Dec 14, 2023
What percentage of your salary should you save every year to secure your retirement?
That’s what Kevin O’Leary was once asked on ABC’s “Good Morning America.”
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The entrepreneur believes 10% is the target you want to hit. “You’ll be a millionaire when you’re 65,” he told an audience member.
“It’s what you got to do. You can’t assume someone will be there for you when you’re 65,” O’Leary said. “You’ve got to put some money away. This is crucial.”
Saving a sizable chunk of your monthly income and investing it is the key to a stable financial future.
The average annual salary in the U.S. is roughly $60,000, according to government data. Investing 10% of that into an index fund that averages 10% returns every year could create a million-dollar fortune in around three decades.
There’s no guarantees about future market performance, but it's certainly possible to become a millionaire by just saving a tenth of your income consistently and staying invested long-term.
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And speaking of investments, O’Leary used some of his time on the "GMA" set to share his top three picks for first-time investors.
Johnson & Johnson
Pharmaceutical giant Johnson & Johnson (JNJ) is one of O’Leary’s top picks. “I love it,” he said in reference to the company, whose products range from a COVID-19 vaccine to Tylenol.
But the stock has disappointed investors in recent years. It’s currently trading at around $155, roughly the same level it was in late 2020. That means investors have had zero capital gains over three years.
The dividend isn’t impressive either. Johnson & Johnson currently offers a 3% dividend yield. That’s lower than the yield on a 30-year U.S. Treasury bill, which has been above 4% as of late.
Nor is the stock cheap. It’s trading at 29 times earnings per share, which is well above the S&P 500 ratio.
For investors seeking wealth creation, there are arguably better options on the market.
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Home Depot
Another O’Leary stock pick is Home Depot Inc. (HD). The home improvement retailer is widely considered a reliable bet for investors. O’Leary likes it because of its size, strong balance sheet and dividends.
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However, Home Depot’s dividend yield, at below 3%, is even lower than Johnson & Johnson’s. To put that into context, the U.S. inflation rate is 3.1%, based on the most recent data, which means the dividend isn’t even helping preserve purchasing power for investors.
Home Depot is also forecasting a small dip in revenue and earnings per share this financial year.
On the positive side, the company announced a $15-billion share buyback program in August, which is a bright green flag.
Exxon
Oil and gas giant Exxon Mobil Corp. (XOM) is another stock that O’Leary seems to love. The stock is probably the cheapest one on his list. Exxon currently trades at just around 11 times earnings per share.
And given that the company recently projected a better than two-fold increase in earnings through 2027, the stock may prove a real bargain at its current price.
Exxon offers a 3% dividend yield, but that is enhanced by the company's pledge to increase share buybacks to $20 billion in 2024, from $17 billion in 2023.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
Managing Money • 8h ago
