Enough with the cliché of the senior on a fixed income. There’s a fairly simple way to build an annual cost-of-living increase into at least part of your income in retirement. Just buy some blue-chip dividend growth stocks. A quick illustration: BCE Inc. has raised its dividend by an average annual rate of 9.9 per cent over the past five years. Inflation over that period averaged 1.8 per cent annually.

Dividend stocks have been close to a sure thing for investors in the past five years and some people may have unrealistic expectations about how they will behave over the long term. Dividend stocks would be hammered along with everything else in a major market downturn, and sectors such as utilities and pipelines would do poorly in a fast-rising market fuelled by inflationary economic growth. Bottom line, dividend stocks can lose money, unlike guaranteed investment certificates and bonds held to maturity. That’s why dividend stocks should be a part of the typical senior’s investments, not the whole thing. You can still beat inflation this way.

Source: Globe and Mail

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