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Retirement Guide 2011 stocks: How we picked them

May 26, 2011, 1:00 PM UTC

Retirement investing is about succeeding over the long run. We’ve identified powerful, durable themes to construct a portfolio that is built to last.

FORTUNE — A decade ago, the biggest challenge for retirement savers was resisting the urge to take one ride too many on the stock-market roller coaster. Today many won’t even climb onboard. Still spooked by the 2008 meltdown (not to mention last decade’s tech crash), they have made ultradefensive investments such as bonds and gold into scalding-hot favorites.

Since 2008 there have been $280 billion in net redemptions from stock mutual funds, vs. $645 billion in net sales of bond funds, according to the Investment Company Institute. Assets in the two largest exchange-traded gold funds have jumped from $20 billion to $64 billion.

That movement could have dire effects over time. Gold and bonds have been big winners lately, but from 1802 through 2007 they recorded returns of 0.1% and 3.5% a year after inflation, respectively, according to professor Jeremy Siegel of the University of Pennsylvania’s Wharton School of Business. That compares to 6.8% for stocks. Says Tom Latta, who oversees retirement investment strategies for Bank of America Merrill Lynch: “One thing we hear a lot from financial advisers is that clients have a certain lifestyle that their portfolio probably can’t sustain for the entire period they’re going to live.”

In short, it’s time to buy equities again. But how to avoid the portfolio-scorching disasters of the past decade? One way is to think big. Sure, it’s devilishly difficult to predict the next category-creating product, much less uncover the next Google (GOOG). But there are a handful of things you can predict: the big trends that will drive business — and stocks — over the long term.

So we set out not to find surprises, but to zero in on those long-term forces that are so powerful, so broad, and so inexorable that they’ll drive markets for years and years. We canvassed research reports, scrutinized data, and interviewed economists, fund managers, and other experts, settling on five factors that we think will have dramatic effects: global population growth; the rise of the spending class in emerging-markets countries; the continuing explosion in cloud and mobile computing; the return of inflation; and the renewed importance of dividends.

These five themes inform the 25 individual picks we made. We envision them as buy-and-hold stalwarts that you can retire on. But a word of caution. Even being right about a broad trend doesn’t ensure a stock’s success. “Go back 10 years. Everyone’s long-term story was telecom and tech,” says Richard Bernstein, chief executive of investment adviser RBA. “Everything they said about the new economy has become true. But if you bought the Nasdaq back then, you’re still down around 40%.”

To avoid a similar fate, we’ve emphasized low to moderate valuation in most of our selections. We’ve also targeted stocks with key advantages, such as brand allegiance or high barriers to entry for competitors. The 25 companies may not be the highest fliers, but we think they have the best shots at sustained success.

We’re not recommending you move all your retirement money into equities. Appropriate asset allocations will always vary depending upon age and lifestyle. Our point is that as irrational exuberance has given way to overblown trepidation, stocks have become underappreciated and underutilized. Consider our 25 picks a guidepost for diving back in.

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