The lifecycle of any individual, irrespective of gender, can be broadly sub-divided into the following stages: The childhood stage, young investor, young couple in the mid-30s, mature couple with grown-up children, and retirement stage.
While the age at which each stage of a human lifecycle starts may vary from one individual to another, in the case of most individuals lifecycles tend to fall into a standard cycle.
The childhood stage: This is a period of dependence. This usually lasts until children finish their full-time education.
In this stage, the individual’s financial needs are met by parents or guardians. Most general financial needs that parents need to fulfill would be to plan for their children’s education. The ideal way for parents to provide their children with more privileged opportunities is to start investing money for this purpose when their children are still young.
The method for this would be to start early with an aggressive portfolio allocation, which would have equity allocated at about 80% and debt allocated at about 20%. The allocation needs to be transformed into a more conservative mode over time, such as a gradual from equity towards debt as the investor nears his or her or goal.
The young investor: In this stage, the individual is a single professional with a long-term focus on wealth creation and investment horizon. Capital growth is paramount at this stage. The young investor seeks to accumulate as much wealth over the next 30 years as possible, which is up to retirement. In the process, an investor is happy to tolerate a high degree of portfolio volatility. The primary objective of this investor is to maximise the opportunity for capital growth over a 10-year-plus timeframe. The portfolio would typically comprise aggressive equity and a very small portion of the fixed-income asset class. The young investor has time in its favour.
The young couple in the mid-30s: In this stage, the investor is married, has children and is in their mid-30s with long-term focus; and capital growth is quite important. Such an investor seeks to accumulate as much wealth as possible over the next 20-25 years prior, to or up to retirement and would be ready to bear some losses in the process. Additionally, at this stage, long-term capital preservation for estate planning purpose is also important. In such a scenario, the investment time horizon would be at about seven to 10 years. At this stage, equity would dominate the portfolio; with some active management of equity – along with fixed-income assets to provide some degree of balance.
Mature couple with grown-up children: In this stage of life, at around 45-50, the couple is looking to work for another 10-15 years before retiring. Their responsibilities are towards the higher education of one or two of their children. They seek to accumulate as much wealth for retirement as possible, but without taking on any excessive risk.
The primary objective, therefore, is to invest in a portfolio that is evenly split between interest-bearing securities and growth-oriented investments. There is exposure to a range of investment sectors including cash, fixed interest, and shares. In such a state of affairs, it is important to ensure that the couple’s investment portfolio is well and truly, optimally balanced. Generally, the allocation ratio between income and growth assets should be 55:45.
The retirement stage: The retired couple are both around 60 years of age and above with independent children; married and settled down comfortably. In their investment portfolio, they look for income as well as some capital growth – capital preservation is important to them. They don’t mind a relatively small holding in growth assets. A high level of stable income is sought by investing in fixed-income securities, with exposures to government bonds and securities, along with other fixed-income asset classes.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.