Post-retirement years is the time one looks forward to live easy and pursue their hobbies. It is a good time to invest in share market if an individual has a favourable corpus and can spare a part of it to trade in shares. Retirees are the investors with low-risk tolerance An equity-only portfolio offers high returns but it has high risk due to the volatile nature of the market. There is a need for an appropriate strategy to balance the conflicting requirements. Let us start with the trading strategy.
The Share Trading Strategy
When you reach your retirement age, you don’t have any place for losses. What retirees looking for share trading can do is, dividing their savings into three categories:
- Long Term Investing
It consists of the majority of your portfolio. At least 75% should be invested for the long term. These investments should be in accordance with the total return investment approach which will be defined later in the post.
Experts suggest up to 20% can be reserved for active trading with the concept of buy low, sell high. Retirees can consider blue-chip stocks that have decent trading volumes and can be liquidated easily in times of need. Always use Stop-loss strategy as it will help you restrict the losses.
Speculative stocks are stocks that have the potential of providing high rewards but with higher risk only. It is the category to trade with the money that you can afford to lose. Maximum 5% can be kept for speculative ideas.
The Investment Strategy
Most retirees are concerned about their liquidity requirements and the need for capital preservation. Therefore, they are suggested to create an investment portfolio consisting of debt instruments, equities, growth funds and fixed income instruments. It will ensure capital preservation and help hedge inflation..
Where to Make Investments
Retirees with low-risk tolerance should invest in strong large-cap companies since they have comparatively lower volatility. . These are the blue-chip stocks paying high dividends. These stocks are generally not be affected by market fluctuations. Consider the growth history of the company you select to invest in.
Retirees are suggested to invest in defensive stocks. These are the stock of companies whose products are always in demand such as Fast Moving Consumer Goods (FMCG) and pharmaceutical. Information technology companies’ stocks are also in option. These stocks are more comparatively more stable and can provide regular dividends. These should be given more weightage in the retiree’s investment portfolio for stable returns.
In this way, retirees can generate a cash stream of withdrawals and get financial support to meet their lifestyle needs in their golden years.
Choosing a stockbroker
One can choose from Discount Brokers or Full-service brokers if they do not have a Demat or trading account yet. Full-service brokers will provide research advice and recommendations, but their brokerage will be linked to trading volume. A discount broker will charge a flat fee per order irrespective of trade value.
The Bottom Line
Do not forget rebalancing. Look at the value of stocks, bonds, etc. from time to time in your portfolio to ensure a safe investment strategy, especially when the market graph is going down. Retirees are experienced persons in life, still, they require advice in the stock market dealings. Although professionals can do it for you with their expertise in portfolio management, it is still important to involve personally in your financial management. You can delegate market trading to a professional broker, but cannot leave it entirely in their hands. Make sure you open a Demat account and trading account with a registered stockbroker only.