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7 New Ways To Manage Your Stock Portfolio During Retirement

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Equity investors who are on the verge of retirement or have retired often wonder about how to manage their stock portfolios. They would have fulfilled most of their family responsibilities, have less or zero debt and might be enjoying a regular income from multiple sources. They would also be having significantly more time on their hands to research buying opportunities. However, their risk-taking appetite may have been reduced.

Here are 7 ways to manage your stock portfolio during retirement:

  1. Set an investing budget

Most individuals might assume that expenses would drastically reduce after retirement. Although it may be true to daily necessities, there could be other expenses related to healthcare. You might also have to account for the effect of inflation. Therefore, you could set an investing budget.

During your retirement years, you are likely to earn a fixed income every month. This could be through rental earnings, interest on deposits, pension, or a combination of all. You could allocate a portion of this amount towards investing. You may begin with as low as 10%-15% of your income and then increase it over time.

  1. Avoiding risky bets or speculative trades

Sometimes, the temptation of making a high-risk trade gets too alluring. Especially, if you feel that it is a calculated bet. In such cases, you may not want to invest more than 2% of your portfolio in a highly volatile stock that holds great promise. In such a case, even if the stock doesn’t perform well or its price drops massively, your overall portfolio wouldn’t be impacted.

  1. Suitable allocation of capital across stocks

Although experienced and successful investors would recommend creating a highly concentrated portfolio to create substantial wealth, that may be a risky approach if you haven’t selected the right stocks. Therefore, you may not wish to allocate more than 5% of your entire holding to a single stock. Thus your overall portfolio will not be impacted by the underperformance of a few stocks. However, if you are relying on high-quality research to create a portfolio of stocks, you could take concentrated bets.

  1. Sticking to blue chips

Bluechip companies are credible firms that have delivered consistent profits throughout good and bad times. They have tremendous goodwill, are extremely stable, highly renowned, and offer steady profits. In India, stocks like HUL, Asian paints, TCS, Infosys, Reliance, Pidilite, and P&G have delivered favorable returns for their investors over multiple decades.

  1. Dividend aristocrats

During your retirement, you wouldn’t mind earning additional passive income. This is possible by investing in shares of companies that pay attractive dividends regularly.

Allocating a larger share towards high dividend-yielding stocks will provide you with a regular flow of income that would increase over time.

Most experts recommend that you should worry very little about the overall return on your assets. Instead, you should focus more on converting your retirement assets into sources of reliable and sustainable retirement income.

  1. Index investing

Only 7 stocks of the original index basket are still there in today’s Sensex. However, the index has consistently delivered ~15% CAGR for the last 40 years.

This implies that the bad companies in the index are automatically removed from the index and new companies are added. This allows the overall index to grow as there are only those companies that remain and sustain over time. Therefore an investor can leverage this strategy by incurring low risk and minimal cost.

Thus you can mirror the index without any changes in weight or constituents.

  1. Leaving a legacy

It is important to remember that equities should be held for the long term. Therefore, you may wish to create a basket of fundamentally strong companies that are likely to last for a long time and compound your wealth. This will enable you to leave a fortune for your descendants.  Moreover, define the nominees for your Demat account. You may not want your legal heirs to deal with tedious paperwork after you have passed on.

Finally, remember to arrange for emergency funds, health insurance, and savings in deposits for regular income before investing in equities. Buy good stocks and hold despite the daily ups and downs of the markets.

Read more:
How To Retire Early By Choosing The Best Long Term Investment Plans?

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