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Home : Overview : Level 3 — Learning to Invest for Retirement : Seasons of Life Table

Seasons of Life Table

Investing is actually quite simple. You really have only two basic choices: investments in which you become a lender of something, and investments through which you become an owner.

Investments where you lend your money are generally the lower-risk kind. Familiar investments of this type include bank CDs, money-market funds, treasury bills, bonds, annuities, and cash-value life insurance. The primary advantage of lending your money (versus ownership or "equity"-type investments) is the relative safety it offers.

Investments in which you own something are generally the higher-risk kind. The primary risk is that the value of what you own could fall, so the economic outlook and its effect on your holdings is of great importance. Investments that fall into this category include common stocks, real estate, and precious metals. The advantage of these investments is that they have compiled a better long-term record of staying ahead of inflation.

How you divide your investment capital between these two basic choices of "loaning" and "owning" has a greater impact on your eventual investment returns than any other single factor. In other words, deciding how you will divide your money between these two kinds of endeavors is your most important investing decision.

SMI's seasons of life framework helps you do this. It will show you how to balance your need for investment growth against the growing concern about loss as you get older.

To find your recommended mix between stocks and bonds, start on the left side of the table below and select the row that best describes your current time frame. Then locate the column that matches your investment temperament discovered in Step 1. The result is a stock/bond allocation that should balance your need for growth with your need to preserve your gains as you near retirement.

Seasons of Life
Phase of Life	Investment Temperament (from Step 1)
Characterized By	Daredevil Stock Bond	Explorer Stock Bond	Researcher Stock Bond	Preserver Stock Bond
20+ years until retirement	100% 0%	100% 0%	100% 0%	100% 0%
15-20 years until retirement	100% 0%	100% 0%	100% 0%	80% 20%
10-15 years until retirement	100% 0%	80% 20%	80% 20%	70% 30%
5-10 years until retirement	80% 20%	70% 30%	60% 40%	50% 50%
5 years until retirement	70% 30%	60% 40%	50% 50%	40% 60%
Early retirement years	60% 40%	50% 50%	40% 60%	20% 80%
Later retirement years	40% 60%	30% 70%	20% 80%	0% 100%
Need for growth decreases as you move down the table

You've probably noticed that the suggested allocation is the same for all investors who have 20 or more years until retirement (100% stock / 0% bond). This is simply because younger investors can (1) afford to take more risk and (2) have the greatest need for growth. As retirement draws closer, the suggested stock/bond allocations begin to differ based on one's investing temperament.

Welcome Aboard!

Overview

Level 1 — Getting Debt-Free

Level 2 — Saving for Future Needs

Level 3 — Investing for Retirement

Level 4 — Diversifying for Safety

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