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Do Your Investments Match your Goals
Sunday 27, May 2018

Do your investments match your goals?

Ian Watson_1

Having your investment match your goals is one of the essential ingredients for achieving financial stability in the latter years of your life. As you pass through the various stages of life, these goals are constantly changing in keeping with our evolving needs. Our risk appetite is affected by our stage of life, which will in turn determine the type of investment we make.  It is important that the specific risks of your investments truly reflect and match where you are in your investment life cycle, if not you may not achieve our financial goals.

An investor’s life cycle represents the various phases of life that an investor passes through and are as follows:

  • Accumulation Phase
  • Consolidation Phase
  • Spending Phase

The Accumulation Phase covers investors up to 45 years old who should be looking to accumulate funds to spend in the latter years of their life. Their goals during this period will be to purchase a house, car or some other essential asset. Additionally, they will accumulate funds to meet their children’s educational costs. An early start in this category can give one a huge amount of funds over the years. This is the stage where more risk can be taken and a consistent investment, in say a mutual fund, can generate a considerable amount of growth over the years while reducing risk due to the diversified portfolio of assets in the fund. The compounding effect over the years can generate tremendous sums in one’s latter years.  Equities that focus on growth stocks will also fit well into this category. By age 40, the investor in this cycle will have less time to retirement and will start to see that their risk tolerance is reduced. Their focus will see them favouring stocks that are less risky e.g. the large-cap stocks.

The Consolidation Phase covers investors aged between 45 to 65 or retirement age. In the early stages of this cycle, many of the expenses that started to accumulate in the previous phase e.g. the purchase of a house, should decrease, and on the other hand income should have increased.  This scenario would create the disposable income needed to invest for retirement. Because of the short time to retirement, the focus is on the preservation of capital since the time would not be sufficient to recover from severe losses.  This leads to a further lowering of their risk tolerance and so as they approach retirement, investments in fixed income instruments such as investment grade bonds and select high quality stocks will fit into their investment options.

The Spending Phase is referred to as the retirement years, where the concern is solely the preservation of their wealth and the obvious further lowering of their risk tolerance. Over the years, life expectancy has been on the rise due to the progress in medicine and healthy life styles. Apart from any pension benefits that become due, it is prudent to ensure that their purchasing power is not diminished due to the rising cost of living.  Investment in this cycle is critical in ensuring that the return on investment is able to out strip that of inflation. Fixed income investments such as fixed deposits, repurchase agreements, investment grade global bonds and guilt-edge low risk stocks will be among the investments of choice. These will ensure a regular flow of funds to augment living expenses.

 The Investor Life cycle is like a road map which will guide you in making the right investment choices during the various stages of your life. Your tolerance for risk will change as you traverse through these cycles and so will your goals. You must be cognizant of where you are in this cycle and then carefully examine whether the investments are appropriate for your position in the life cycle.


Ian Watson is Vice President, Sales & Marketing at Sterling Asset Management Ltd. Sterling provides financial and advisory services to the corporate, individual and institutional investor. Feedback:  If you wish to have Sterling address your investment questions in upcoming articles, please e-mail us at: or visit our website at

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