Many of us are relieved that tax season has come and gone. Others including myself look forward to it as it means a check that can be used to add to my retirement portfolio. Depending on whom you ask the average federal tax return is around $2750. For many, this presents an opportunity to start a retirement fund; a financial must that so many people believe they cannot afford or simply neglect because they want something now.
Earlier this year, Fidelity released information that said 401(k) accounts increased by 12% on average to $77,300. That means the previous average was about $69,000 and the average increase was about $8300. Most of these gains came from equity increases and not employee contributions. As a country we are seriously lacking in savings and we are missing a great opportunity to build wealth. A tax refund is a great way to jump start a retirement fund. You do not need a whole lot to start saving for retirement. A few strong companies that pay a solid dividend are the basis for any long term portfolio.
Simply put, we can divide the $2750 into five, allowing $550 to be invested into five long term companies. Then use the dividends and reinvest back into the companies. The S&P 500 has companies divided into ten sectors. Let's look at five sectors, as they have not changed much over time. These sectors have stood the test of time and will be here for many years to come. Picking one company from each sector is a great way to start a diversified portfolio with little money.
We have depended on Energy since before the days of Standard Oil and the Rockefellers. It's just during this time it turned into a multi-million and eventually multi-billion dollar business. Two top players in energy are Chevron (NYSE:CVX) and Exxon-Mobil (NYSE:XOM). Both companies are solid dividend paying companies, and have paid dividends for many years.
Two things pop out to me in this category, General Electric (NYSE:GE) and trains, specifically Norfolk Southern (NYSE:NSC). General Electric has grown from a simple invention, the light bulb, into a company that manufactures almost everything. Norfolk Southern is a part of what remains from the Vanderbilt Empire. Warren Buffett had to sell his shares in Norfolk Southern, as it was a conflict since he outright bought Burlington Northern and Santa Fe Railway
Things people buy no matter what. The two companies that come to mind are Coca-Cola (NYSE:KO) and Proctor & Gamble (NYSE:PG). Both of these companies have not only paid out a dividend for over 50 years, they have both also increased their dividends every year for over 50 years.
Many people don't like banks, I know, but they also make a lot of money, and simply ignoring banks means someone else will build wealth and may retire more comfortably than you. Two of the top banks right now are Wells Fargo (NYSE:WFC) and J.P Morgan Chase (NYSE:JPM). The basic business of banks has not changed in centuries. Take money from depositors (you and I) then take some risks to acquire a large return (bank profit) and pay low interest rates to checking and savings accounts.
This is a category that many people do not give much thought to. Why, because the equity price of utilities do not increase much. However, American States Water (NYSE:AWR) and Northwest Natural Gas (NYSE:NWN) have both been paying out and increasing their dividends for over 50 years as well. Both of these companies reside on the west coast, with solid customer bases.
You do not need a lot of money to start saving for retirement and building wealth. Investing in stable long term companies with even a little amount of money over a long period of time is the safest way to build wealth. It is always good to look for solid companies that have been in existence for many years. It is also wise to look for companies that can stand the test of time. By reinvesting the dividends over many years, a small amount of money will grow over many years. Companies that do not need to change their business plan much in order to compete are great long-term investments and the foundation of any portfolio.
Building wealth and a retirement portfolio is a long-term commitment. Only a select few have become rich overnight, and in many cases, lose it just as fast. Be patient with your investments. Take care of them, and they will eventually take care of you.
Disclosure: I am long IBM, KO, WMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.