Happy New Year, everyone!
Rolling over the calendar brings with it a plethora of resolutions that Americans around the country are hoping to implement over the remainder of the year and beyond. Many of these resolutions (about two-thirds) typically revolve around something related to fitness, but about 1 in 7 Americans surveyed by Harris Interactive noted that improving their finances was a top priority in 2016.
If you're wondering how you can better your finances in 2016, look no further than an Individual Retirement Account. Whether you've already opened an IRA or have yet to do so, funding an IRA could be the first ingenious step you take toward a comfortable retirement many years down the road.
Traditional IRA vs. Roth IRA
Best of all, an IRA is a unique tool that allows you to look in the rearview mirror. You might be under the impression that all tax moves for your 2015 tax return needed to be complete before the calendar changed over to Jan. 1, 2016, but taxpayers are still allowed to retroactively add to their IRA through tax day (April 18, 2016 this year) and apply it to their 2015 tax return.
There are two primary types of IRAs -- Traditional and Roth -- and each has its own advantages and disadvantages. Deciding which one is best is often done on a person-by-person basis since there is no concrete formula.
A contribution to a Traditional IRA will typically reduce your adjusted gross income on a dollar-for-dollar basis up to the contribution limit for the current tax year (or even prior tax year if done before Tax Day). In addition to providing an immediate tax benefit, a Traditional IRA has no income limits, meaning anyone can contribute, and your money grows on a tax-deferred basis until you begin making qualified withdrawals beginning between age 59 1/2 and age 70 1/2. The downside? Traditional IRAs require you to begin taking a minimum distribution by age 70 1/2, and you'll be cut off from additional contributions beginning the year you turn 70 1/2. Additionally, you'll pay taxes once you begin taking your minimum required distributions.
The other option is a Roth IRA. The disadvantages of a Roth are that it does not provide an up-front tax deduction and there are income limitations as to who can contribute. You can find these limitations on the IRS' website. On the flipside, a Roth IRA has no minimum distribution requirement, and you can contribute regardless of how old you are. Best of all, investments within a Roth IRA can grow completely free of taxation for the life of the account as long as no unqualified withdrawals are made.
Great retirement stocks to consider adding to your IRA
Once you've decided which IRA is right for you, it's time to begin adding some great retirement stocks to your IRA. If you want to retire comfortably, I'd suggest considering these stocks as a nice (collective) blend of value, growth, and income.
Sometimes the most boring businesses make for the best investments. You could certainly make the argument that AT&T's days of phenomenal growth are in the rearview mirror. The U.S. market is fairly saturated with wireless subscriptions, and telecom giants like AT&T have done a good job of hitting rural America with content packages featuring Internet and cable.
However, there are other strong suits to AT&T that can't be ignored. Its incredibly low wireless churn rate, and the fact that it finished with the best brand loyalty in Brand Keys' annual survey in 2015, suggests that AT&T has a strong enough case to increase its prices to keep ahead of the rate of inflation. AT&T also relies on the insatiable appetite of consumers for data. Consumers' desire for data regularly lends to them upgrading their wireless devices, supplying AT&T with new high-margin data-based revenue. Let's not also forget that AT&T is a content giant now that it has DirecTV under its umbrella, and it'll be able to leverage this content to boost its profits and garner new customers.
The real allure, though? That would be AT&T's 32-year streak of raising its annual dividend. Its current yield of 5.6% should handily outpace inflation, providing you with real money growth.
Countering AT&T's delectable dividend is a drug developer in the biotech sector that currently isn't even paying a dividend. However, what Celgene may lack in yield it more than makes up for in growth and value.
Celgene, by the admission of its own management team, is on pace to deliver double-digit revenue and EPS growth on a percentage basis at least through 2020. The three keys to success for Celgene is its uncanny ability to grow organically, its ability to make earnings-accretive acquisitions, and its collaborative "X factor."
Leading Celgene's product portfolio is its triumphant trio comprised of multiple myeloma blockbuster Revlimid, cancer drug Abraxane, and anti-inflammatory drug Otezla. Revlimid and Otezla each have around a half-dozen additional labels they're currently being tested in which could provide a consistent upward trajectory in their sales. Celgene further diversified its pipeline by recently acquiring Receptos, giving it access to experimental next-generation multiple sclerosis drug ozanimod, which could deliver up to $6 billion in peak annual sales. Lastly, Celgene is partnered with 31 other companies in research ranging from cancer to immunology and inflammation. Understanding that it can't uncover every stone, Celgene's collaborative strategy could prove genius is just a handful of first-in-class experimental therapies succeed.
A sub-one PEG ratio and double-digit percentage growth rate could be the perfect complement of growth and value for your IRA.
A final great retirement stock to consider is oil and gas giant Chevron. Whereas oil and gas drillers and service companies have been roasted over an open fire as oil prices have collapsed over the past year and a half, Chevron's stock price has been somewhat buffered by its diversified business.
One of the long-term selling points of Chevron is its potential in natural and liquid natural gas. Although natural gas isn't as clean an energy as solar, it's still considerably better for the environment than coal. Chevron has plenty of oil reserves and could certainly take advantage of a modest rebound in oil prices, but the growing importance of natural gas and LNG for electricity generation could be Chevron's big ticket to long-tail growth. For instance, Chevron's Gorgon Project off the coast of Australia includes roughly two dozen natural gas fields, the construction of an LNG plant, and a domestic gas plant capable of producing 300 terajoules of gas per day to Western Australia.
Chevron also has the ability to hedge its bets in any type of commodity environment. Currently, with crude prices having fallen to 11-year lows, Chevron's refining and chemical plants, which are benefiting from strong consumer demand and low input costs, are helping to hedge the downside in its oil production business. It's difficult to expose a weakness in Chevron without another segment picking up the slack.
Even though Chevron is a Dividend Aristocrat, and its dividend could face a cut considering the weakness in oil prices, it seems probable that the company will continue to pay out a premium dividend yield relative to the broader market. Thus, Chevron is a good mix of long-term growth potential and income.
Start the new year off with a bang by opening or adding to your IRA today.