At just 2.5%, the interest rate offered on term deposits and savings accounts is never going to give you the retirement you dream of. Especially with inflation at 3%.
For example, let's assume you've got $100,000 to invest for the next five years. At 3% per annum with profits reinvested, your money would become $115,927 before taxes and adjustments for inflation. Over 10 years it'll become $134,392.
Instead, let's say you invested in high-quality dividend stocks and achieved an average annual rate of 10%. That is slightly below the Australian stock market's 30-year average. With profits reinvested, your money becomes $161,051 before taxes, in five years. After a decade it will become $259,374.
Of course, share market returns are not guaranteed and the market value of your holdings will rise and fall, perhaps dramatically, every day.
However over the long term, you'll be able to take advantage of one of the best known wealth generators available.
For those who have no interest in finding, researching and investing in individual stocks, that's fine. Low cost index funds are a great way to get exposure to the market.
But if you're willing to put in a little extra work, for a chance to achieve superior gains, here are three ideas to get you going…
Woolworths Limited (ASX: WOW) is a name synonymous with Australian supermarkets. It – and rival Coles – dominate the market. For long-term investors, Woolies has made for an excellent investment and in the past 10 years alone has produced an average annual return of 12.6%. It is forecast to pay a 4.1% dividend in the next year.
Coca-Cola Amatil Ltd (ASX: CCL) bottles and distributes The Coca-Cola Company's range of products in Australia and five neighbouring countries, including Indonesia. It also has the exclusive licence to sell Beam branded products. Recently, CCA has been under intense selling pressure which has created a sound buying opportunity for long-term focused investors. It is forecast to pay a 4.4% dividend.
Telstra Corporation Ltd (ASX: TLS) is a renowned Australian dividend stock. It is able to pay an excellent dividend year-in year-out because it dominates a number of very lucrative telecommunications markets, such as fixed data and voice, mobiles and pay-tv. At today's prices it is forecast to distribute a 5.3% dividend.
Buy, Hold, or Sell?
Researching companies is the easy part of investing, valuing them is where the process gets complicated and extremely subjective. Nevertheless at today's prices I think both Woolworths and Telstra are too expensive to justify an investment but for those focused on the long term, Coca-Cola Amatil is a compelling buy. However, with sweeping changes underway, it'll be anything but smooth sailing from here.
