Lifecycle or Lifetime Investing for Doctors

February 2nd, 2012

A concept gathering strong momentum in the US at the moment is the idea of Lifecycle Investing or target date investing. So what is this and is it anything particularly radical?

The concept of Lifecycle investing is that the appointed manager is investing your funds with a specific target date in mind, your retirement. The approach to risk within your investment portfolio throughout the journey is pegged to the different stages of your life. Whilst you are young, for example, you take a higher level of risk, you have the benefit of time on your side and you can ride the waves of the investment markets with periods of loss causing minimal concern.

As you get older and your target date for retirement moves closer to you, the manager of such a fund automatically starts to pull your risk profile back to a more conservative stance. This reduces the volatility and through this period you will build confidence in your investment portfolio’s ability to protect you from downturns in the market and deliver you the income you seek in retirement.

This is fine as a concept and as your financial adviser, MEDIQ provides this logic and framework to your investment decisions, albeit approached in a different way.

Risk profiles are all about your tolerance for risk, tolerance for loss, and how a loss might emotionally affect you and the subsequent decisions you may choose to make. The decision to take on a level of investment risk is a process of understanding the level of risk necessary to achieve the goals you wish for in your lifetime and then considering whether the required level of risk is appropriate and whether it can be managed.

So whilst I agree that the concept of our individual risk profile changing through the different stages of life is the reality, it doesn’t change the fact that for some young people, a high risk portfolio is still simply too uncomfortable to consider. When pushed to make a choice, some clients will adjust their objectives as a trade off for less risk. And this is a completely natural approach, everything life is a trade-off and this is never more true than when looking at the investment risk and return trade-off.

The level of investment risk you end up taking should ultimately be a conscious decision by the investor and be linked to the financial outcomes you are seeking to achieve. Most medical professionals enjoy such a strong and consistent level of income that often only a minimal level of investment risk is required to achieve their objectives. It is important to understand how your wealth will grow based on different levels of risk, this empowers you to make an informed decision regarding how much risk is actually required and how much you are comfortable with.

MEDIQ Medical Financial advisers are able to assist you through this process, please contact us to arrange an appointment.