If you are looking to generate investment income in retirement, high-yielding dividends are an obvious choice. But it may not always be the best one.
For most of our investing life, we are focused on capital growth. We want our investment to grow and get bigger at a pace faster than inflation (after fees) so that we are creating real wealth for us to live off in retirement. Then, when we hit retirement, the focus shifts to earning an income from those investments.
A retirement annuity (RA) or pension scheme will be used to buy an annuity that will generate income, but what of our own do-it-yourself (DIY) portfolio?
If you are a DIY investor, you will likely want to continue to manage your own portfolio, but with a shift in purpose to receiving income. As a rule, you then tend to focus on dividends, searching for those high-yielding stocks. The obvious choice is property, which typically has the highest yield of any sector in the market. Preference shares also look good, but offer no capital growth, which means your income never grows. You can also focus on individual high-dividend-yielding stocks, but this focus on dividends has some problems.
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