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Here’s a guide for your investing life. With 6 phases, it can be a practical roadmap to navigate each phase of life.
Life is not a spectator sport, it only rewards action takers.
This is one of the maxims I preach and live by.
If you aspire to something, do something to make it happen!
Like anything, wealth is achievable no matter who you are.
You just need to choose the right path to arrive at your desired destination.
It’s a well-worn road that allows you to maximise your potential to accumulate while minimising the likelihood of losses.
Anyone can take this high road – deckhands to doctors, labourers to lawyers, make-up artists to merchant bankers.
It just requires discipline and determination to stay on course.
I like to think of it as a practical roadmap for people to navigate each phase of their life which allows them to enjoy the present whilst preparing diligently for the future.
As shared in my book The Wealth Playbook, I have separated life into six phases of investing, divided by decades.
You can adopt this patch no matter your age – it’s never too late.
But depending on your financial health, you may need to play catch-up and work that little bit harder than others to achieve the same end goal.
Starting out (Ideal age 10-20 years)
Young people have time on their side and the more time your money is in the market working for you, the more you stand to gain.
That’s why understanding the principles of saving and investing are so important from an early age.
Those not fortunate enough to have parents or others teaching them the basic concepts should be encouraged to educate themselves.
A longer time horizon also gives young people the luxury of being able to invest aggressively with the ability to ride out market fluctuations, even severe crashes like in 2008.
They should hence be drawn to high growth stocks, ETFs and steer whatever is left into high-interest savings accounts.
Many young people don’t know what they want to do in life, even after they have left school.
There’s nothing wrong with that but it shouldn’t prevent them from beginning their wealth accumulation journey.
Their primary objectives should be to gain employment or a part-time job if studying and to begin putting money aside for an emergency fund and a house deposit.
It is the perfect time to start thinking about what they want out of life and to set some future goals to help them get there.
Aggressive investing (Ideal age 20-30 years)
This is a critical period where you hopefully settle into your chosen career and start increasing your earnings.
The key however is to do so while increasing your investing rather than your spending.
Surplus cash should be channelled towards higher risk, high growth investments.
The odd loss should not discourage an all out assault on chasing maximum returns.
People in their 20s need to prioritise paying off student debt and should aim to buy their first property around the age of 25.
With that achieved, it is well within their grasp to purchase their first investment property by age 28.
Accumulation (Ideal age 30-40 years)
The 30s is a critical decade on the road to financial freedom.
It is about accumulation and aggressively growing your investment portfolio with the benefit of the higher wage you should now be earning.
To do this, your priority should be eliminating high-interest debt, enabling you to divert your resources towards wealth creation.
You should be investing in stocks, ETFs and property with a high growth mindset but without taking unnecessary or stupid risks.
Consider expanding your property portfolio as your rental income increases.
If you are a well-established high-income earner, a self-managed super fund (SMSF) may be beneficial as you start seriously planning for your retirement.
Wealth explosion (Ideal age 40-50 years)
If you were paying attention in your 20s, you would know that by your 40s, the power of compounding begins to supercharge your wealth.
It’s a critical time to review your portfolio to ensure it remains aligned with your goals and is optimising your tax benefits.
It’s also vitally important to have maximum income protection insurance to guard against ill-health derailing your plans.
Continue to invest moderately to aggressively and you may even allow yourself a small side bet on an ‘exotic’ or high risk investment.
Pre-retirement (Ideal age 50-60 years)
As people enter the pre-retirement phase in their 50s, the first thing they need to retire is their debt.
It may require selling some property assets as the focus shifts from negative gearing to positive income flow.
That includes a greater focus on stocks that pay dividends rather than ones with growth potential.
It’s also a time to dial back the risk profile of investments to a conservative level to protect assets from serious exposure to market crashes.
Retirement (Ideal age 60+ years)
If you have remained on course, you can now look forward to reaping the rewards of your patience, dedication and hard work.
Your diverse portfolio of assets should mitigate your risk exposure and be paying you dividends that will represent your income for the rest of your life.
With a fixed income, you will now need to budget even more carefully and watch what you spend.
But remember, life is meant to be lived. So it is essential to shift your mindset from a saving to spending mentality, and enjoy the fruits of your success.
Andrew Baxter is an investment coach, leading trader and Dad. He’s the author of best selling book, The Wealth Playbook: Your Ultimate Guide To Financial Security, and founder of Australia’s top trading education platform, Australian Investment Education.
Disclaimer: Wealth Magnet Pty Ltd (ABN 52 618 868 830) trading as Australian Investment Education is a Corporate Authorised Representative (CAR no. 1255231) of Grange Financial Services Pty Ltd (AFSL No. 488609).
The material provided in this article is for information only and should not be treated as investment advice. Viewers are encouraged to conduct their own research and consult with a certified financial advisor before making any investment decisions. For full disclaimer information, please click here.
