How should you trade during your retirement years?

Just because you're in your retirement, doesn't mean you need to give up trading

As we enter our retirement years, naturally our appetite for risk changes as we seek to preserve enough capital to sustain our lifestyle and that of our family. But does that mean you should stop trading? Certainly not! Here are three key ways to trade during your retirement.

Only Trade with Risk Capital – putting all your retirement money into the markets is ill-advised. Rather, you should only trade with what you can absorb as a loss in the event that your trades don’t turn out as expected. It’s important for retirees to preserve the majority of their capital for stable investments, and only assign a minor portion towards day trading (e.g. 5%). Ultimately, the principle is to manage your risk – should you lose your day trading capital, close out your losses and move on completely; if you experience success, broaden your scope to ‘riskier’ positons but ensure you still spread some earnings into less volatile instruments.

Just because you're in your retirement, doesn't mean you need to give up trading

Just because you’re in your retirement, doesn’t mean you need to give up trading

Trade less and look for A+ Set Ups – the more frequently one enters a trade, the more risk they take on. Some of this may be mitigated through due diligence and research but other times external events can dictate the outcome. For these reasons, one should rely less upon day trading, and avoid having too many positions open. Instead, retirees should focus on swing trades that take advantage of the cycles in the stock market, anywhere from a few days to a few weeks. With the stock markets often driven by technical analysis and the tendency for history to repeat itself, it is invaluable to look for high quality trades that have proven to be profitable in the past. And while this advice may apply to all traders, it’s even more important for those in their retirement years as they have less time to recover losses.

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Look to hold stocks that generate dividend yield – dividends are a beneficial way to earn income while you wait for the stock to go higher. Not only do you have the opportunity to increase your capital over the long term, but the regular distribution of dividends (which often increase in value over time) provide some safeguard and stability against the short-term fluctuations in the market. For retirees, this steady income stream allows you to support yourself or reinvest into other positions – accumulating your wealth.