If I were retired I'd want to have a solid group of quality shares that should deliver capital growth in the long-term, deliver solid & growing income and have a long-term investment horizon.
I wouldn't want to need to constantly check my portfolio and my holding's results to know if I should buy or sell. I would want shares I can put in the bottom drawer and hold them for the next decade without needing to monitor them.
If I were retired, these are three shares I'd want in my portfolio:
Rural Funds Group (ASX: RFF)
People often talk about retiring and owning a farm. Small family farms aren't very profitable and require work, but owning the ASX's only purely agricultural real estate investment trust (REIT) could be a better option.
Rural Funds owns a variety of farm types including vineyards, cotton, almonds, macadamias, poultry and cattle. I like this diversity and the farms are spread across several states in different climactic conditions.
Farmland is essential for us. I like that farmland doesn't depreciate in value, unlike many of the other buildings that are owned by REITs.
It has a long-term aim of increasing the distribution each year and it currently has a yield of 4.9%.
WAM Capital Limited (ASX: WAM)
WAM Capital is the largest listed investment company (LIC) run by Wilson Asset Management. The investment team have done very well for shareholders since inception, with the portfolio growing by 17.5% per annum before fees since 1999.
The LIC's set up is great for retirees because it pays out a very large, growing, fully franked dividend each year. The dividend has grown each year since the GFC and the yield is currently 9.34%, grossed-up.
Challenger is Australia's market-leading annuity provider. Lots of retirees are turning to Challenger to turn their capital into a secure source of income.
But, a better strategy for retirees could be to simply buy shares of Challenger and ride the wave of annuity growth. The number of retirees is expected to grow by 75% over the next 20 years and the superannuation pool should grow due to Australia's mandatory superannuation contributions. Both of these factors should lead to bigger annuity sales.
Challenger has increased its dividend each year since the GFC and it currently has a grossed-up yield of 4.2%.
Foolish takeaway
Both Rural Funds and WAM Capital are trading at significant premiums to their underlying value. Even at this elevated level, I still think they would be better long-term income options than most other ASX shares. However, of the three Challenger is the only one I could call a decent value buy at today's price.
