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One of the biggest problems facing investors nearing retirement is how to invest their money in such a way that they will have the capital needed to fund their golden years.
This has become even more difficult thanks to the current low interest rate policy established by the Federal Reserve. Conservative investments like bonds and bank instruments simply no longer provide the return necessary to fund retirement.
Many investors are also reluctant to turn to the stock market as well. The past 12 years have seen two horrendous bear markets that destroyed many hopeful retirees' nest eggs, delaying retirement for several years.
Most mutual funds have underperformed the somewhat minuscule returns offered by the market the past ten years, and many of the specialty products offered by Wall Street have featured poor performance and very high fees.
And asking for solid, reliable advice on how to invest, without paying a fortune for the input, has been extremely difficult.
As a result, many investors approach the road to retirement with trepidation.
A look at history shows us that there is a viable approach when deciding how to invest for retirement, an approach that can help you earn the returns to grow your nest egg today and provide the income you need later.
How to Invest for Retirement: Get Paid to Outperform
Rather than using index funds or other suggested strategies, investors should focus on dividend growth.
A look at dividend growth mutual funds shows that they have not only outperformed index funds over time, they also lose far less when the market inevitably head south.
The idea is not to buy the highest yielding stocks at a moment in time but those with the capacity to grow their dividends at a high rate going forward. The higher dividends over time tend to promote a higher stock price and provide a cushion in a bear market.
Retirement-oriented investors can improve their odds by adding some common sense valuation parameters.
A look back in history shows that even in the difficult 10-year period we have just endured, buying stocks with a strong capability to raise their dividends and trade at less than 15 times earnings and two times book value has provided solid returns.
Take this example…