Our investing journey is as multifaceted as the stages of our lives.
Central to a robust financial future is understanding and adopting the right asset allocation for each life stage — ensuring an optimal blend of growth, stability, wealth accumulation and preservation.
Each phase of life – be it the audacious ventures of youth, the strategic balancing of mid-life, or the safeguarding instincts of the golden years – intersects with the broader economic rhythms.
Let us examine how age-specific retirement strategies can be crafted and recalibrated amidst such unpredictability:
20s-30s
Our investing journey evolves with the stages of our lives, and nowhere is this more evident than in our 20s-30s. These years are marked by significant life milestones – starting a career, pursuing higher education, getting married, buying a home and perhaps, starting a family. With these major life changes come new financial responsibilities and opportunities to set a solid financial foundation.
In your 20s and 30s, you often have the freedom to be more aggressive with your investments, allocating a higher percentage to risk assets. This is the time for bold moves, as you have the advantage of time on your side. Whether you’re building your career, navigating job changes or managing life major events, aligning your investment strategy with these real-life scenarios can significantly impact your financial future.
Moreover, one of our investment principles is “Time in the market”. Staying invested, in our opinion, maximizes the probability of investment success. The longer you are invested, the longer you benefit from the power of compounding.
Interestingly, our analysis showed that in many cases, if you could set aside 15% of your annual income to invest from the age of 25, you can expect to have 15 times your ending salary. However, if 15% is difficult at this life stage, you can consider saving what you can and work to increase that amount over time.
Here’s how you can align your investments at this stage of life that has the advantage of time on your side:
- • Diversify: Maintain a diversified equity allocation that fits your risk appetite to maximize wealth accumulation.
- • Consider Low-Cost Options: Consider low-cost implementation options like Index funds and ETFs, which replicate the performance of a benchmark rather than trying to outperform it.
- • Stay Disciplined and Informed: A blend of discipline, continuous learning, and strategic diversification can help build a resilient financial future.
40s-50s
As individuals approach their 40s and 50s, the financial landscape invariably shifts. Navigating the investment landscape at this stage is a delicate balancing act. These decades, often marked by peak earnings and growing financial responsibilities, demand an investment approach that harmoniously combines growth aspirations with risk mitigation. With the horizon of retirement approaching, yet still affording a degree of aggressive pursuit, tailoring a strategy that’s both cohesive and comprehensive becomes pivotal.
You might be dealing with life scenarios such as advancing in your career, paying for your children’s education, caregiver responsibilities for aging parents, starting to plan for future healthcare needs and planning for retirement. These years demand an investment approach that is both cohesive and comprehensive, balancing the need for continued growth while preserving capital for upcoming retirement.
In your 40s, maintaining the growth potential of your portfolio through an appropriate allocation to equities is important. Toward the final years of your 50s, many investors can begin gradually transitioning from aggressive growth assets to more stable income-generating options.
Here’s how you can align your investments at this stage of life as you balance growth potential and risk management:
- • Maximize Growth Potential: In your early 40s, maintain growth potential of portfolio through an appropriate allocation to equities.
- • Increase Capital Preservation: In your 50s, start reallocating from equities to bonds, which allows for greater capital preservation. Consider incorporating high-yielding credit.
- • Stay Globally Diversified: Diversify globally across bonds and equities to achieve the optimal upside of equities/risk assets while minimizing downside risk.
- • Substitute Growth for Stability: As retirement inches closer, begin substituting part of your growth equity with high-dividend equity to build a stable income stream.
In Retirement
Retirement can bring significant life changes and new challenges, making it crucial to adapt your investment strategy accordingly.
The shift from a steady paycheck to living off savings and investments requires careful planning to ensure financial stability during these golden years. Healthcare and medical expenses also become a critical focus in this life stage, necessitating thorough preparation for potential long-term care costs.
Additionally, maintaining a desired lifestyle – whether it involves travelling, pursuing hobbies or spending time with family — is key to enjoying retirement, and this requires careful investing strategies.
Indeed, the primary concern for retirees is to safeguard their life savings as retirement can span decades.
Here’s how you can align your investments during retirement:
- • Rebalance Portfolio: Safeguard your savings by rebalancing from equities to cash and fixed income, reducing exposure to high-risk assets.
- • Selective Risk-Taking: With increasing life expectancies, there is a risk of retirees outliving their savings. Shying away from taking risks is not a sustainable option. However, the key here is to be selective. Tilt exposure to high-quality assets and Investment Grade bonds to improve portfolio robustness without taking excessive risks.
- • Diversify to Minimize Risks: In our view, liquidity risk and concentration risk in single securities, sectors, or industries are some of the risks that are no longer suitable for investors in their 60s and beyond. Diversify your investments across various securities, sectors, and industries.
- • Implement Withdrawal Strategies: As retirement can last up to three decades or more, withdrawal strategies are as important as the investment strategy. Four common withdrawal strategies investors can consider are the fixed percentage strategy, fixed dollar amount strategy, income-only (without touching the principal) strategy, and the three-bucket strategy (allocating funds to immediate needs, intermediate stability, and growth-driven).
In conclusion, navigating the investment landscape through different stages of life requires a tailored approach to align with evolving financial goals and responsibilities.
By understanding and adapting to the specific financial needs and opportunities of each life stage, you can effectively manage your investments and achieve long-term financial stability and fulfillment.
Along the way, there will bound to be market uncertainties and one truth stands resolute: the importance of staying invested. It is not about timing the market, but time in the market.
