Investing is one of those things that everyone knows they should be doing. But aren’t doing, mostly because they have no idea where to start. I get a lot of questions around investing like: How do I get started? What to invest in? Ways to overcome a fear of investing (or rather a fear of losing money!)? Still, by far the most common question I get asked, “Is It Too Late for Me To Start Investing?” And, I want you to know – that for most people the answer is a big resounding “No! It’s not too late!”
How you invest does depends on many factors including your age and financial goals. In terms of when, where and how much money to invest, it is best to think in terms of three different life-cycle phases. The first is the earning phase, followed by the conservation/risk management phase, and finally the gifting phase. I’ll go into more detail about each phase below and the type of investments that are best for each phase of your life. Let’s take a look:
The Earning Years
The earning or accumulation phase is the working years. This includes those who are still making money, and at least five years from retirement. For many people, this is the longest phase in their financial life.
- Investments for those in this phase include growth stocks, cryptocurrency, and real estate. As you get closer to retirement there should be a reduction in riskier investments that could put your nest egg at risk.
- Generally, the accumulation phase lasts from 20s to mid-50s. However, now that people are working longer, the accumulation phase can extend into the 60s or 70s.
- Goals include financial security, education funding, home purchases, and legacy planning.
The conservation/risk management phase is marked by efforts to protect the assets you have acquired during your lifetime. If you are no longer earning income you have likely entered this phase. Those in the conservation/risk management phase are focused on the reallocation of their wealth to reduce risk and optimize returns.
- Investments for those in this phase include insurance, annuities, dividend and blue chip stocks, federal bonds, real estate, gold and other precious metals.
- This phase begins in the late 20s to early 30s and extends to the 80s.
- Goals include financial freedom during retirement. The primary investment activity at this stage is managing the investments to generate income and protect from inflation.
Gift It Phase
The distribution or gifting phase is the final phase of the financial life plan and is characterized by giving away wealth to heirs or charitable organizations.
- Investments to be gifted include cash, stock, bonds, real estate, or precious metals.
- This phase begins in the mid-40s to the end of life.
- Goals include planning and actively giving away wealth as part of estate planning.
Do you recognize the phase you are in? If the answer is the accumulation phase, then you absolutely should start investing! This is less about age, and more about if you are still working towards a comfortable retirement. For those moving toward their senior years who are still in the accumulation phase, your investments should change to those that are less volatile. As you can see, it is important to learn about investing because it is a life-long skill that can pay dividends for decades to come.
If you are interested in learning how to improve your money management skills including understanding the emotional and behavioral elements of dealing with money, understanding your spending habits, creating a budget, outlining a financial plan, learning how to create an emergency fund or managing debt schedule a free 30-minute consultation to learn how to get started.
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