Conglomerates offer a tremendous amount of diversification for investors, while allowing you to avoid the over-diversification associated with index funds, and the management expenses of mutual funds.
I consider these investments to be appropriate for those who are retired or those who are within five years of normal retirement age. This demographic can’t afford to take on as much risk as the younger generations who have time to recover from major losses.
Bringing good things to life
Many of General Electric Company (NYSE:GE)’s competitors in the capital segment have exited the market because they were struggling due to an increase in delinquencies related to commercial and residential real estate. That creates a greater market share from which General Electric Company (NYSE:GE) can attain revenue.
The company operates in various segments — largely consisting of technology and financial services — and over the years has streamlined efforts by eliminating its underperforming business segments. This leaves General Electric Company (NYSE:GE) in a solid position to profit from its remaining profitable operations. However, General Electric Company (NYSE:GE) is so diversified, that it makes it difficult to realize any significant increase in share price, and that is a contributing factor for its relatively static share price. After all, the firm operates GE Capital, GE Energy Management, GE Oil & Gas, GE Power & Water, GE Home & Business Solutions, Electric Insurance Company, GE Aviation, GE Transportation and GE Healthcare. Almost every one of those operations has sub-businesses tied to it. That both makes the company secure, and makes it difficult to realize significant gains, but it keeps your money safe.
Buffett and company also worth a gander
Other stocks with enormous diversification includes Berkshire Hathaway Inc. (NYSE:BRK.A) and The Procter & Gamble Company (NYSE:PG).
Berkshire Hathaway Inc. (NYSE:BRK.A) participates in the insurance business that operates both as primary and as reinsurance. Other interests includes freight rail transportation and energy and utility distribution and generation. The company also owns businesses exposed to numerous other activities.
The company’s compounded annual rate of return from 1965 to 2012 was 19.7%, while the S&P 500 TR Index rose 9.4% in that period, according to Morningstar research. However, the operation is so large that it will likely be difficult finding deals that are significant enough to be meaningful to the massive business.
Despite that fact, you can’t get any better than the management associated with the firm, and it has shown the ability to increase value throughout its history.
Consumer goods giant is staying put
The Procter & Gamble Company (NYSE:PG) isn’t as diversified as General Electric or Berkshire Hathaway Inc. (NYSE:BRK.A), but it is a massive conglomerate, to say the least. The business is concentrated on consumer packaged goods, which includes an array of businesses. Most of the products are sold through grocery stores, mass merchandisers, drug stores, membership club stores and high-frequency stores. Its two global business units include beauty and grooming.
The Procter & Gamble Company (NYSE:PG) owns so many of the leading brands, that it is essentially impossible for businesses to drive customers to their stores without carrying the firm’s products. That creates a huge amount of insurance for investors buying this stock because the company isn’t likely to go bankrupt. The firm is also set to extend its brands to other areas throughout the world, including into developing nations. Furthermore, The Procter & Gamble Company (NYSE:PG) has initiated a $10-billion cost-savings plan that is designed to lower operating expenses. That could help improve the profit margin, which was already an impressive 11% last year.
The firms are nearly a sure thing
Investing in companies that are well-established and diversified will protect you during retirement, or in the years approaching retirement. They can also stabilize the portfolio of younger investors. You can’t really buy a company that will keep your money more secure than the three covered in this article. Their diversification means that if one segment of the business falls, the entire company won’t likely suffer much. And that peace of mind can help you feel comfortable so that you can enjoy your retirement.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway and Procter & Gamble. The Motley Fool owns shares of Berkshire Hathaway and General Electric Company. Phillip is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article 3 Companies for Retirees originally appeared on Fool.com is written by Phillip Woolgar.
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