While one can certainly
start investing at any stage of life, the style that is appropriate
is tied both to one’s age and income status. A twenty-year old who
has a steady job and is looking to grow wealth has a different
objective and risk tolerance than an individual in her late fifties
who would like to retire in a few years. It therefore makes sense
that the investment strategy should change with stage of life. Today I will start a series of posts which lay out the Small Ivy investment strategy. This is a life-long investment strategy that manages risk using the three “knobs” under the control of the investor – Volatility, Diversification, and Time Frame.
Ideally one starts investing at about
the time she starts working. This will provide the best chance for
obtaining financial independence – that state where one is fully
self-sufficient without any outside income. There are specific
investing stages that one would go through starting from the start of
one’s working career. These will be discussed in the posts that
If the reader is in his mid to late
career and has not already amassed a good sum of wealth, he will be
starting at a disadvantage in the game. The risks that one can take
early in a career and those that a person staring down the barrel of
retirement are different. One can still use the plan as a guide,
however, in that the appropriate level of risk and the investment
strategy is more a function of age/time until the money will be
needed than something that always follows the same progression.
Understand, however, that one must start early to fully use the power
of compounding interest.
Before discussing the investment
strategy appropriate for each life stage an understanding of the
factors that affect risk and return for an investment is needed.
These factors are volatility, diversification, and time frame. The
young investor can take more volatility and diversification risk
because she can reduce risk through her investment time frame. The
older investor must protect assets by lowering volatility and
increasing diversification. First, we will discuss volatility in the next post.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.