Generating a retirement income that is sufficient to provide you with financial freedom in older age can be tough. Assets such as cash and bonds do not provide a sufficiently high income in many cases, while buy-to-let investing has reduced in appeal as a result of tax changes and regulatory challenges.
Meanwhile, the UK economy continues to face an uncertain future due to Brexit, which could lead to a cautious standpoint among investors towards UK-focused shares.
As such, investing in the property sector through listed companies, as well as buying shares in international growth companies, could be shrewd moves. Over the long run, they could provide you with a generous income in older age that reduces your reliance on the State Pension.
Property stocks
While house prices are relatively high when compared to average incomes, listed housebuilders offer excellent value for money in many cases. They appear to be highly unpopular among investors, despite many of them reporting strong growth and favourable operating conditions over recent quarters.
This could mean that they provide a favourable risk/reward ratio for investors, with many FTSE 350 housebuilders offering yields that are well in excess of the FTSE 100’s income return of 4.5%.
Similarly, real estate investment trusts (REITs) seem to be cheap at the present time. In many cases, they trade for less than net asset value, while their dividend track records are relatively sound.
Through buying a wide range of property stocks, it may be possible to obtain greater diversity than that offered by a buy-to-let portfolio, while the return prospects could be boosted by the low valuations that are on offer across the industry.
International growth
While the UK economy may be experiencing a challenging period at the present time, a number of major economies around the world offer strong growth prospects. India and China, for example, are forecast to grow their GDP by over 6% per annum in the next few years. This could present investing opportunities around consumer goods companies. They may enjoy a tailwind from rising demand for their products as wages rise.
Although a number of the FTSE 100’s international consumer goods companies currently offer yields that are lower than that of the index, their earnings growth prospects could catalyse their shareholder payouts. In the long run, this may allow them to raise dividends at a rapid pace, which could produce a high income return on an initial investment.
With them also offering lower risks as a result of their diverse geographic spread, global consumer goods firms may continue to be popular among investors. As such, there may be scope for capital growth alongside an improving income return that helps you to overcome the low State Pension and enjoy financial freedom in retirement.