Life Cycle Investment Stages by Dr. Purushottam Arvind Petare .pptx

Learning outcomes: at the end students can able to-
1. Understand the concept of life cycle investing
2.life stages and corresponding financial needs
3. Key factors influencing life cycle investing
4. Asset allocation in life cycle investing - diversification across asset classes
5. Risk management in life cycle investing and Strategies for managing risk

1. Life cycle investment- developing a model portfolio basis life cycle stage. Dr.Purushottam Arvind Petare Associate Professor, Symbiosis Skills and Professional University, Pune. Dr.Purushottam Arvind Petare 1

2. What Is Life-Cycle Investing? Life-cycle investing is a financial planning approach that emphasizes the importance of tailoring investment strategies to an individual's changing needs and goals throughout their lifetime. This approach aims to balance risk and return. A well-designed life-cycle investing strategy can help individuals manage finances more effectively, enabling them to achieve their financial goals and maintain financial stability during different life stages. Dr.Purushottam Arvind Petare 2

3. Life-Cycle Investing Framework Dr.Purushottam Arvind Petare 3

4. Key Factors Influencing Life-Cycle Investing 1. Age: As individuals age, their investment horizon typically shortens, and their risk tolerance may decrease. 2. Risk Tolerance : Individuals' willingness to accept risk in their investment portfolio can impact their asset allocation and investment choices. 3. Investment Horizon : The length of time an individual has until they need to access their investments can affect their asset allocation and risk-taking approach. 4. Financial Goals : Different financial objectives may require different investment strategies and asset allocations. Dr.Purushottam Arvind Petare 4

5. Asset Allocation in Life-Cycle Investing: Diversification Across Asset Classes 1. Stocks: Equities can offer capital appreciation and potential dividend income, making them a crucial component of a long-term investment strategy. 2. Bonds : Fixed-income securities , such as bonds, can provide a steady income stream and help preserve capital, making them an important part of a diversified portfolio. 3. Cash and Cash Equivalents : Cash and cash equivalents, such as money market funds or short-term CDs, can offer stability and liquidity, making them suitable for short-term financial needs or as a safety net during market downturns. 4. Real Estate : Investments in real estate, can provide diversification, income generation, and potential capital appreciation. 5. Alternative Investments : Alternative investments, such as private equity, hedge funds, or commodities, can offer additional diversification and potential return enhancement, although they often come with higher risks and lower liquidity. Dr.Purushottam Arvind Petare 5

6. Risk Management in Life-Cycle Investing Investors should be aware of the various types of risk they may encounter in their portfolios, including: 1. Market Risk: Market risk refers to the potential for investment losses due to fluctuations in the overall market or specific asset classes. 2. Interest Rate Risk : Interest rate risk arises from changes in interest rates , which can impact the value of fixed-income investments, such as bonds. 3. Inflation Risk: Inflation risk refers to the possibility that rising prices will impact on the purchasing power of an investor's assets and income over time. 4. Credit Risk: Credit risk arises from the potential for an issuer of fixed-income securities to default on their obligations , resulting in a loss to the investor. 5. Liquidity Risk : Liquidity risk refers to the possibility that an investor may be unable to quickly buy or sell an investment at a fair price, particularly in market stress. Dr.Purushottam Arvind Petare 6

7. Strategies for Managing Risk There are several strategies that investors can employ to manage the various risks associated with life-cycle investing: 1. Diversification: Spreading investments across a range of asset classes, sectors, and geographic regions can help reduce the impact of any single investment on a portfolio's overall performance. 2. Rebalancing: Regularly reviewing and adjusting a portfolio's asset allocation can help maintain the desired level of risk and return over time. 3. Hedging: Employing hedging techniques, such as using options or futures contracts , can help protect a portfolio against specific risks or market downturns. 4. Risk Tolerance Adjustments : Periodically reassessing and adjusting an investor's risk tolerance can help ensure that their portfolio remains aligned with their changing needs and circumstances. Dr.Purushottam Arvind Petare 7

8. Thanks Dr.Purushottam Arvind Petare 8