Don't Become a Trader When You Retire

A lot of our friends think that after I retired aka starting searching for a second career, I started actively trading stocks.  Since I am opinionated about investments and retirement planning, that is a reasonable assumption, but it is wrong.

I actually trade less now that I am retired than when I was working.  This is due to two factors:

1. The difference in cash flow between working and retirement
2. My investment strategy of buying and holding low cost index ETFs and mutual funds in a diversified portfolio

First lets look at cash flow.  When you are working, you are saving, investing in your 401K/RRSP, balancing your portfolio, and you generally buy investments. This generates trading activity.  When you retire, you are withdrawing money in a systematic fashion and keeping your portfolio asset allocation within your target.  There is also an aspect of minimizing tax through minimizing capital gains.  This generates few trades.

Second, there is the investment philosophy.  If you are already in low cost index funds and don't have new money to buy more, why do you need to trade?  The only reasons to trade are to balance your portfolio, generate cash for expenses, minimize taxes, and on the rare occasion when one of your funds no longer meets your needs due to higher expenses or change in makeup, selling that fund and buying another.

My statistics:

• 28 trades this year, mostly to balance the portfolio
• 378 trades last year, mostly purchases within 401K and investment account

Photo credit: Flickr