With free time on their hands, the dismal returns of fixed-income investments and the ease of trading online today, retired Canadians have likely considered taking a more active role in managing their investments.
But before you conjure up images of stressed out day-traders sitting at their computers all hours of the day, rest assured that trading online is as time consuming, or not, as you want it to be.
"You need good discipline and focus, and most people lack both of those things," says Manzoor Mirza, formerly a machinist with aircraft manufacturer McDonnell Douglas who retired eight years ago at 53. "It is not easy for people to rely on this kind of income."
Mr. Mirza decided to retire after deciding he could earn a living by trading online at home. He says he has been successful enough that neither he nor his wife have to work.
Mr. Mirza, who lives in Mississauga, trades with the Toronto-based discount brokerage Questrade Inc., which has seen a boost in its ranks of older and retired users in recent years, says Mike Butcher, the company's chief client officer.
"Not nearly as many people have defined-benefit pension plans, so this age group more than ever needs to pay attention to their nest egg and nurture its growth and income generating potential," he says.
His firm's investor base ranges from those who carry out the most basic investment strategies to sophisticated investors who use "stop-loss orders and even option trading strategies to try to enhance their returns and limit their risks."
Mr. Butcher says that low interest rates, which have gutted fixed income returns that retirees traditionally have relied on to provide cash flow, has changed the risk appetite for many older investors. "This environment has persuaded many conservative investors to seek a portfolio that generates income on a regular basis."
That does not mean they are focusing on shoot-the-lights-out returns.
"Some clients take their trading extremely seriously and make it much like a full-time job," he says. "However, most of our clients are less aggressive and more focused on long-term gains after they put a plan in place regarding how to allocate their funds."
That search for yield and income can also be seen at Canadian ShareOwner Investments Inc., a small online brokerage.
The firm, which focuses on building portfolios using low-cost exchange-traded funds and "high-quality stocks," aims to make it easy for do-it-yourselfers with its five model portfolios. It also has a dividend reinvestment program for clients with dividend paying stocks.
ShareOwner chief executive officer Bruce Seago says many clients are buying ETFs that offer exposure to dividend paying stocks or preferred shares as a way to replace some of the traditional fixed income investments in their portfolio.
Whether older investors are active enough to call themselves day-traders – they make up about 10 per cent of online investors – recognition of risk should be of paramount importance, experts advise.
The reason? Unlike younger investors, they do not have decades to make up for losses or to wait for another long-term bull market cycle.
"This is their hard-earned money, and if they lose they will never get a chance to make it back," says Mr. Mirza, a self-taught trader who uses mostly covered call options and puts. Retired investors "should not get involved in any flashy stocks like Valeant or Apple," he advises.
His covered-call-option strategy minimizes risk, as does his insistence on investing in a handful of companies and a couple of ETFs that he knows inside and out. Older investors should stay away from uncovered or naked options investing where the potential downside is greater, as well as leveraged ETFs, which are designed to maximize market moves.
"Anyone who is 32 years old, that is fine, they can take all the risk they want," Mr. Mirza says. "But anybody 55 or above who is retired and wants to get into it, they should go very, very slow and understand it."