Three Stocks to Help Multiply Your Retirement Funds
Saving for retirement takes patience, discipline and at times a touch of good fortune. The Tax Cuts and Jobs Act, passed in December of 2017, provides some good fortune to most U.S. families. It presents an amazing opportunity to invest the tax savings in a tax-deferred retirement account and let the power of compounding take over.
Starting in 2018, most U.S. families will see their tax bills reduced thanks to tax reform. Taxes are specific to each individual and family, so a generalization will be used for purposes of this article. Let’s take the scenario of a family whose income tax bill is reduced by $2,000 annually starting in 2018. Individual tax cuts under tax reform are currently set to expire after 2025. Leaving eight years of potential tax savings. This scenario will likely be very common as it represents a conservative example of a middle-income family of four, making $82,500 annually.
A 40 year old in this situation would pay $16,000 less in taxes over the eight-year time period (2018- 2025). Here’s where the beauty of compounding comes into play. If the tax savings were invested in a tax-deferred retirement account, rather than spent, this individual would have more than $74,000 by the age of 65 by achieving a 7 percent return annually. A 50 year old with the same fact pattern would have more than $37,500 by the time they turned 65. A 30 year old would have more than $145,000 by the time they turned 65 if the $16,000 of tax savings over the eight-year period were invested in a tax-deferred account rather than spent.
Long-term investment growth of 7 percent is a common annual return used in retirement projections. Historical stock market returns going back to 1950 validate a 7 percent annual return. However, past performance is no indication of future results, and diversification is a key component of successful retirement planning. With that said, here are three stocks to consider purchasing for the long-term with your tax reform savings.
3 Stocks to Consider to Grow Your Retirement Funds
Dover Corporation (NYSE: DOV)
DOV is a diversified global manufacturer of equipment and components, specialty systems, consumable supplies, software and digital solutions and support services. DOV currently pays a 2.58 percent annual dividend and has increased its dividend for 62 straight years. DOV reported strong second-quarter earnings and guidance, lifting the stock to a 1 percent year-to-date (YTD) gain. Including reinvested dividends, DOV has provided investors with a 9.37 percent annualized return.
Johnson and Johnson (NYSE: JNJ)
JNJ is a worldwide conglomerate in the healthcare field engaged in the research and development, manufacture and sale of a range of healthcare products. Open up your medicine cabinet and you are sure to see a JNJ product. Among hundreds of others, the most recognized household products include Band-Aid, Acuvue, Rolaids, Benadryl and Listerine. JNJ currently pays a 2.86 percent annual dividend and has increased its dividend for 55 straight years. The stock has struggled in 2018 and is down 4.8 percent YTD. This might prove to be a buying opportunity since including reinvested dividends, JNJ has provided its investors with an 8.81 percent annualized return.
McDonald’s Corporation (NYSE: MCD)
MCD operates and franchises McDonald’s restaurants in more than 100 countries. The company operates more than 37,000 restaurants worldwide. Also known as the Golden Arches, MCD pays a 2.53 percent annual dividend and has increased its dividend for 41 straight years. The stock is lagging the market in 2018, down 9.1 percent YTD. Including reinvested dividends, MCD has provided its investors with a 10.62 percent annualized return.