Personal investing is a process that changes significantly as you go through your life. To build a long-term strategy, you need to think about how each of these phases will affect your investing. Personal investment advisors often encourage clients to think about their futures in terms of these four stages.
Most people aren't going to have hoards of wealth just sitting around, and even a lot of folks who do would still prefer to make more money. Investment advisors encourage their clients who are in the earliest days of their efforts to focus on growth. You need to generate income so you can use the profits to generate more income.
In the growth phase, you should look for high-risk and high-return investments. Not every investment will pay off, and you'll need to know when to let go of the ones that don't. However, investment advisors want their clients to take on some risk early so they can capitalize on big returns from the winners.
Notably, this stage doesn't imply you want to see flat returns. However, you're going to have less risk in your portfolio because you don't need it. There will still be value in high-return investments, but you'll want to be more targeted.
Folks move into the stabilization phase when they get into mid-life. Oftentimes, they purchase homes and other properties, and those pieces of real estate serve as stable investments that provide respectable growth over several decades. They also frequently have improved their credit to the point they can use leverage to buy stocks, start businesses, and acquire rental properties at relatively low borrowing costs.
Most people will start to move through life changes that further reduce their risk profiles. As their kids approach college age, for example, they need to know the money will be there to pay for school. Similarly, they may be looking toward retirement.
At this later stage, the big thing to remember is that you don't have recovery time. If the economy goes into a major recession, for example, you don't want to wait two to five years to bounce back. You don't want to have money tied up in high-risk investments for the same reason.
By this point, you should have significant non-liquid assets, including at least one house. Likewise, your liquid assets should mostly be in tax-preferred retirement accounts. At this point, you want to have low-risk investments that don't incur large tax bills or maintenance fees. Ideally, you can live off the interest, dividends, and other proceeds of your investments.
For more information contact investment advisors in your area.Share
17 September 2021
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