I asked ChatGPT for 5 world-class UK stocks for a retirement portfolio. Here’s what it gave me
UK stocks are still considered by many investors to be the most reliable options when it comes to retirement. This is due to their long-term, defensive nature and a tendency to focus on income over growth.
Recently, I was testing out the stock-picking capabilities of ChatGPT to see if it understood what made an investment appropriate for retirement.
Retirement stocks picked by AI
Here’s what ChatGPT said when I asked it to recommend five British shares for a retirement portfolio. Its choices were a fairly mixed bag:
- M&G
- British American Tobacco
- BP
- Lloyds Banking Group
- IG Group Holdings
It’s not the exact mix I would pick but, for the most part, I see the justification. Prioritising high, sustainable dividend yields to ensure steady retirement income was a smart move.
Between the five, they offer yields of 4% up to 9%, helping combat inflation while providing portfolio stability.â At the same time, it’s made a decent effort to identify defensive qualities like stable sectors and strong cash flow.
My main criticism is that three of them are from the finance sector, leaving the portfolio at risk of volatility in a severe economic downturn. Additionally, I think M&G lacks sufficient dividend history for a retirement portfolio and the longevity of the tobacco industry is questionable.
What would I change?
One thing I’ve learnt from AI is to never trust it on face value, as there’s no guarantee the data is accurate. Even if I were to take its advice, I’d fully research each company before making any decisions.
BP and Lloyds are decent choices but I’d swap M&G for either Legal & General or Admiral Group, as they have better dividend track records. Plus, I’d replace British American Tobacco with a retail or consumer goods stock like Tesco or Unilever.
IG Group has decent dividend credentials but I’d opt for a more diversified stock with similar returns. The real estate investment trust (REIT) Primary Health Properties (LSE: PHP) is worth considering, offering exposure to two missing but critical sectors: property and healthcare.
Stable income
With a 7.3% yield, it’s up there with some of the highest-paying dividend stocks on the FTSE 250. Payments are backed by 20-year-long track record and have grown at an average annual rate of 3.5%.
A key attraction of REITs is the regulatory requirement to distribute 90% of profits to shareholders. While this limits funding for growth, it reduces volatility and increases the chances of stable income.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Still, the UK property sector carries notable risks, exhibited by Primary Healthâs 32.3% decline over the past five years. Stubbornly high inflation has been suppressing growth in the UK, pushing up costs of property development and eating away at profits.
If this continues and interest rates remain high, it could lead to lower occupancy rates for REITs, putting their dividend payments at risk. Even though its healthcare focus somewhat mitigates the risk, it’s worth acknowledging.
Overall, I think it’s a smart UK stock to consider for a retirement portfolio, with a compelling long-term risk/reward proposition.
The post I asked ChatGPT for 5 world-class UK stocks for a retirement portfolio. Hereâs what it gave me appeared first on The Motley Fool UK.
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Mark Hartley has positions in Admiral Group Plc, Bp P.l.c., British American Tobacco P.l.c., Legal & General Group Plc, Lloyds Banking Group Plc, Primary Health Properties Plc, Tesco Plc, and Unilever. The Motley Fool UK has recommended Admiral Group Plc, British American Tobacco P.l.c., Lloyds Banking Group Plc, M&g Plc, Primary Health Properties Plc, Tesco Plc, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
