The Different Phases of Investing
As we go through our financial lives, we go through various phases of our investment lives as well. The main three we will be looking at are the growth and accumulation phase, the consolidation phase, and the decumulation phase. All these phases correspond with our ages as we get closer to retirement. While that retirement age may vary from person to person and family to family, the phases tend to remain constant.
Growth and Accumulation Phase
The first phase we tend to go through is what we call the growth and accumulation phase. This is essentially our prime working years where we are growing and accumulating. While all of us have different paths with family, career, etc., this is where we are putting away money while we work to save for our retirement. The familiar investment tools we see here are 401k’s, IRAs, and Roth IRAs. The main component of this phase is to grow and accumulate our investments. Usually, this is the phase where people are willing to take more risks to try to grow their investment portfolio as much as possible.
Consolidation Phase
From the growth and accumulation phase, we tend to migrate to what can be called the consolidation phase. This phase is usually around five years out from retirement, in this phase people continue to invest and grow, however, risk is usually decreased, and other investment options can be brought to the table. Again, this will vary from individual to individual, but this is primarily where risk starts to be reduced from the growth and accumulation phase and people start preparing for retirement or what can be called the decumulation phase.
Decumulation Phase
The decumulation phase can be called retirement. This is where all those years of arduous work and savings will pay off. The nest egg that an individual or family has built will now be used to help supplement income in retirement. While many people will have Social Security, and some people will have access to a pension, in this phase the nest egg that was created during the growth and accumulation phase as well as the consolidation phase will help to supplement retirement for the individual or family. In this phase, we see less of an appetite for risk as losses can do more damage to you than gains can help in various scenarios (think 2008). Remember, retirement is hopefully a long window of unemployment so making sure your nest egg is big enough to supplement your income and take care of your goals and desires as well as health care expenses etc. is important.
In conclusion, all phases are important in your investment life. Think of it like three different pieces of music coming together to create a symphony in the end. There will be difficulties, challenges, and exciting times, but making sure you are participating in all the phases of investing is important. It would be detrimental to skip one or not pay attention to one, it takes all three to be successful. If you are unable to do this on your own, I would recommend reaching out to a fiduciary financial advisor who specializes in wealth management.
This is being provided for informational purposes only. The views expressed are those of Silver State Wealth Management and do not necessarily reflect the views of Mutual Advisors, LLC, or any of its affiliates. Investment advisory services offered through Mutual Advisors, LLC, DBA Silver State Wealth Management, an SEC registered investment adviser.