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Your Life Stage Can Influence Your Investment Selection
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Selection
If you'd like to have a bit of fun while also gaining insights into an important investment strategy, then spend a moment thinking about three or four people you know whose lives all seem quite different. Your list might include a young adult just starting his or her first real job, a 40-something parent, and a 65-year-old getting ready to retire.
What do they all have in common regarding their financial outlook for retirement, beyond the prospect of receiving a relatively modest income from Social Security? The answer is simple: The one thing that unites all retirement savers is the need to consider their current stage of life, and the priorities that come with it, when selecting investments. At each life stage, your specific asset allocation, or investment mix, should address your unique time frame, financial goals, and personal tolerance for risk. 1
However, it would be a mistake to assume that age alone determines an investor's life stage priorities and investment strategies. During the course of a year, it's possible to experience a number of milestones that have the potential to affect your financial outlook, such as a job change or a death in the family. As a result, the investment strategies you implement must address your goals as well as the specific details of your situation.
Short-Term vs. Long-Term
For example, if your financial goals are short-term or conservative in nature, then relatively low-risk, fixed-income investments may be appropriate since they are generally less susceptible to short-term market risk than stocks. 2
Investors who have longer retirement time frames may want to consider relying more heavily on stock investments.3 As the years go by and risk management becomes a bigger priority than wealth accumulation, rebalancing your investment mix to make it more conservative is often considered a wise move.
There are certain types of investments designed to address your life stage-specific asset allocation needs in one fund. Such funds, often called target-date funds, are designed to be used alone. So contributing to more than one simultaneously might be a counterproductive strategy. Target-date funds are not guaranteed to reach a certain value by their target date, and may decline in value at any time.
1 Asset allocation does not assure a profit or protect against a loss in a declining market.
2 Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.
3 Investing in stocks involves risk, including potential loss of principal.
© 2010 Standard & Poor's Financial Communications. All rights reserved.
© 2010, Kelly Ruggles, Spokane, WA. Web site
Kelly C. Ruggles, Spokane, WA. is a fee-based financial planner located in Spokane.
Kelly C. Ruggles, Spokane, WA. President of American Reliance Group, Inc., a registered investment advisor.
Kelly Ruggles, Spokane, WA. is the author of "The Financial Playbook" for Retirement
Kelly C. Ruggles, Spokane, WA. Does not intend to provide personalized investment advice through this publication and does not represent the strategies or services discussed are suitable for any investor. Investors should consult with their financial advisors prior to making any investment decisions.
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