When it comes to money, almost everyone knows they have to save some money and the earlier they start the better. But what about investing money, when do you start?
A person can plan his investments according to the “lifecycle strategies.” According to the lifecycle strategies, there are four stages or life phases with different sets of goals and strategies.
1. Starting out (20s – mid 30s)
During this stage, a person focuses on building up his savings fund and should have an emergency fund in placed. He can start to develop an investment plan and begin investing some of his money. Investing targets are for short-term as well as long-term goals. For example, a long-term goal is to save for retirement and a short-term goal is to buy a house or get married. In order to meet long-term goals, he can invest in growth instruments or vehicles. In this phase, he has to be aggressive in accumulating savings to meet his short-term goals and for investment purposes.
2. Accumulation years (mid 30s – late 40s)
The person continues to build up his savings aggressively and his investment plan should cover short, medium and long-term goals. He will have more responsibilities to fulfill especially if he has a family to take care of. Normally, during this period a person would have gotten married, bought a car(s) and a house as well as have children. Therefore, his financial obligations have increased.
On top of that, he has to manage his investments. At this stage, he can diversify his portfolio and target further growth by investing more in growth or equity type of investments.
3. Pre-retirement (late 40s – retirement)
During this stage, the person is now making solid plans for retirement by ensuring high or optimum returns from his investments. His portfolio should be well diversified but the percentage allocated in high-risk instruments should be gradually reduced. His investment goals will focus mainly on medium-term goals.
4. Retirement period (50s and above)
During this phase, the person should have sufficient money in his retirement fund. Other sources of income can be from his pension or EPF, an established passive income stream as well as from his investments. His main concern during this period is to have sufficient income for living expenses and enough funds for his entire retirement period.
He should maintain his investments to continue to generate returns to support his retirement. However, his portfolio should shift more towards low risk instruments to reduce his risk exposure.
Read other articles by Jacquelyn at WParent.com on parenting matters and Tips4Everyone.com on solving marriage problems.
Reference source: Lifecycle Strategies. Banking Info. www.bankinginfo.com.my
