2 Stocks Retirees Should Absolutely Love

Retirement can be scary when the stock markets are jittery. Will I lose my life savings if I cash out now? Many people invest in growth stocks, thinking they will convert them into dividend stocks when it is time to retire. What if your growth stock is in a cyclical downturn? If the growth stock is trading near its five-year low, you might lose five years’ worth of rallying.

A stock retirees should hold even on the dip

Take the case of Constellation Software (TSX: CSU). This growth stock is trading near its two-year low as the management change has made investors apprehensive. The transition will not be easy, as the company has been led by the founder. Even if the chief operating officer takes over the realm, the transition might slow the acquisitions.

Constellation operates as a private equity firm where trust in the management is extremely important. Until the new CEO wins the trust of investors, the stock may see downside. If you own the stock, you might be skeptical about selling it and losing two years’ worth of growth.

And if you don’t own the stock, now is a good entry point, as you can get it at a discount. It is the first time since the pandemic that Constellation stock has been oversold, with a Relative Strength Index (RSI) of 29. RSI measures the 14-day momentum to identify if the stock is oversold (below 30) or overbought (above 70).

Constellation’s secular growth trend remains intact. The company will continue to acquire companies with stable free cash flows and compound them with more acquisitions. The recovery rally that will follow could boost your retirement savings.

How rebalancing can protect retirees from growth stock volatility

Don’t let your retirement savings be dependent on timing the market. Consider maintaining a set asset allocation. Let’s say you determine your asset allocation to be 60% in growth 40% in dividends. Constant rebalancing will help you book profits at the peak and also build your dividend income pool.

Suppose you invested $6,000 in Constellation and $4,000 in Canadian Natural Resources (TSX: CNQ) in 2020 and bought 4 and 148 shares, respectively. You review your portfolio annually. Their share price momentum changes the allocation to 75% and 25% in January 2021, with Constellation shares valued at $9,388 and CNQ shares valued at $3,049.

You sell one share of Constellation for $2,347 and use that money to buy CNQ shares in January 2021. In this entire exercise, you are booking a portion of the capital gain and transferring that gain into a dividend stock that is trading at a dip.

How rebalancing enhances your stock portfolio

For $2,347, you could have bought 148 shares of CNQ over and above the 193 shares you already own from the initial investment of $4,000 in 2020. As of January 2026, these 341 shares (148 + 193) are worth $15,100, and their annual dividend income is $801. And the Constellation shares are worth $9,623. The allocation has reversed, hinting that it’s time to sell CNQ and buy Constellation.

Why should retirees rebalance?

Had you not done rebalancing and stayed invested in cyclical stocks like these, your returns would be $19,384, and you would have a lower dividend income. You don’t want to retire with such a portfolio where both capital gains and dividends are lower.

You can continue rebalancing even after retirement and enhance your dividend income without adding any additional money from your pocket. Your capital gains will buy you more dividends.