Lifestage Investing: Strategies for the Ages
by James Winslow, Vice President, United Investment Services, LPL Financial Advisor
Investing is a lifelong process. And regardless of what financial stage of life you're in, you'll have to decide what your needs are and how comfortable you are with risk.
From there, however, the actual investment strategies that you decide to implement probably should reflect your current lifestage.
Why? Because as your investment goals change over time, your asset allocation will likely need to change as well.
Time and Risk Tolerance
All investing involves a certain amount of risk. But if you plan to hold an investment for a long time, you will probably be able to tolerate more risk, because you may have the opportunity to make up for any losses that might occur early on. For a shorter-term goal—such as saving to buy property or to pay for a child's education in the not-too-distant future—you may want to take on less risk and have more liquidity in your investments.
For example, if you're now less than 10 years from retiring, protecting your assets may become more important than continuing to aggressively pursue additional growth. In this case, you may want to gradually shift more of your assets into bond and money market holdings. (Needless to say, I can help you do this.)
Should You Leave It All to the Pros?
For people who lack the time or desire to closely monitor and manage a well-diversified portfolio, a so-called lifestage (or lifestyle or lifecycle) fund may be a suitable choice.
Instead of investing exclusively in stocks, bonds or cash, these funds typically invest in a mix of securities from multiple asset categories. In theory, that strategy allows a fund's management to pursue the best possible returns for investors while maintaining a predetermined and managed level of risk.
For example, the manager of a lifestyle fund based on your planned year of retirement may gradually adjust its investment mix over time on the assumption that the fund's investors want a more conservative asset allocation as they get older. Yet other types of lifestyle funds may always strive to maintain the same allocation, thereby requiring investors to reallocate on their own each time they reach a new stage of life.
What type of lifestage investment strategy makes the most sense for your situation? I can't answer that question without speaking to you first, so please feel free to schedule a meeting with me to discuss this timely topic.
Mutual funds are sold by prospectus. Please carefully consider the investment objectives, risks, charges and expenses of the fund prior to making an investment. The prospectus, which contains this and other information, can be obtained by calling your financial advisor or by contacting a fund company directly. Please read it carefully before you invest. Life cycle funds are subject to asset allocation risk, and the risks in varying degrees over time associated with the underlying equity funds and fixed income funds.
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