Stivers Financial Services


Understanding the 3 Phases of Lifetime Investing

One of the great joys of life is that we are constantly changing.  We often talk about the different stages of life such as childhood, teenage years, college years, child rearing years, empty nest, retirement, old age, etc.…Wouldn’t it be something if in our retirement years we were still dressing, talking, eating, driving, and so forth as we did as teenagers?  Or if in our college years we chose to watch, “60 Minutes” on Sundays, go to dinner at 5:00 pm for the early bird special, decide not to drive in the dark, and for us men wear “hush puppies”?

The truth is to be well adjusted and healthy individuals we are constantly adapting to the passing of time.

And yet, I’m amazed that many people investing and planning for retirement don’t really understand that just as in our physical lives we go through different phases of life, we also go through different phases in our investment life

I created my “Four Cornerstone Investment and Retirement Planning Process” with the recognition that the way we plan and invest should change as we enter new phases of our Financial Life.  As important as it is, I found that simply identifying whether we are Conservative, Conservative/Moderate, Moderate, Moderate/Aggressive, or Aggressive was insufficient for many to create a retirement and investment plan that had the potential to reach a person’s needs, goal, and dreams. 

I believe it is equally important to consider what stage or stages of your investment life you are in when creating an investment and retirement plan.  Let me take a moment to identify the three phases of lifetime investing:

Phase # 1:  Accumulation Phase

In this phase of our investment life, we are trying to accumulate as much as possible for a future need such as retirement.  We are putting money systematically away through 401k/IRA contributions, savings accounts, brokerage accounts, and a host of other investment vehicles.  Generally, we have a long “time horizon” before we will be using the money.  Typically, during this phase of investing we are willing to take on more potential risk for more potential reward.  Most people consider themselves in this phase through out their 20’s, 30’s, 40’s and maybe even their 50’s (depending on when they plan on retiring).

Phase #2:  Preservation Phase

The preservation phase for most people occurs when they have “accumulated” enough assets that they don’t want to see what they have go down in value.  They remember investing in years such as the bubble bust and related recession in 2000-2002 when the S&P 500 went down over 46% or the Financial Crisis of 2008 where the S&P 500 went down over 38% and don’t want to go through that again.  So, the focus shifts from accumulating more assets to keeping what they have.  Most people enter this phase in their 50’s or when they are either nearing or entering retirement

Phase #3:  Distribution Phase

All assets we accumulate, and preserve will eventually be distributed.  This may come because we need income to go with Social Security and Pension to pay our bills in retirement, we want to spend our money to enjoy life and make memories, we are required by the government to take funds out of our 401k/IRA we’ve accumulated, or the ultimate distribution when we physically leave this world.  Other then not knowing when we are leaving this world, most people enter this phase at retirement or by age 72 for required minimum distribution.

Common sense tells us the way we invest during each phase of our investment life should reflect the phase we are in.  And yet I commonly meet with prospective clients who are in the accumulation phase, but their investments are more suited for the Preservation phase.  Or I meet with retirement clients who are already in the distribution phase of life and yet their assets are invested in investments more suitable for the Accumulation phase of life.  At best, this often causes expectations to not be met.  At worst, it creates real hardships.

In the physical stage of life there is often a defined times when a stage begins and when it ends.  We are children or we’re not, we’re teenagers or we’re not, we’re raising children or not, we’re empty nesters or we’re not, we’re retired or we’re not.  I think you get the picture.  But with our investment life it isn’t always black and white.  But isn’t life at it’s best when we accept the stage of life, we are in but incorporate aspects of other stages.  For example, this blog is being written in January just a week or so after a small bout of snow.  My wife and I are in the Empty Nest stage of life.  We put our winter clothes on and marched out into the yard and built a small snow man.  Then my wife went across the street with a sled and went down the hill with a couple of the neighborhood kids (I followed taking a video from a distance-ha).  So, for a moment we incorporated our childhood and raising children stage into our lives.  What a great day!

From my experience the people who incorporate all 3 phases of investing into their investment and retirement planning, regardless of their physical stage of life, create some of the most successful plans.  For example, you may be in the distribution phase of life and are taking Required Minimum Distribution and have the funds invested in an investment strategy that is suitable for the distribution stage of life.  But you don’t need the distributions and decide after paying the taxes to invest in an investment that is more suitable for the accumulation phase since your goal is to accumulate another pool of money to eventually leave as a legacy or for later in retirement.  Or maybe you are 45 and in the accumulation stage of life but have accumulated a million in an IRA and decide it might make sense to diversify with some of the funds that are suitable for preservation and distribution due to a planned early retirement. 

My Four Cornerstone Process was designed to assist clients first decide the goals of the funds they have and the then invest in strategies that are suitable for achieving those goals.  This often means that at every stage of physical life all three phases of your investment life will be considered.

If you would like to see how my Four Cornerstone Allocation model can help you achieve a well-balanced portfolio that includes all three phases give me a call at (865)288-7685 or reach out to us through our website, contact link.

Enjoy what ever stage of life you are in!


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