The Seven Ages Of Man
Here we consider the seven stages of monitoring investments throughout life.
The seven ages of man is a speech from one of Shakespeare’s plays and catalogues the stages we go through in life, from baby to old age. It is an excellent comparison to investing and how investors need to ensure their investments keep pace with them as they move through life. However, this doesn’t just apply to saving for retirement, it applies to any investment goal and portfolios need to be monitored to make sure they are on track to achieve their objective.
Baby to young adult: Although financial commitments are negligible at this stage in life, it is a good idea to encourage children to save for themselves and to understand the basics of money from an early age.
Under 25: Retirement is a long way and a bulk of an individual’s income may be earmarked to fund their current lifestyle – buying property or cars for example – rather than saving for later years. However it is still a good idea to get started in investing and understanding what it is all about. Now also might be a good time to develop a high risk, aggressive portfolio as there is plenty of time to recover from any capital losses.
25 to 35: Although retirement may still seem a long time away, the earlier someone starts investing, the greater chance they have of building a significant nest egg for later years. At this stage in life people may be able to afford higher risk and more aggressive growth strategies as there is more time for investments to recover from losses or market volatility.
35 to 45: Family obligations and expenses may be increasing at this stage in life. Saving for medium to long term goals such as retirement, a child’s education or wedding may require investments that seek capital growth. More immediate goals such as paying for school fees or a mortgage may require investments that require a regular income. Therefore a balance between capital growth and income is a sensible idea and at this stage of life, however, a higher level of investment risk may still be acceptable.
45 to 55: At this stage with retirement not too far away, capital protection may be a greater concern for an investor. It might be time to move towards a more conservative or medium to lower risk portfolio. This will help to cushion capital if equity markets experience sudden market volatility.
Over 55: At this stage there is less time to recover from any capital losses and the bulk of any portfolio should be in low risk investments wit a high degree of capital security. This may also be a time to look at investments that offer income as opposed to capital growth.
Retirement: Capital preservation is key to ensure that a lump sum is kept secure to enable it to provide income during retirement. Low risk portfolios with a high degree of capital security may be preferred at this time, as may investments that provide income.