The 8 traits of a retiree investor

I was playing golf with a few retirees.

Post their annihilation, our bar chatter turned to the topic of franking credits and how long they would last before the government finally succeeded in adding superannuation to their list of other assets to be bled for cash on top of housing. 

And so the conversation turned to shares. And share prices. And out came this immortal line.

"Marcus, I don't care about share prices, the kids are going to get those". 

And they all nodded.

It turns out that there is a large chunk of retiree investors who don’t care about the capital value of their shares because they are focused on living off the income and the franking credits. To this group, income is life, as Bill Shorten found out. It lost him an easy election win. 

So here we are preaching about which shares to buy and sell whilst some investors, and there are a lot of them, are still playing "Set & Forget" and succeeding at it. No wonder "10 Dividend stocks you have to own" is still the most popular Click Bait headline in the stock market space. It's all you really need to know to Set & Forget. To enjoy a life of undisturbed sleep. A life of waking up and not caring what the Dow Jones did.

But it's not for everyone. Not everyone possesses the traits of the Set & Forget income-focused investor. And here they are. The first one is the most important. 

THE EIGHT TRAITS OF THE RETIREE INVESTOR.

They are rich

To turn a blind eye to the stock market and share prices, income investors have to be rich. They need to have enough money invested in stocks that they can live off the income alone and not care about the share price. If you don’t need the capital to fund your lifestyle, you don’t have to worry about share price, just as long as the dividends are not cut and continue to be paid. The trick is to buy stocks in mature, generally large, reliable companies that will keep paying out in the long term. If you can find those, who cares what the share price is today?

They reinvest and compound

They see their investment asset, their nest egg, as something that grows, not shrinks. If they are rich enough not to need the income they sign up for every DRP they can. 

They are on a budget

They have planned their living and their spending. They have set their expectations and the expectations of their dependents. They do not see the capital gains in a good year as a bonus they can spend. They know there are bad years, too. Capital gains are insurance, and the nest egg is their legacy.

They don't want to watch the stock market, make decisions about the stock market, or worry about the stock market. There is tremendous value in avoiding stress – these investors have worked that out. They are only interested in milking the share market for income.

They are genuine investors

They invest long-term, not short-term. They 'set and forget', and are disciples of the 'it’ll be all right in the end' mantra, which, despite criticism for its head-in-the-sand approach, can work. There is something to be said for identifying long-term quality stocks and sticking with them through thick and thin. It is a lot less stressful. (My humble advice is to learn to sell occasionally. There are always weeds. Your results can also be improved, not by stock picking, but by stock culling).

They are not traders

Enough said. They are not interested or tempted by the prospect of short-term gains. They have been there, done that, it is disturbing, and they have not made progress in the long term doing it in the short term. A lot of fuss about nothing. A game for the inexperienced. They'll learn.

They are generally holding stocks in super in a tax-free environment

They have no capital gains tax, but they also get no benefit of capital losses. So, there is no pressure/benefit of selling loss-making stocks to offset capital gains. They get the full benefit of any capital gain, and any income and franking.

They focus on franking credits

Retiree investors living off stock-market income are very interested in the cash refund of franking credits. The equation (their lives) would change dramatically if they disappeared.

Not worrying about share prices sounds great, but it is only for people who are financially comfortable already, have enough capital to generate an income that meets their annual requirements, and can turn a blind eye to the regular 5%, 10% and even 30% stock market corrections. 

To these investors, stock market disasters are simply stock market opportunities.

Marcus Padley and Henry Jennings are the authors of the Marcus Today Stock Market Newsletter established in 1998. You can get a Free Trial of Marcus Today HERE.