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One of the reasons I buy stocks is to help build a pension fund for retirement. But it can involve complicated decisions. After all, in the UK and US alone, there are thousands of different stocks for me to choose from. Sometimes I am tempted by a company and wonder: “Are these the best stocks to buy for me?and pension?”
Realistically, thebest stocks to buy” does not refer to the ones that will be most rewarding for me in the future. After all, no one knows what a certain stock will perform tomorrow, let alone a few years from now. Rather, I evaluate actions using some specific criteria.
growth or income
For example, one of the choices I face as an investor is how to divide my pension between stocks that are growth-focused and those that are more income-oriented.
Take my participation in the network of digital advertising agencies Capital S4. It has never paid a dividend and I don’t expect to receive one anytime soon (although if it makes sizable profits in the future that may change). But I do think the company could grow strongly. In the second half, the company’s comparable net income growth was expected to be around 25%. That’s quite a clip.
Conversely, you could go with a company that I think has limited growth opportunities but puts in a lot of extra money that can pay out as dividends, like the cigarette maker. imperial marks. The Bristol-based manufacturer has a dividend yield of 6.9%.
I have a lot of income shares in my pension portfolio, partly because they generate additional cash that I can use to buy more shares. But if inflation remains high, the real value of those dividends could fall. Pension planning involves a very long-term perspective, so I expect periods of high and low inflation.
risk tolerance
Sometimes I come across what I think might be attractive stocks to buy in my portfolio, but decide they are too risky.
The risk tolerance of each individual investor is different. But I find that it can be easy for me, especially when looking at the long term, to pay very little attention to risk. Since I’m looking to buy stocks with an investment time frame measured in decades, I risk feeling too confident that some serious mistakes will eventually be canceled out by other options.
Admittedly, some of the best in my portfolio could help mitigate some weak ones. In fact, that’s the thinking behind the key investment principle of diversification. But why invest money in stocks that I consider quite risky?
Learning from Warren Buffett
The reason why I think some investors do that is because they are attracted to “high risk, high rewardsituations. I am not. As Warren Buffett says, the first rule of investment is “never lose money” – and the second rule is to never forget the first.
Therefore, I try to stay away from stocks that may be attractive but are too risky for my liking. One way I intend to do this is by focusing on not only maximizing my upsides, but also trying to limit my downsides. That’s why I try to find well-run, consistently profitable blue-chip companies with a compelling business model.
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