Stages of life and your investments.

Following on from my last posting, I want to outline the stages of your life regarding investment. During my early years in the investment industry, I was lucky enough to share time and space with 4 extraordinary people when it comes to filtering out the noise and getting to the essence of the matter.

In the 80's and 90's, financial advisers or "brokers", were trained to sell policies like any other commodity. They received very little training and were paid a commission based on sales, not value added to the client.

I was taught the reverse in the sense that my mentors focused on the philosophy of adding value to the client and the "sales" will follow.

One of the first things they explained to me was the 4 life stages of "Man" as far as preparing for financial success goes.


Age 0 to early 20's

During the first 2 decades of your life, the basis of everything that will follow in your life is established mainly via your parents. Some of us are not fortunate enough to have a stable upbringing and the road for them are a bit harder but never impossible.

During these years you are creating the most valuable asset you will ever have, your education. Without knowledge you will always have to play catch-up. I am not only talking about the pure theoretical knowledge we gain in school, I am also including here social skills, street smarts, experimentation with life and the respect we get for it from suffering failure and enjoying success.

Important stuff to do in this part of your life is to gain a healthy respect for money. Learn how to work with it from an early age by getting total freedom with your allowance and know that if you get the balance right between instant gratification and saving for a rainy day, you will one day live without having to worry. As you can see, this is where the parent plays a huge role!


Age early 20's to late 30's

The next 20 years or so of your life you have to dig in, build a career with the knowledge gained during the first 20 years and create a lifestyle you can afford. These are the "Duracell Bunny" years! You have Soooooo... much energy and if you can channel that into something you are passionate about, the sky is the limit.

This period of your life should not be wasted on procrastination. You have to be out there, working till all hours of the morning to become the best in whatever you are doing. You have to prove yourself and create respect as an individual in the world of independence. You have to be focused and take chances. If you lose money, you have enough time to make it back.

Success will not be measured by what you know, but how you apply it!

Financially the most important thing to remember if that at the end of this period, you should have established a lifestyle you can afford, and be debt free.

If you reach 40 and still ask the bank to lend you money to buy the latest model BMW or to buy a bigger house, you are spending money you should be investing in your children's first 20 years, or falling into the trap of never being satisfied with what you have got.


Age late 30's to early 60's

Usually you are settling down into a stage of your life where you can consolidate and start investing excess cash into a diversified wealth creating portfolio. You should implement an investment plan and stick to it. Because you are debt free, you can create wealth for yourself and not the banks. Doing some future cash flow projections and getting to understand your different investment options are crucial.

These are the high income years of your life because your skills are in demand and you have established a presence in the market. It is important to protect this potential income stream by taking out life and disability cover. Do not get tempted by "get rich quick" schemes and do not deviate from your field of specialization. Don't spread your attention too thinly by joining every club, society and committee you get invited to.


Age early 60's till death do us part

Never retire! You are entering the years where you should be "financially independent", meaning you have accumulated enough assets to provide you with sufficient income to sustain your standard of living without having to work.

Your ability to generate income by applying your wealth of knowledge and experience should be kept alive by doing something you want to do and not because you have to! These are the years where you can become significant by giving back to the community by sharing time, money and wisdom.

The golden rule here is to not lose what you have accumulated. You should have a plan of "wealth protection" in place and stay away from risky wealth creation ventures. By this time you should have established a relationship with a trusty investment advisor that can ensure that investment decisions are made without emotions.

In conclusion I want to mention that these 4 stages have no sense of time in real life. Some people start to give to others from the day they are born and others never have enough investments to be financially independent. Some people can retire at 30 and others can never drive a fancy enough car.

BUT if you follow the steps of, get an education, give it all you've got, consolidate in your specialized field and share your wisdom, you can live a happy life.