As human beings we are blessed (or otherwise) with not knowing when we will die.  This means that we are not quite sure where we are in our physical lifecycle.  However we actually have a pretty good idea of where we are in our investment lifecycle.

The investment lifecycle is simply where you are in your life and what your investment should be doing for you at that time. It also helps to decide what your priorities are when it comes to risk and return, which is quite important when you are talking about spread betting or contracts for difference.

There are three questions that you need to ask yourself, how much money do you have, how much are you likely to earn in the future and when will you need it?  The more you have, the more you are likely to earn and the later you’ll need the money will mean that you can take more risk.

At the beginning of our careers we usually have a bit of debt, but we will be earning far less than our long term average.  In this period, and also in the period afterwards when we start saving for a deposit then the investments should be almost bi-polar – cash to pay off debt and build up savings and the higher risk investments with the spare money.  After all if we lose at this stage then the money can be made up far more easily than later on.  And small wins here will equate to bigger wins later on.

There’s then a period of home ownership and increasing earnings.  Here the investments should increase and the investor should still be open to risk.  After this there comes a family and the investments have to become more long term, with a majority shifting to equities rather than derivatives.

Finally there is the run up to retirement where there should be a gradual shift into safe investments as when retirement comes and you need to start drawing down income you do not want to have lost a large chunk of it on a speculative investment.

Last Updated: January 28th, 2010