If you want to ensure a higher (and safer) rate of return for your retirement portfolio, then it’s important to know what not to invest in after retirement.
One thing we encourage all investors thinking about retirement to do is perform a detailed study of how you spend your money now. Then, you analyze your findings to see what personal expenses you can cut or eliminate. This too can have fringe benefits, especially if it helps you break unhealthy habits. You may be surprised at how much you’re spending and how much more you could be saving for retirement.
We also make recommendations of what to buy and what not to invest in after retirement. Here are five examples of what not to invest in after retirement.
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What not to invest in after retirement: Penny stocks
Buying low-quality penny stocks is one of the things that can appear to be successful before it goes badly wrong. Some get hooked on it, since low-quality stocks can be highly profitable over short periods. That’s because they are generally more volatile than high-quality stocks.
All penny stocks rely on luck to become wildly profitable. If you play long enough, the “house odds” eventually triumph over any run of luck. In penny stocks or games of chance, the odds are against you. So, time works against you. The longer or more often you play, the likelier you are to lose.
What not to invest in after retirement: Short-term investments
One thing to consider about short-term investing is the market’s volatility. When volatility is heightened, it makes it harder for in-and-out traders to make money.
There is no denying the immediate appeal of taking a fast profit. However, most successful investors find over long periods that much of their profit comes from a handful of their best investments—stocks that went up much more than they ever expected. If you are too quick to take profits, you’ll wind up selling your best picks when they are just beginning to rise.
What not to invest in after retirement: Bonds
As some investors near retirement, their advisors recommend switching to bonds and other fixed-income investments for their retirement investments instead of holding stocks or ETFs.
Unless you really want to hold them in your portfolio, we don’t recommend bonds or other fixed-income investments as buys. They pay low interest and will drop in value as interest rates rise.
If you choose to use bonds for retirement, assume you will earn the current yield; don’t assume you can make money trading in bonds.
What not to invest in after retirement: Stock options
Stock options are not a smart idea if you’re in retirement. Stock options are expensive to trade. You pay commissions each time you buy or sell stock options. Commissions eat up a large part of any profits you may make with stock options, particularly if you trade in small quantities. What’s more, every trade costs you money in “slippage,” or the difference between the bid and the ask price. With options, this difference is larger than it is with stocks.
Stock options can also be rendered worthless. Unlike common stocks, an option has a limited lifespan. You can hold common stocks indefinitely in the hope that their value will increase. A stock holder can wait out a temporary downturn in the hope of eventually realizing a profit. But every option has an expiration date. If an option is not sold or exercised prior to its expiration date, it expires and is worthless. For this reason, an option is considered a “wasting asset.”
What not to invest in after retirement: Junior mining stocks
A junior mine is typically a mining company with a single, small mining operation. That adds to risk, because it will need to successfully maintain production at high levels—otherwise its single source of cash flow will dry up.
Because of this, junior mining stocks are highly speculative investments, and can easily cost you money. Investing in junior exploration stocks is especially risky because it’s relatively cheap and easy to launch a penny mine company and sell stock to the public. So the junior promotion business attracts more than its share of unscrupulous operators and stock promoters.
The successful investor portfolio diversification approach gives you strong potential for long-term gains and is considered one of the best retirement investment strategies
If you diversify as we advise, you improve your chances of making money over long periods, no matter what happens in the market.
As part of their portfolio diversification strategy, most investors should have investments in most, if not all, of the five economic sectors. The proper proportions for you depend on your temperament and circumstances.
Have you bought any of these types of investments during your retirement, and if so, how have they performed for you?
Stock options can be risky at any time, but especially once you’re into retirement. What do you invest in to keep your retirement finances safe?
