Some people get a rush from analyzing the stock market, formulating strategies and making good trades. If a person enjoyed trading during their working years, there’s no real reason they can’t do it after retirement. Below are a few tips on trading responsibly and avoiding the downsides of the stock trading hobby.
Only Use Risk Capital
The most important rule of stock trading during retirement is to only use capital that can be lost without adversely affecting the trader’s lifestyle. With a smaller income stream, clients should only allocate a small fraction of their capital to trading. When retirees trade in this way, they can shut things down if they fail and allocate profits conservatively if they succeed.
Have Separate Accounts
An easy way to use only what one can afford to lose is to keep trading money in a designated account. If a trader keeps their trading capital in an account that’s set aside from the money they use on a daily basis, they won’t suffer if they have a significant loss. In some cases, clients can benefit if they make the designated trading account into a tax-deferred retirement account. With this strategy, traders can avoid or delay paying taxes on investment profits.
Perform Research and Evaluate Progress
Retirees, like everyone else, shouldn’t trade without a firm plan. These plans can be as simple or as detailed as one chooses, but the key is to have a plan in the first place. It may help to set a limit on how much one is willing to lose: five percent is a common choice. When losses are controlled, it’s easier to walk away.
Don’t Consider it a Form of Gambling
Some believe that gambling and trading are the same. While day trading can be seen as a form of entertainment, it’s important to keep entertainment expenses in line. Trading is a zero-sum proposition, which means traders are equally likely to make or lose money. By comparison, gambling is a losing game, as the odds always work in the house’s favor.
The Final Word
It’s possible to continue trading after retirement as long as it’s approached sensibly. Create a strategy to limit the disadvantages, and trade in a designated account. Stick to a plan and keep a journal to learn from mistakes and successes. For more precautionary tips, visit trader and author Markus Heitkoetter online.