How much exposure investors should have to shares, bonds and cash depends on many factors – but an important one is the length of time until the money needs to be used. It is known as the lifecycle approach to investing.
Risk matures with you
Lifecycle investing looks at the importance of tailoring investments to a particular timeframe. Retirement funds, for example, will likely require the investment strategy to mature as the fund holder ages. ING senior economist Ian Bright says a saver aged less than 30 years “can take more investment risk” because there are 30 or 40 years until the funds will be needed.
“If our young investor has a loss early on, it is likely this can be made up in the future. With luck, markets may move in her favour – or she can put in some extra money over a number of years,” says Bright.
“But the closer our investor comes to retirement – the more cautious her approach should be.”