Comments
John Everard
I have purchased three oil and gas stocks two years ago thinking I was so smart to buy when oil prices low and would make a quick buck as the price increased and get out. Alliance Coal (ARLP), Birchcliffe Energy (BIR) and a Blackrock oil and gas ETF. Sold all three at a loss this year and invested in AT&T and Verison. They were all small investments. Every once in a while I think the stock market is Las Vegas and I can hit the jackpot. Alas, I guess I’ll have to get my excitement somewhere else during this pandemic.
Thanks for your comment. Hang in there: We believe high-quality oil and gas stocks will rebound from the COVID-19 economic shutdown and climb new heights.
I agree with your five recommendations for if you saved all your life by buying and holding solid stocks why would you stop now in retirement. One of your largest expenses in retirement will be taxes because over the years you will have accumulated a lot of money if you have invested wisely and in retirement your costs may not be as high as you won’t be driving to work every day but you may take a few outlay’s togo on the odd trip now and then so just keep on investing and relax. You don’t have to worry with solid stocks as ever if they go up or down you still collect your dividends and if they go down it is a chance to accumulate more.
As a long time subscriber to TSI and a member of the Inner Circle I have enjoyed decent gains in my portfolio. Retired and closing in on 74, I am thankful to have come across this site years ago and encourage others to subscribe. There is one drawback. As a self-directed Investor using a well known bank investment services wrap account I pay low fees but don’t enjoy having someone else assist me in going forward. At some point I feel that I will need the assistance in managing this healthy portfolio and this is a problem for me due to my location and current global Covid conditions.
Generally good advice. However, I do take issue with your ongoing recommendation to avoid options. I agree completely to never BUY an option, since, as you mentioned, it will expire. However, SELLING an option, especially a put option on a stock that you would like to own anyway seems like a reasonable bet especially if it expires unexercised. Free money in some cases. I have also had put options exercised (usually at 10-20% below what I would have paid if I had gone long initially) then the underlying stock has recovered and has turned into a winner. I only use put options on high quality blue chips at a minimum of 10% below current value with a maximum expiry of 90 days.
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I have purchased three oil and gas stocks two years ago thinking I was so smart to buy when oil prices low and would make a quick buck as the price increased and get out. Alliance Coal (ARLP), Birchcliffe Energy (BIR) and a Blackrock oil and gas ETF. Sold all three at a loss this year and invested in AT&T and Verison. They were all small investments. Every once in a while I think the stock market is Las Vegas and I can hit the jackpot. Alas, I guess I’ll have to get my excitement somewhere else during this pandemic.
Thanks for your comment. Hang in there: We believe high-quality oil and gas stocks will rebound from the COVID-19 economic shutdown and climb new heights.
I agree with your five recommendations for if you saved all your life by buying and holding solid stocks why would you stop now in retirement. One of your largest expenses in retirement will be taxes because over the years you will have accumulated a lot of money if you have invested wisely and in retirement your costs may not be as high as you won’t be driving to work every day but you may take a few outlay’s togo on the odd trip now and then so just keep on investing and relax. You don’t have to worry with solid stocks as ever if they go up or down you still collect your dividends and if they go down it is a chance to accumulate more.
As a long time subscriber to TSI and a member of the Inner Circle I have enjoyed decent gains in my portfolio. Retired and closing in on 74, I am thankful to have come across this site years ago and encourage others to subscribe. There is one drawback. As a self-directed Investor using a well known bank investment services wrap account I pay low fees but don’t enjoy having someone else assist me in going forward. At some point I feel that I will need the assistance in managing this healthy portfolio and this is a problem for me due to my location and current global Covid conditions.
Generally good advice. However, I do take issue with your ongoing recommendation to avoid options. I agree completely to never BUY an option, since, as you mentioned, it will expire. However, SELLING an option, especially a put option on a stock that you would like to own anyway seems like a reasonable bet especially if it expires unexercised. Free money in some cases. I have also had put options exercised (usually at 10-20% below what I would have paid if I had gone long initially) then the underlying stock has recovered and has turned into a winner. I only use put options on high quality blue chips at a minimum of 10% below current value with a maximum expiry of 90 days.