3. Dividend-paying stocks.
Rogers says that companies paying dividends have rewarded investors. Payouts are relatively high in these low-yield times, and dividends can grow if the company prospers. In bear markets, a regular dividend may provide downside protection.
You can pick your own dividend-paying stocks or invest in a fund that holds multiple dividend payers. “We prefer dividend-focused funds that buy companies that increase their dividends, rather than funds that have the highest dividend yield today,â€ says Benz.
The following represent stocks with high-dividend yields AT&T Inc. (T), Williams Partners L.P. (WPZ), and Duke Energy Corp. (DUK).
4. Tax-advantaged opportunities.
Most employer-sponsored retirement plans offer immediate tax savings because the money you contribute is not subject to income tax until it’s withdrawn. “I contribute enough to my company’s 401(k) to get the maximum employer match,â€ says Anthony. That gives him more money to accumulate, tax-deferred, inside the plan.
“Anthony and Robyn also maximize contributions to Roth IRAs every year,â€ says Peace, the Pryors’ financial planner. “Young people might face higher tax rates by the time they retire, so they’ll benefit from tax-free income.â€ Roth IRAs offer no initial tax savings, but withdrawals on the principal are tax- and penalty-free after five years; withdrawals on the principal and earnings are tax- and penalty-free as long as you are at least age 591/2. To make sure taxes don’t take a bite out of your return, review these offerings: SEI Institutional Managed Trust Tax-Managed Large Cap Fund (STMYX), USAA Growth and Tax Strategy Fund (USBLX) and Eaton Vance Tax-Managed Value Fund (EATVX).
5. Low expenses.
Over the long term, paying less to your mutual fund managers is one sure way to increase annualized returns. Morningstar puts the average expense ratio of domestic stock funds at around 1.25%, or $125 each year for every $10,000 of fund value. See if you can find funds with good strategies and excellent track records, along with lower expenses. Among the funds that offer solid returns with low-expenses are Vanguard PRIMECAP Core Fund (VPCCX), Osterweis Fund (OSTFX), and American Beacon Large Cap Value Fund, Investor Class (AAGPX).