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How 5 pros are investing for retirement

June 12, 2014, 11:09 AM UTC
Stock picks oberweis
Photograph by Ryan Lowry for Fortune

Jim Oberweis isn’t big on thinking about retirement. At least not his own. The 68-year-old Illinois state senator and founder of the Chicago-area fund firm Oberweis Asset Management is still taking on new challenges. He recently won the Republican primary for U.S. Senate and will run against incumbent Sen. Dick Durbin (D-Ill.) in the general election in November.

It would be yet another chapter in Oberweis’s diverse career, which began with a job teaching junior high but took off when he launched an investment newsletter, the Oberweis Report, then a brokerage, and then his investment company, which includes seven mutual funds and manages roughly $1.5 billion. Along the way Oberweis also took charge of his family’s small legacy dairy business in the late ’80s and grew it sizably. The company now has a network of 43 “ice cream and dairy” retail stores across the Midwest churning out $70 million in annual sales, and it also delivers bottled milk the old-fashioned way to doorsteps as far away as Virginia.

When Oberweis first vied for the U.S. Senate seat more than a decade ago, he didn’t intend to leave his day job. The emerging growth and micro-cap funds he ran continued to outperform their peers even as he hit the campaign trail. “I truly expected to do that for as long as I was alive,” he says.

After losing in the primaries twice, though, the father of five did his own sort of rebalancing. He turned the “all-consuming experience” of running mutual fund portfolios over to his son Jim, 40, and pitched in on the dairy business, run by his other son. He bought a condo in Florida. But then he won his state senate seat in 2012 and never really slowed down. “I don’t think he actually plans on retiring,” says the younger Oberweis of his father.

Retirement, however, is a major topic for Oberweis the politician. Illinois has botched its pension planning, falling roughly $100 billion short in its savings funds, and Oberweis has been working on bills to fix the system. The state’s best bet, he believes, is to switch to 401(k) plans for state employees, which would at least give them control over their own investments.

However, if you ask Oberweis about his own retirement portfolio, he cautions that he would not recommend his strategy to clients. For example, he doesn’t own a single bond, despite being at an age where capital preservation and income are supposed to be a priority. “None at all,” he says confidently. Why? He thinks interest rates are likely to rise substantially in the next two to four years, driving down the price of bonds. Given that risk, Oberweis is willing to shun the conventional wisdom and bet heavily on equities.

Research by Morningstar says that funds whose managers invest most heavily in them perform better than others. That makes sense: The managers follow the investment ideas in which they believe the most to greater returns. But, to an extent, managers have their hands tied when investing clients’ money. They are typically bound by their funds’ objectives as defined in the prospectus and limited in what they can buy. Their personal portfolios, however, aren’t limited by those constraints.

So Fortune decided to ask some of the most successful money managers around how they’re investing for their own retirement. Then we put them on the spot with this question: If you were forced to invest all your retirement savings in a single stock, what would it be? Of course, no stock by itself can ever replace a diversified portfolio. But sometimes it takes an impossible choice to unearth the deepest convictions.

One common theme among the investors we surveyed was that there was little enthusiasm for owning traditional bonds. (For more on fixed-income strategies, see “An oasis for yield seekers?”) Can the rest of us afford to bet our retirement on just stocks? Almost any financial adviser would tell you it’s a mistake to try. But the idea has rarely been more tempting or seemed more rational. Oberweis prefers to generate income from high-yielding stocks. He says he has 5% of his retirement portfolio in shares of dividend-paying gold miners like Freeport McMoRan and Barrick Gold. Playing the politician, Oberweis said he couldn’t pick just one stock to own.

When asked for his top pick, the younger Jim Oberweis turns the conversation to China. Since taking the helm at Oberweis Funds–where he has led the funds to best-in-class records–Jim has begun teaching his eldest teenage son the investment business. That includes taking him on trips to China to meet companies whose stocks are owned by the Oberweis China Opportunities Fund, which Jim co-manages. He likes a number of small companies. But when pressed to choose one, Jim mentions Baidu, the Chinese web search giant, as a long-term bet on China’s continued growth. “One of the biggest mistakes that people make who have 20 years until they retire is not owning China,” he says.

