Active Stock Investing and Your Retirement Plan – How Do They Fit Together?

When planning for your sunset years, the premise is that you want to secure your financial future beyond your healthy, productive years. However, you need to have a retirement plan, to begin with.

Most retirees want to create a source of income and the stock market is an ideal investment ground where you can achieve that goal. Thus, it would be beneficial to engage in active stock investing to add to a retirement portfolio.

Of course, there are risks to this investment option that you have to consider. But if you can play your cards right, those perils can be minimized. The key to winning in the stock exchange is to always make well-informed investment decisions. Otherwise, the setbacks can lead to a financial dislocation in the future.

The average retirement age

rear view of couple sitting on beach

In the current times, the average retirement age can be within the age range of 40 to 70 years old. But since there is an abundance of earning opportunities, the sooner you can chart your retirement goals the better.

Who doesn’t want to retire early and enjoy the good life? The millennials, in particular, are coming to their senses around. Retiring early is becoming a top-of-mind option.

Just thinking about the leisurely vacations you can have while still energetic is enough motivation to build wealth. One can quit the everyday humdrum if you can shape your retirement plan early.

Shape your retirement plan

The younger professionals are fortunate. They can seize the moment when they become financially independent. Time is on their hands and they can easily set a target age for retirement.

The next step is to forego useless spending and think about investing. Allocate a portion of income to save and build the investment fund. Once an adequate amount of investible capital is reached, begin your stock investing activity.

person holding coins

It’s not an exaggeration to advocate for saving heavily. You can begin drawing up a comprehensive retirement plan while you save. By learning the rudiments of stock investing, you can set your retirement plan in motion. You will become an astute investor and develop the trading skills as you go along.

Hence, the earlier you stay invested, the likelihood of earning more in the future is certain. Just imagine the compounding effect of the returns on your stock investments by the time you reach your retirement age target.

Investing for retirement and your risk appetite

Let us assume that you’re starting to invest at age 30 and 25 years is your time horizon to retire. But because you’re investing your hard-earned money, safety and risks are two major considerations. It is then extremely important to save up while gauging your personal risk appetite.

Amount of investment

In terms of required savings for retirement, you should at least have roughly S$17,000 annual savings to enjoy a decent retirement. With that much savings, it is suggested that S$5,000 annual stock investment is a good start.


As your savings grow and learning in the stock market deepens, you can decide to increase the amount of investment. But the recommendation of some financial planners is that if you’re 30 years old, stocks should comprise 70% of your investment portfolio.

Risk appetite

The stock market may not be the avenue for you if you’re ultra-conservative and risk-averse. Others with zero-risk tolerance would rely on a fixed deposit account that will earn 2.0% per annum at best. But this type of investor will not realize the compounding effect and therefore minimal earnings.

But for those who want higher returns, active stock investing can deliver and with a faster accumulation of principal and interest. Keep in mind that the higher returns mean higher risk too. The important thing is to choose your investment mix wisely.

Diversification can mitigate the risks. You can opt to purchase value stocks or invest in exchange-traded funds (ETFs). A dividend-paying stock or ETF is another alternative to add earnings.

On the average, your stock investing could earn 6.0% p.a. In case you want a higher yield, you can try growth investing once in a while. You can earn as much as 8.0% p.a. on growth stocks.

The downside to active stock investment

Providend’s portfolio manager Sean Cheng, points out that most professional fund managers who practice active stock investing underperform the market indices that they are trying to beat. For example, as of Dec 2017, over a 15-year period less than 8% of professional fund managers managed to outperform the S&P 500 Index, which tracks 500 of the largest companies in the United States.

What this means is that if you had simply invested in a low-cost fund that seeks to mimic the S&P 500 Index, you would have enjoyed better returns than by investing with the large majority of professional active fund managers,” said Cheng, who adds that the amount of active stock investment in one’s retirement planning portfolio is “a matter of personal preference and a rational weighing of the opportunity costs involved”.

But consider this: perhaps the greatest active stock investor of all time, Warren Buffett, has instructed that when he dies, his wife’s retirement portfolio is to have 10% invested into short term government bonds, and 90% into a low-cost passive stock fund. In other words, 0% of his wife’s retirement plan will be in active stock investments,” Cheng continues.

So if you decide not to have any active stock investments in your retirement portfolio, you’ll be in good company.

The sunset years may come faster than you think


Every individual has a specific retirement goal. But everyone’s retirement plan is anchored on a pre-determined time frame and financial objectives. The younger professionals with less financial responsibilities can start investing in the stock market to jumpstart their retirement plans. On the other hand, the older generation would go into stock trading for sustained income-generation.

Regardless of the group to which you belong, adding active stock investing to your retirement portfolio is a clever proposition. Your investment portfolio can generate the desired income if you stay invested in well-performing stocks.

The dream of many to retire early is not a remote possibility. However, it would be alarming if you don’t have a retirement plan. You don’t want to be financially wanting during your sunset years. Think comfortable retirement.

Written by ZUU Online

This is a guest post by ZUU Online, an Asian-based Finance Education Portal aimed at helping individuals to improve their knowledge on personal finance and money, through educational articles on business, investments, property and insurance.

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