THE BEECHMONT CREST ONLINE GUIDE TO STOCKS AND INVESTING
Life Cycle Phases of the Investor
Investment strategies change over the life of an investor. Each individual investor of course has different needs and preferences; but it is possible to make certain generalizations about the way a person’s investment priorities will change over his or her life.
Below is a description of the four life cycle phases of an investor.
Accumulation phase:
- Persons in their early and middle years of working
- These investors are focused on immediate needs (ex: the purchase of a new home) as well as longer term goals (retirement, etc.).
- Investors in the accumulation phase usually have a low net worth, and often carry high amounts of debt (mortgage, loans from college, etc.)
- Characterized by a willingness to make relatively high-risk investments in the hope of making significant gains over time
Consolidation phase:
- Individuals in the latter half of their careers
- Have paid off major debts like college loans
- Investors in the consolidation phase still have a long investment horizon and willingness to accept risk in exchange for longer term gains.
Spending phase:
- The spending phase usually begins with retirement
- Day-to-day expenses are covered by accumulated assets, employer pension plans, and social security.
- There is a reduced willingness to accept risk, because the prime earning years have passed, and there is a slimmer margin for loss.
- However, younger retirees can expect to live at least 20 more years. Therefore, they still have to think of long-term gains and income growth.
Gifting phase:
- Similar in many ways to the spending phase.
- Investors in the gifting phase have the income needed to meet their daily expenses. They use excess assets to donate to charities, provide financial assistance to children and grandchildren, etc.