Lifestyle Investment Strategy
There was a time when investing was not everybody’s cup of tea, and people shared a common belief that it is not the safest thing to do with your money. But now things have changed and so have the opinions of people.
Now folks have realised the power of investing and how they can make their money work for them. As a result, investment opportunities have also increased, and because of this, people have found their comfort in investing. Talking about flexibility and opportunities, lifestyle investing. It is an investment scheme that interests mostly the elderly. It is for aged people who can invest with their pension savings.
The lifestyle fund is the investment that bases the asset allocation on risk tolerance, age, and investment goals. You can consider lifestyle investment if you want your money to grow on a long-term basis in a hands-off way. Those who want to invest lifestyle funds can choose to depend upon the risk they can take, the time involved, and the risk required for their money to grow.
What Are Lifestyle Funds?
Investing in the lifestyle fund is also known as lifestyling. It is an investment strategy in which you can automatically switch your pension savings into another fund. These funds generally have lower risk factors. Or it allows you to use your pension as planned when you are about to retire.
The scheme has defined contributions and is a vast improvement for passive equity and cash funds. They were used as default options earlier but had their drawbacks. For the lifestyle fund, there is a mix of investments that directly depend on the risk capacity of a person and the goals.
The investment mix is tailored as per the needs of an individual depending upon their age and a simplified way of reading their goals. You can invest in both equities like fixed-income securities (bonds & notes) and stocks through investment funds.
The decisions involved by the owner of the investment are significantly less because these assets automatically change with the owner’s lifestyle until his retirement. Therefore, the balance between the risk and reward of this investment is crucial.
The lifestyle funds with higher risks will provide higher returns, whereas those with lower risks and who are conservative may reap lower returns.
They appear inside different schemes like an employer-sponsored retirement plans, retirement accounts, and individual retirement accounts (IRAs)
Stages Of Lifestyle Fund
The life cycle of lifestyle investment goes through two stages. The stage can be different depending on where you are on your investing journey. The lifestyle investment strategy has two stages and adjusts the asset allocation. The fund manager ensures you are heading toward your goal without taking too much risk. First, let us look at the two stages.
1. Growth Stage
The growth stage of the lifestyle investment strategy is the period when the investor is at its peak of investing and saving. It also means that the investor frequently puts money into their chosen programme. What is a Conversational Growth Strategy?
During the growth stage, the investor is expected to diversify their investment because they can do that comfortably during this time. And also because they say, “Don’t put all your eggs in one basket.”
The investor tries to balance risk and reward by putting money into different investments. In simple terms, they are trying to profit from all the money put in. It is the period when most people start their working career and begin earning to the peak of their earnings.
In this stage, the Lifestyle investment strategy holds an asset allocation that defines the appetite for risk and the goal one wants to achieve. To ascertain if it is conservative or aggressive depends on the individual investor. During this time, the main motive of the investor is to fund the retirement account and refrain from withdrawing from it.
2. Retirement Target Date
The retirement target date is when finally the day has come when the countdown for a person’s retirement begins—the focus of the investor shifts in this stage. The investor expects returns from the scheme they chose for their investment plan.
So now, rather than putting money into it, they start getting cash from their investment plans. Another crucial thing about this stage is that the investor has to make up his mind whether they want to maintain their asset or shift the asset to another investment (like an annuity).
Or one can begin drawing the cash. For instance, let’s say that an investor near retirement decides to move from an aggressive lifestyle investment fund to a conservative one. It can depend upon their retirement date, needs, and the risk they are willing to take.
Advantages Of Lifestyle Investment Strategy
With the risk involved in this investment, the advantages that come with it are also a handful. Let us look at them:-
1. Simplicity
The nature of this lifestyle fund is quite simple; if you invest in this fund, then you are never in this shade like you do not know anything. You will be aware in terms of asset allocation depending upon the risk. These kinds of fund schemes do not require you to be an active investor, and you can expect reasonable returns.
2. Diversification
The diversification options available with these funds are great. It can allow you to invest in multiple schemes and various assets without actually having to buy individual stocks, securities, or other bonds.
3. Low Expensive Ratio
If we compare this Lifestyle investment strategy to other types of mutual funds available in the market, they carry lower expense ratios. However, even when we compare it to exchange-traded funds (ETFs), it can help you get more return on your investments.
Take a look at our most recent blog: 5 Ways of Building a Business in a Time of Recession
How can ActionCOACH help you understand lifestyle investment strategy?
We have experience handling aged clients interested in such types of schemes, and we have managed to guide them with satisfactory service. So if you even have a hint of doubt in your mind, you can come to us.
Contact us today at 01442 773310 or email westherts@actioncoach.co.uk for a FREE business coaching session.
