Some people have the strange idea that just because you're retired, your investing days are over. But nothing could be further from the truth. In fact, investing after you retire is one of the most important things you'll ever tackle -- and one of the most challenging.

Finding the right balance
A lot of things change after you retire. From a financial perspective, the biggest one is also the most obvious: You're no longer getting that big paycheck you used to receive. Granted, you also don't have some of the expenses that go with working, such as commuting costs. But with a whole lot more free time, it can take some doing to fill your days with activities that won't cost you more than you can afford.

The effect of losing your regular income from work is that you now have to turn to your investment portfolio to provide everything you need that Social Security and your other fixed-income sources won't cover. In addition, because your retirement nest egg has to last your entire lifetime, you also have to maintain the discipline to recognize when you're digging too deeply into your life savings to cover immediate expenses.

Now if you've had some amazing success in saving diligently and investing well over the years, then you may have so much money that you can just squirrel it all away in bank CDs and live off 1% interest payments.

But if you're like most retirees who aren't quite that well off, you still have to take some risk in your portfolio. Fortunately, in addition to the bonds and other fixed-income investments that most conservative investors gravitate toward in retirement, you can also find stocks that won't have you nervous all the time but will give you some of the growth potential and higher income that you need.

Strong stocks to last a lifetime
So which stocks can you count on to help you meet your goals without taking on too much risk? To answer that question, I looked for stocks that met four criteria:

  • Size. Retirees don't need fly-by-night risk. Only companies with market caps of $25 billion or more make the list.
  • Dividends. Both to provide income and as a sign of financial stability, stocks should pay a healthy dividend. These stocks all have at least a 3% dividend yield.
  • Value. Paying up for quality stocks makes sense, but you don't want to pay too much. Stocks trading at multiples at or below the S&P 500's current level around 18 make the cut.
  • Stability. You don't need a stock that will move wildly up and down. Using beta, a measure of stock volatility, you can weed out roller-coaster stocks and focus on ones that are relatively calm, with volatility that's half or less as big as the overall market.

Combine all those factors, and you come up with a portfolio of six stocks:

Stock

Dividend Yield

P/E Ratio

3-Year Beta
Abbott Labs (NYSE: ABT) 3.3% 15.5 0.28
Altria Group (NYSE: MO) 6.1% 14.0 0.43
Kimberly-Clark (NYSE: KMB) 3.9% 14.3 0.43
McDonald's (NYSE: MCD) 3.1% 17.9 0.47
Procter & Gamble (NYSE: PG) 3% 15.5 0.47
Southern Co. (NYSE: SO) 4.8% 15.3 0.35

Source: Motley Fool CAPS. As of Oct. 21.

All of these stocks share attributes of defensive investments, focusing on industries that tend to hold their own regardless of what the overall economy is doing. Yet apart from Kimberly-Clark and Procter & Gamble, which cover the same territory in household consumer staples, there's a fair amount of diversification among these six stocks. Everyone needs access to medicine and basic utilities, and enough people enjoy cigarettes and fast food to make Altria and McDonald's nearly as immune to economic swings as Abbott and Southern Co. are.

On the subject of dividends, every stock above except for Southern Co. has at least a 25-year record of annual dividend increases. Granted, even long streaks of dividends can break, as we saw during 2008's bear market. Most retirees would have felt entirely comfortable holding stalwart General Electric (NYSE: GE) in their portfolios, but while its industrial base put in its solid performance, the company's finance unit proved to be its dividend's downfall. None of the six stocks above, however, have ancillary businesses that carry the same concerns that GE Finance did.

Love your portfolio
As challenging as managing your money during retirement can be, you can do it. Just recognize that you may need to take some risk with your investments, and choose stocks that will help you reach your goals without keeping you up at night.

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Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance.