Yanira is the Operations Editor for the Veterans Today Network. She has been on the job since 2008.

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The Appropriate Risk Appetite for Retiree Investors

While the popular stereotype for stock traders suggests a teeming mass of suited men shouting numbers over one another on the NYSE trading floor, there exist several kinds of people who trade with the purpose of financial gain. From adolescents equipped with knowledge on how to buy blue chip stocks with Grandpa’s birthday money to retirees, older traders and pensioners with ample time on their hands for qualitative research, there is no ideal age, orientation or gender suited best to trading the financial markets.

The skills it takes to trade can be mastered at almost any age given a modicum of critical thinking, reading and information application skills.  Yet, it is highly recommended that one sculpt his or her goals differently depending on personal circumstance. For retirees, this suggestion should be applied with special care.

What should a retiree’s trading goals be?

The idea that a trader’s risk appetite changes depending on their age is a logical one. Typically, the younger the trader the higher their risk appetite, as they have much more time to erase any damaging mistakes. Even the most heinous, account-wiping trades can be bounced back from with a little hard work and a few years of reconstitution in the way of a salaried job. Younger investors also have more to gain from success, due to years of compound interest on their horizon.

For older traders, this usually does not apply. While it may be a generalization, retirees with their money in stocks and other tradable assets are looking to protect what they have over all else, even at the expense of potential returns. This is also logical. Imagine what a substantially risky trade gone wrong could do to the bank account of someone in their twilight years: significant loss of quality of life with a much lesser chance of recovery, and risk to the livelihood of the trader’s relatives who may still be dependents.

The fact that retirees usually don’t have active streams of income means that a difficult balance must be struck between maintaining a well-deserved lifestyle and longevity. With some adjustments and a smart strategy, this balance can be readily found.

Strategies for Retiree Investors

One of the most common practices for retirees is to simply lower their exposure to risky assets like stocks as they grow older. Data from Vanguard Group shows investors lessening their risk profiles in stages, at around age 40, 50, and then again at 65. Typically, this is done by simply moving assets held in equities to traditionally stable instruments like bonds in increasing quantities.

As bonds are backed by the guarantee of the Federal Government, they are much less risky, while equity is forever subject to the whims of the market and the underlying’s performance. A big downside to bonds (and this is especially true nowadays) is that their returns are extremely small. With only passive income to rely upon, retirees choosing the bond approach must lower their standards of living or risk running dry before their time.

Another strategy is to maintain the lofty lifestyle attained during years of employment, and increase risk accordingly. This doesn’t mean options trading with leverage, just a higher concentration of stock-like instruments in the portfolio. Some have even suggested that the proportion of bonds to equity in retiree portfolios is already too high, especially given the rock-bottom bond yields of the current market environment.

With a lesser amount of bonds in deference to options like gold or cash, some strategies with instruments other than stocks can still be safely played. Many retirees favor dividend-centric investing, choosing venerable old blue chips with a history of market stability, taking dividends in lieu of capital gains. Others go to Real Estate Investment Trusts (REITs) for returns that have a basis in sectors other than the corporate one. Among the options suggested here, binary options are also a method of trading that many older investors favor for their simplicity.

Ask your relative or do a search on the internet for binary options to learn its nuances. Additionally, it is recommended to read a binary options review before beginning to determine the broker best suited for your needs.

In the End, It’s All Subjective

The formula for financial security has more variables than just the amount of bonds versus the amount of stocks present in a portfolio. Those suggesting the opposite have been lectured on financial strategy that is outdated by a generation. Retirees must question their net worth, passive income and long-term purpose for their money before choosing a route that best suits their objectives.

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