Investment strategies for every life stage

Investing is a long game, and the process must evolve as individuals progress through different stages of life. In this article, we explore how investment strategies should be tailored to align with changing financial goals and risk tolerances over time. By understanding these shifts, investors can position themselves to achieve their long-term financial objectives.

Early career: Embrace risk to enhance growth

The early stages of one’s career, typically from the late twenties to mid-thirties, often feature higher risk tolerance, as there is ample time to recover from market volatility. Young investors can typically afford to ride out market fluctuations, benefiting from the compounding growth over time.

Key strategies:

• Contribute regularly: Consistent savings and investments are crucial. Income not allocated to basic expenses can be funneled into investment accounts to maximize growth potential.

• Embrace high equity exposure: With a long investment horizon, a portfolio skewed toward equities (around 70%) can capitalize on market growth.

Mid-career: Balance growth and stability

As individuals enter their mid-thirties to mid-fifties, financial responsibilities often increase. This stage often ushers in significant life changes such as marriage, children, and homeownership, which necessitate a more balanced approach to investing. Investments should align with specific goals, such as funding children’s education or paying off a mortgage.

Key strategies:

• Increase Fixed Income: Allocating more to bonds provides stability and acts as a buffer against market volatility.

• Scale back on equity exposure: Reducing equity exposure to around 55% to 60% can minimize risk while still facilitating growth.

• Consider alternative investments: For higher net worth individuals, incorporating alternative investments such as private equity, hedge funds, and real estate can provide diversification and potential for higher returns.

Pre-retirement: Focus on preservation

In the late fifties to mid-sixties, investors are keen to preserve accumulated wealth while still seeking modest growth. This period is critical for preparing an investment portfolio for the transition to retirement. It is important to consider future healthcare costs and desired retirement lifestyle to shape this stage of the investment strategy.

Key strategies:

• Increase fixed income allocation: Increasing the allocation to bonds ensures a steady income stream and reduces overall portfolio risk.

• Decrease equity exposure: Further reducing equity exposure to 50% or below helps protect the portfolio from significant market downturns.

• Consider philanthropy and tax strategies: Engaging in philanthropic activities and utilizing tax-efficient strategies can be beneficial, especially for those with significant assets.

Retirement: Generate income and manage withdrawals

Upon reaching retirement, typically around 65 and older, the primary goal is to generate a reliable income stream from the investment portfolio while navigating withdrawals to ensure longevity of assets. Working with a financial planner can help individuals assess cash flow needs, balancing income sources such as social security, pensions, and portfolio income.

Key strategies:

• Prioritize income-producing investments: Focus on investments that generate dividends and interest to support living expenses.

• Minimize equity exposure: For most individuals, equity allocations should constitute less than 50% of total assets, depending on net worth, individual risk tolerance, and income needs.

Optimize investment strategies for lifelong financial health

Investment strategies must evolve with life stages to align with changing financial goals and risk tolerances. By understanding and adapting to these shifts, individuals can better position themselves to achieve financial security throughout their lives.

Nixon Peabody Trust Company helps high net worth individuals develop practical planning solutions designed to grow and preserve wealth through multiple generations—we happily guide investors of all ages through planning strategies and portfolio optimization.

Matthew M. Martino, CFA
Senior Director of Portfolio Strategy
+1 617.345.1122
mmartino@nixonpeabody.com