Financial fitness during three unique stages of your life
As your family, career, and lifestyle changes and evolves over time, so do your financial needs. Life cycle investing works by letting you manage your finances so they match your priorities at different life stages.
Life Stage One – The Savings Years (25-40)
Priorities: Typically, a time of life when expenses are higher and the amount available to invest is lower. During these years you’re usually dealing with mortgage payments and the many other expenses of raising a family.
Savings: You still need to save because money put away early has longer to grow. Now is the time to maximize that growth by contributing to your RRSP. You can take more risk in your non-registered investment choices because your time horizon is long, and you can afford to pay less attention to market ups and downs.
Life Stage Two – The Wealth-Building Years (40-60)
Priorities: During this stage, your income is reaching its peak and your expenses (mortgage and other debt) are being reduced or have been eliminated. Now you have more capital to invest.
Savings: Look first to maximizing your RRSP contributions, including making up any unused contribution room from previous years. The power of compound growth will deliver much more money for you later in retirement.
Life Stage Three – The Retirement Years (60 and over)
Priorities: During this stage, your expenses are at an all-time low and your debt is reduced or eliminated. Your expenses are down, but so is your income.
Savings: You’ll likely need to tap into your accumulated wealth to meet retirement expenses. With average life expectancy rising, your retirement could last for many years. That makes planning a priority.
Each of the three life cycles requires a different investment strategy – but always stay diversified. A balanced and diversified portfolio is the best way to withstand short-term market fluctuations and still deliver the growth you need to reach your long-term goals.
Your professional advisor can show you how to stay financially fit with a life cycle approach to investing that works best for your life.
Reviewed: January 23, 2015
Written and published by Investors Group as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an Investors Group Consultant.