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Why Shouldn’t We Apply Life Cycle Investing in Dot?

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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





Liquid Assets & Outlive Saving LiquidAssets &Outlive


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.”

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Posted on: 2023-10-04T16:43:20+05:00