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How to invest for retirement

When I started out investing in shares a long time ago, I used to silently snigger at the old fogeys who’d tut and suck their teeth in response to the hidden growth gems I’d uncovered and put my cash into.

These days, I tut and suck my teeth when I read about the latest reckless madness of youngsters risking their money on dodgy growth stocks.

Over the years, although I’ve done well enough with my investing strategy, I suspect I’d have done better had I started with my old fogey approach right from day one. I never had the dedication to keep records of all my investing decisions over the years and most of them have long since dropped off the back end of my memory. But if I could compare my record to, say, a FTSE 100 index tracker, I suspect I might end up wondering why I put in so much effort.


It’s inevitable that our views on investing will change as the egg-timers of our lives edge past the soft-boiled stage, and our thoughts turn more towards investing for retirement rather than to save for our first homes or to travel the world. But the older me sometimes wishes the younger me had had the impossible benefit of my current experience and had turned to a retirement strategy sooner.

You see, I now think the best investment strategy for retirement is also the best investment strategy for saving for your first home or to travel the world. In fact, I think the best retirement strategy is simply the best strategy, period.

But what is that strategy? It is, simply, to invest in the best dividend-paying stocks I can find. Not necessarily the biggest yields, but the best combinations of yield, cover and long-term reliability. I think paying attention to diversification is important too. When a sector tanks, as happened in the banking crash, it’s not good to be over-exposed to it, especially if you’re relying on the income to pay the bills.

I’ve recently taken a look at the very attractive state of FTSE 100 dividends, and I find it astonishing to think that a quarter of all FTSE 100 companies are forecast to pay more than 6% in dividends this year. And that the record £92.6bn expected to be handed to shareholders amounts to an overall index yield of 4.8%.

Dividend stability

The approach I outlined above is my preferred retirement strategy today, yet even with those high yields available from Footsie stocks, I’m slowly moving towards looking for even better long-term dividend stability. I have an amount of SIPP cash to reinvest that’s been liberated from a managed pension scheme, and investment trusts are making inroads into my shortlist for purchases.

Not any old investment trusts, mind, but the income champions that have regularly raised their dividends for decades. Caledonia Investments has achieved that feat for 52 years in a row, with Bankers Investment Trust and Alliance Trust managing it for 51 years. And there are a handful of others that have done it for 30 years and more.

But more important than how to invest for retirement is when to start: and that’s now.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.