Investing Through Life’s Stages

investing through life’s stages


Investing is a lifelong process. The sooner you start, the better off you’ll be in the long run. It’s best to start saving and investing as soon as you start earning money, even if it’s only $10 a paycheck. The discipline and skills you learn will benefit you for the rest of your life. But no matter how old you are when you start thinking seriously about saving and investing, it’s never too late to begin. The first part of a successful lifelong investment strategy is disciplined savings habits. Regardless of whether you are saving for retirement, a new house, or just that extravagant dining room set, you will need to develop rigid savings habits. Regular contributions to savings or investment accounts are often the most productive; and if you can automate them, they are even easier.

Factors That Affect Your Investment Decisions
Once you begin saving on a regular basis, you’ll soon have to decide how to invest the money you are saving. Regardless of what financial stage of life you are in, you will have to decide what your needs are and how comfortable you are with risk.

Growth or Income
What do you need the money to do? The answer to this question will help determine whether you want to put your savings into investment products that produce income for you, or that concentrate on growing the value of your investment. For instance, a retirement fund does not need to produce income until you retire, so your investing strategy should focus on growth until you are close to retirement. After you retire, you’ll want to draw income from your investment while keeping your principal intact to the extent possible.

Time and Risk Tolerance
All investing involves a certain amount of risk. How well you tolerate price fluctuations in your investments will need to be balanced against your required rate of return in determining the amount of risk your investments should carry. An offsetting factor to risk is time. If you plan to hold an investment for a long time, you will probably tolerate more risk because you have the time to make up any losses you may experience early on. For a shorter-term investment, such as saving to buy a house, you probably want to take on less risk and have more liquidity in your investments.

Sound Strategies for Everyone
Everyone lives his or her life differently, and everyone has complicated emotions about money, so investment decisions are highly personal and unique to each person.
But there are some basic rules that apply to most investors.

  • To provide liquidity for emergencies, you should probably always have a cash reserve in a money market fund or traditional savings account or CD, no matter what your life stage.
  • Also, if you can tolerate even a little risk, you should probably always have some portion of your portfolio in stocks to help protect your savings from being devalued due to inflation.
  • Another good idea is scheduling regular reviews of your investments with a financial advisor. This habit will keep you up to date on your investments and help spot potential problems in your investment strategy. Finally, every investment decision should include tax considerations. Investments can be taxable, tax deferred, or tax free. You should be aware of the taxable status of your investments and take that into account when setting up and reviewing an investment strategy.

Investing for Life Stages
Although everyone’s attitude toward investing and money is different, most investors share some common situations throughout their lives. For instance, where you are in your life cycle certainly affects how you invest for retirement, but what about other life stages that aren’t so closely related to age? Let’s say you’re 40 and expecting your first child. You’ll need to decide how to balance your finances to account for the additional expenses of a child. Perhaps you’ll need to supplement your income with income-producing investments.
Moreover, your child will be entering college at about the time you’re ready to retire! In these circumstances, your growth and income needs most certainly will change, and maybe your risk tolerance as well.

investing through life’s stages

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