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The financial planning process is fundamental to securing investment goals for both the short and long term. This process can span over a long time frame. Investment goals are influenced by age and family composition. The articles consider the financial objectives and investment strategies at different stages of the life of an investor. I have found the articles to be very insightful as we shall encounter particular investment decisions at different points in our lives.
Investing in young children
It is often forgotten that there is an investment strategy for young children. The goal here is for parents to accumulate wealth in order to have a lump sum of funds available for tertiary education. The time frame under consideration is usually around 18 years. The investment strategy should involve taking an aggressive stance by weighting the investment portfolio heavily in equities. The extended time frame should allow for the absorption of market fluctuations and facilitate investment changes dependent on the life situation of the parents.
When you are in your 20s and 30s
These investors are usually starting their first job and are either considering marriage or starting a family. The goal here is to accumulate wealth for future prosperity. A mistake often made is to invest too conservatively as individuals that have just started a job do not have access to large amounts of capital. However even investing a small amount each month can have a profound impact over the long run. Investors should target a more aggressive investment strategy while they are younger which allows them to build personal wealth. These strategies include investment in domestic equity funds, investment in international firms and even buying real estate. Safer investment options can also be considered which include high interest savings accounts and money market funds. Although retirement seems to be a long way away, investors should consider the amount that they are able to contribute to retirement accounts given their financial position.
When you are in your 40s and 50s
Investors in this category have a greater earning power relative to earlier in life. This implies that they have more money to invest in retirement accounts as planning for retirement becomes more vital. An investment strategy here involves maximizing contributions to one or more retirement accounts such as an individual retirement account or a company-sponsored retirement fund. Retirement accounts can offer tax advantages that are unavailable in ordinary savings and investment accounts. Investors should be conservative due to wealth preservation becoming a priority as one grows older. Investment in bonds and government-backed securities should be considered as they provide safety as well as liquidity.
When you are in your retirement years
Wealth protection is of utmost importance as investors should determine an appropriate level of income that is required to maintain a certain lifestyle. Investors can now make use of the wealth that has been generated by their retirement and investment accounts over the years. This can be used to fund living, healthcare and recreational expenses.