How to plan your investment cycle throughout life

Life has its phases. And as those phases change, so do our objectives and personal horizons. The priorities we have right after graduating and starting a career are rarely the same as those we hold in the years leading up to retirement. And just as our lives evolve, so too should our investment strategy.

The investment life cycle is based on the idea that we should adjust our financial strategy as we progress through the different stages of life. Each stage brings its own set of priorities, risks, and opportunities. That means there’s no one-size-fits-all strategy when it comes to investing; it needs to shift and adapt over time.

The way we allocate our investment assets should evolve as the years go by. Our investment strategy at 25 will be different from our strategy as we approach retirement. In early adulthood, we can afford to take bigger risks, while preserving wealth becomes more important later in life.

1. Early career and accumulation stage (up to age 39)

When you're in the prime of your life, the top priority is building a strong savings habit. During the early years of this phase, it’s common to have a carefree attitude toward money, leading many to make the mistake of not setting aside any income for savings. A good starting point is aiming to save at least 10% of what you earn.

Once you’ve built an initial savings cushion, the next step is to invest it. Leaving your money sitting idle isn’t advisable, as inflation will gradually erode its value.

The biggest advantage of starting to invest at a young age is time. With retirement still far off, young investors can weather short-term drops in their investments, knowing that they have time on their side for the markets to recover. What may look like a loss in the short term often smooths out over the medium to long term.

At this stage, it makes sense to take advantage of investment vehicles with higher growth potential and more risk, such as equity mutual funds.

2. Wealth consolidation stage (ages 39–55)

This stage of life is usually characterized by greater stability. By this point, most people have a clearer sense of who they are and where they want to go in life. They’ve taken on projects like buying a car, purchasing a home, or starting a family.

Thus, our investment objective shifts toward steadily growing wealth with less volatility, striking a balance between security and returns. This is also when major family responsibilities and expenses tend to arise, like mortgage payments and children’s education costs. It's the time to protect the wealth you've built so far, without sacrificing growth.

In the early stages of this age range, there’s a long investment horizon of 20 to 25 years before retirement, which allows for a moderately aggressive investment strategy. It’s reasonable to maintain a portfolio tilted toward growth-oriented assets, such as equities.

As retirement draws closer, however, it becomes wise to gradually adjust your portfolio by shifting toward more conservative investments, such as fixed-income products.

3. Pre-retirement stage (ages 60–65)

At last, some well-deserved rest and relaxation is just around the corner. But in most cases, a few more working years remain before reaching that much-anticipated retirement.

This period often coincides with the highest and most stable income of a person’s career. Household expenses have usually leveled off, children are financially independent, or close to it, and the savings rate tends to be at its peak.

However, it’s important to start actively preparing for retirement at this stage, as our income and independence will likely decline.

The main objective now is to protect the capital you've accumulated and begin laying the groundwork for a reliable income stream in the future. In other words, the goal is no longer to grow wealth; it's to preserve it (by matching or outpacing inflation, for example). You should aim to gradually reduce exposure to highly volatile or high-risk investments, as there’s less time to recover from short-term market downturns.

4. Retirement stage (age 65 and beyond)

By this stage in life, things tend to slow down and become more peaceful, with some exceptions. Generally, expenses are lower than in earlier phases of life. At this stage, building wealth isn't a priority anymore; it's about drawing from what you've already accumulated so that you can live off that income and enjoy the rest of your life.

Always seek expert advice

No matter what stage of life you're in, it's wise to have a trusted financial professional by your side that can guide you and help you make the most of your investments. At MAPFRE, we have a team of financial experts, MAPFRE Gestión Patrimonial, who help investors find the options that best suit their objectives and needs.