Here’s what our other investors had to say about their retirement investing:

Sam Stewart

Sam Stewart

Age: 71
Wasatch Advisors
Top pick: Google

A couple of years before he turned 65, Sam Stewart, the renowned small-cap growth investor who oversees $19.2 billion at his Salt Lake City firm, Wasatch Advisors, began feeling a bit queasy about keeping his nest egg in shares of the volatile companies in which he specializes. “As I started getting older, the growth becomes less interesting to me,” he says. “It’s the volatility I think that starts to bother any person contemplating retirement.”

So he formed the Wasatch Strategic Income Fund to focus on stable, dividend-paying stocks, scant among his other portfolios, and switched about two-thirds of his personal fund investments to it. For a few years he also held some bonds in his retirement account, but he gave up on them when interest rates leveled in 2009. The fund, which he manages by himself, provides him better income anyway, yielding 2.44% after expenses. “There’s really nothing in bonds that can produce a risk-adjusted return anywhere near what you can get with good, quality stocks,” he says.

While Stewart has switched his focus to more mature companies, his son Josh, who has lately been co-managing Wasatch’s top-performing World Innovators Fund alongside his father, has taken on the challenge of finding the “acorn” stocks on which the elder Stewart built his reputation. Raised in the family stock-picking business, Josh says that he recently sold winners like Tesla and Zillow and put money into smaller European companies just starting to expand internationally, including the Italian espresso machine maker De’Longhi and British clothing retailer ASOS. “I don’t know that I have the time to watch those grow into oak trees,” Sam Stewart says. “I’m a little more interested in chopping off a few limbs today to use as firewood.”

Josh also recently sold out of Apple, an old favorite of Wasatch, because he didn’t see enough innovation to spur growth. Sam, however, held onto it in the Strategic Income Fund. “I would make the argument that Apple is in fact a great retirement stock, but unfortunately probably not for the reason that most people think,” says Sam, pointing to Apple’s ample cash hoard, which may be paid out to shareholders through dividends and share buybacks.

Sam keeps a third of his retirement savings outside his own portfolios, dabbling in hedge funds and the trendy new world of online peer-to-peer lending through companies such as LendingClub and Eaglewood Capital Management.

If they had to risk their retirement on just one stock, though, there is one company that both father and son agree on. At first, when presented with the question, the elder Stewart hems and haws. Cerner, the health IT company, serves his belief that dollars will fly toward health care in coming years, but it’s an expensive stock, and he doesn’t own it. One of his dividend holdings, Walt Disney, is “a pretty serious candidate, but will they always hold their creative edge?” Then he arrives at one that both he and Josh expect to be increasingly ubiquitous throughout their lifetimes: Google. “Their fingers are in a lot of pies,” says Sam. “Load up on Google.”

Bruce Greenwald

Bruce Greenwald

Age: 67
Private investor
Top pick: Nestlé

Bruce Greenwald would love to retire, he says. The problem is that nobody will let him. The famed value investing expert-in-residence at Columbia Business School’s Heilbrunn Center for Graham & Dodd Investing and a senior adviser to the $98 billion First Eagle Investment Management still manages a portfolio for private clients. And Columbia has persuaded him to work until he’s 73--even though he’ll begin receiving pension pay at age 70, before he actually stops working. Greenwald doesn’t need the money. His retirement assets, he says, are already “vastly in excess of anything I or my single child will ever need.” But he still enjoys the challenge.

A hardcore value investor, Greenwald was reluctant to discuss his own strategy in detail, saying it would be too risky for the average retirement investor to imitate. But he had no trouble coming up with one stock that he’d stake everything on if forced: Nestlé. Perhaps best known in the U.S. for its chocolate, the company is one of the most diversified businesses in the world today. Its sales are spread across more than 100 countries--with no more than 30% of revenues coming from any one region--and it features an all-star brand lineup, from Gerber baby food to Lean Cuisine diet meals to Purina Puppy Chow.

