October 04, 2023 (MLN): When the legendary poet William Shakespeare composed the poem “The Seven Stages of Life” he had hardly imagined that the theme of the poem “Life Cycle” would permeate from the social boundaries to the business domain to the extent that it would ubiquitously be accepted as a business strategy for product development to marketing and from business to personal investing.
Life Cycle Investing is an investing approach that offers a comprehensive framework for managing personal investment to meet changing financial needs throughout life by taking into stock social needs and economic constraints right from the start of professional life to the end of it.
| Age (in Years) | 20 to 30 | 31 to 50 | 50 to 60 | 60 + |
|---|---|---|---|---|
| Life Cycle Investing Phase | Early to Mid-Career | Mid-Career | Post Mid-Career | Retirement |
| Investment Mix | ||||
| Cash | 10% | 10% | 10% | 10% |
| Stock | 60% | 55% | 40% | 25% |
| Bond | 30% | 35% | 50% | 65% |
The above image and the table offer a glimpse of what Life Cycle Investing is and how to practice to ensure financial comfort at all stages of life by fragmenting social needs age-wise and translating those into financial goals, investment horizon, and risk tolerance, and by proposing an optimal investment mix for each stage of life.
The above investment mix appears conclusively correct when seen from the vantage of Western Society, as the concept is deeply ingrained in the West’s social, psychological, educational, experiential, and economic backgrounds.
But what about when it comes to practising in our society? Should it be adapted verbatim? The two differ socially and economically despite some similarities. Ours is a family-oriented, socially obliged, conservative, and economically less privileged than the West. The following table offers an age-wise segmented view of the social needs and economic priorities of individuals living in two societies.
| Age | 20 – 30 Years | 31 – 50 Years | 50 – 60 Years | Retirement | ||||
|---|---|---|---|---|---|---|---|---|
| Life Cycle Phase | Early – Mid Career | Mid-Career | Post Mid-Career | Retirement | ||||
| West | East | West | East | West | East | West | East | |
| Social Factors | Single/IndependentNo family supportFocus on Career
Longer Working |
SingleSupport FamilyFocus on Career
Long Working |
Family–KidsFinancing Kids’ Education | Family-kidsParentsSupporting Family
Financing Kids’ Education |
No familyKids movedNo family support | Kids Edu.Exp./ Merge | Medical CoverageOld home | Poor/ExpensiveMedical Coverage |
| Economic Factors | Education LoanLong earnings streamMore job opportunity
Little saving |
LongEarnings StreamLess
Job Opp. Little/No Saving |
Paid much of the debtExpensesIncome Exceeds Expenses
Reasonable Saving |
Income not Exceedingmuch ExpHigher Disposable Income | Peak IncomeInflow of Inv. Inc.Low Disposable Income | Peak IncomeLittle Inflow of Inv. Income | Social SecuritySuffice PensionSuff. Inc.
From Inv. |
Less Social SecurityNo PensionInc. from Inv. |
| Inv. Horizon | Long40+ years for Inv | Long40+ years for Inv | Long30+ Years for Inv. | Long30+ Years for Inv. | Medium20+ Years for Inv. | Medium20+ Years | Short | Short |
| Inv. Goals | Retire Educational LoanBuy a Car | To support FamilySavingemergency | Save for Home / RetirementAsset Growth | Inv. For Emergencies Fulfill family obligations | Secure RetirementFinanciallyPreserve
Capital |
SecureRetirementFinancially
Preserve Capital |
Liquid Assets & Outlive Saving | LiquidAssets &Outlive
Saving |
| Return Objective | Higher Return | Return Preserve Cap | Higher Return | Moderate Return | Return Preserve Cap | Return Preserve Cap | Stable Return | Stable Return |
| Risk Profile | Aggressive | Conservative | Moderate | Low | Low | Low | Very Low | Very Low |
| Investing Phase | Wealth Accumulation | Wealth Accumulation | Wealth Accumulation | Wealth Accumulation | Consolidation | Consolidation | Spending | Spending |
Similarities between socioeconomic profiles of individuals who fall within a specific age bracket convincingly validate that the concept is equally applicable in our environment. However, the variations within eloquently ask for a conservative approach when adapting an investment mix with a dot.
Concerns for preserving capital, while investing to fulfill recurring financial obligations and to ensure a financially secure retirement, is more than justifiable in a society with fewer economic resources and opportunities.
Therefore, the table below offers a modified version investment mix from the Eastern perspective for each stage of Life Cycle Investing.
| Age | 20 – 30 Years | 31 – 50 Years | 50 – 60 Years | Retirement | ||||
|---|---|---|---|---|---|---|---|---|
| Life Cycle Phase | Early – Mid Career | Mid-Career | Post Mid-Career | Retirement | ||||
| Inv. Mix | West | East | West | East | West | East | West | East |
| Cash | 10% | 50% | 10% | 30% | 10% | 30% | 35% | 30% |
| Stock | 60% | 10% | 30% | 20% | 40% | 20% | 5% | 5% |
| Bond | 30% | 40% | 60% | 50% | 50% | 50% | 60% | 65% |
So, liberate yourself from the fear of age syndrome and set in for an investing journey destined for a financially independent and secure post-retirement life as promised by the Life Cycle Investing Strategy.
This reminds me of a Chinese proverb:
“The Best Time to Plant a Tree Was 30 Years Ago, and the Second-Best Time to Plant a Tree is Now.”
Copyright Mettis Link News
Posted on: 2023-10-04T16:43:20+05:00
