patient quality of care and HCV cure rate to the table, and both have the potential to bring in $10 billion-plus in annual combined sales. There are an estimated 180 million people around the globe with HCV according to the World Health Organization, meaning its HCV drugs may have a decade or longer of runway still left.
Gilead also has Stribild, its four-in-one HIV-1 therapy. With HIV/AIDS still the leading cause of infectious disease death around the globe, I can only assume Stribild's sales will continue to rise at a brisk pace. Gilead's revenue has grown at an average compounded rate of 34% since 2004, so I have full faith that its management team can continue to deliver for shareholders.
2. Apple (NASDAQ:AAPL)
Why wouldn't you want to own a piece of the technology company which single-handedly reshaped the consumer and business environment with its smart devices?
For those who believed that Apple's innovative capacity was gone, you can retire that idea once again. Apple recently introduced two new iPhones (which were gobbled up to the tune of 74.5 million iPhones last quarter), launched its own mobile payment platform known as Apple Pay, is set to introduce its Apple Watch to complement consumers' desire for wearable technology, and could even be building an Apple car! Long story short, there's plenty of growth still left for this tech giant.
Best of all, Apple hasn't lost sight of investors, or its monstrous cash pile of $178 billion. Apple's dividend continues to grow, from a split-adjusted $0.378 in 2012 to $0.47 as of Feb. 2015. Furthermore, Apple boosted its share repurchase program in April of last year to more than $130 billion, signaling its commitment to shareholders.
There's no lack of innovation here and every reason to seriously consider Apple for a long-term portfolio.
3. MasterCard (NYSE:MA)
Lastly, pre-retirees would be wise to look inside their own wallet for this next stock, a growth and income hybrid.
At the moment MasterCard's dividend isn't much to look at, even if it's jumped better than 1,000% in just the past five years. I have, however gone on the record to state my belief that MasterCard and the entire payment processing group are poised to be dividend juggernauts of the future.
Why MasterCard? Primarily because 85% of the world is still completing its transactions in cash. Emerging markets represent a huge untapped market for payment facilitators such as MasterCard, and it could give the company multiple decades of high single-digit or low double-digit growth potential.
Furthermore, MasterCard holds one big advantage over some of its peers such as American Express and Discover Financial Services. While AmEx and Discover also lend to their cardholders and can take advantage of charging interest on their credit card loans, MasterCard isn't directly involved in lending. Therefore, it's completely absolved of credit card defaults if credit quality sinks, and thus has a much more stable growth trajectory than its peers.
With a large untapped market at its fingertips, MasterCard has plenty of growth left to come, and I suspect a lot of profits left to share.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool owns shares of, and recommends Apple, Gilead Sciences, Johnson & Johnson, and MasterCard. It also owns shares of Discover Financial Services, and recommends American Express. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.