Plus, Greenwald adds, the Swiss company managed to weather both the commodity price boom beginning in 2003 and the 2008 financial crisis without much damage to its bottom line. And at today’s price, investors can still expect to earn a 9% to 11% annual return, says Greenwald. He factors in Nestlé’s dividend yield of more than 3%, future stock buybacks, and projected long-term earnings growth of between 5% and 7%, “which based on history seems to be immune to the risks of both inflation and recession.”

Susan Kempler

Susan Kempler

Age: 54
Top pick: Johnson & Johnson

When it comes to retirement, Susan Kempler is betting on her own stock-picking prowess. She says she has put more than $1 million of her own money in the $4.3 billion TIAA-CREF Growth and Income Fund, the fund she runs that is split between highflying large caps and dividend-paying S&P 500 stocks. “I’m very levered to myself,” she says. Over the past decade, her fund--which she began managing in 2005--has bested 90% of its large-growth peers, returning an average of 10% annually, according to Morningstar.

Her strategy is to give would-be retirees what they’d want from a truly diversified retirement portfolio--without holding any fixed income at all. “The way that bonds have been acting vs. some of these large-cap defensive-type names, I’d almost rather own an equity to provide what I’d think of as a bond-like return, and pair that with a growth stock,” says Kempler, who holds just a tiny portion of her retirement account in high-yield bonds. The setup is designed to take care of her needs in retirement, but with her remaining savings she is also venturing into territory her fund cannot go, such as small biotech and web companies so obscure she won’t even share their names. “It’s small, it’s illiquid, it’s either a home run or it’s zero,” she says.

If she had to choose one to bet the house on, it would be a top holding in both her personal account as well as the fund--a stock for the long haul. “Johnson & Johnson I would buy and I would hold, and I would never have to trade it in my account,” says Kempler, who likes the company for its potential profit growth from new drugs over the next few years, along with its ever-increasing dividend, now yielding 2.7%. (If she wanted to juice her hypothetical one-stock portfolio with something growthier, she’d choose Illumina, a volatile DNA-sequencing company.) “I’m not retiring anytime soon,” she says. “I need my portfolio to grow.”

Bob Robotti

Bob Robotti

Age: 60
Robotti & Co.
Top pick: Berkshire Hathaway

Bob Robotti has spent more than half his life running hedge funds. Today Robotti, 60, manages some $715 million between his 30-year-old firm, Robotti & Co., and the long-only Ravenswood Fund, which predates it and which he has managed since 1980. Retirement is nowhere in sight: He aims to live another half-century, à la his friend Irving Kahn, the famous centenarian investor. “He’s still running his company at 108, so that’s kind of my goal,” says Robotti.

Robotti’s small-cap fund has easily bested the market over the past 20 years, returning about 13% annually, after fees, compared with roughly 9% for the S&P 500. That’s given him a bit of a cushion, which he has poured wholeheartedly back into stocks. Some of the names in his retirement account are stocks he has owned for many years, like Pulse Seismic, a $200 million Canadian geological data company. Robotti now is chairman of the Pulse Seismic board. He also likes Subsea 7, a $7.1 billion oil services business based in London and listed on the Oslo stock exchange.

One stock he’s always held--and still his top pick on which to retire--is Warren Buffett’s Berkshire Hathaway. The ironic part of the choice, he acknowledges, is that “anyone talking about a retirement account should bank on the fact that one of the ingredients of Berkshire Hathaway will not be Warren Buffett. Statistically, he’s not going to be there.” But Robotti believes that Buffett, 83, has mapped out a path for the company that should ensure that it stays broadly diversified and generates strong returns for 20, 30, or 40 years after he is gone. Robotti is hoping for the same with his own money, though he’s fully aware of what a severe market correction could do to an all-stock portfolio: “So stocks go down 50%--I’m worth 50% less,” he shrugs. “That’s perfectly fine. Probably, over time, stocks appreciate again.” Like Oberweis, he believes equities are the best way to fund a far-distant retirement.

This story is from the June 30, 2014 issue of  Fortune.