Definition
Life-Cycle Investing
Life-cycle investing is the idea of adjusting your asset allocation and risk over the course of your life, taking more risk when young and less as you age.
When young, your large human capital and long horizon justify a high equity allocation, since you can ride out market cycles and even add money during downturns. As you age and human capital shrinks while financial capital grows, you gradually shift toward safer assets — the logic behind a glide path and target-date funds.
The approach links allocation to where you are in life rather than to market timing. For Indian investors it implies starting equity-heavy in one's twenties, maintaining growth exposure through mid-career, and de-risking toward retirement so that a late-career crash cannot undo a lifetime of saving.
Related terms
- Asset AllocationAsset allocation is the decision of how to divide your portfolio among major asset classes — such as equity, debt, gold and cash — based on your goals, horizon and risk tolerance.
- Glide PathA glide path is a planned, gradual shift in your asset allocation from higher-risk to lower-risk investments as you approach a financial goal or retirement date.
- Human CapitalHuman capital is the present value of all the income you can expect to earn over your working life — effectively your biggest financial asset when you are young.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.