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Where are You in the Money Cycle of Life?

In the investing world we tend to talk about investing in terms of “how much return can I get for the amount of risk I’m taking?” For example, individual stocks have more risk, and thus more reward over time, than a bank savings account. But for pre-retirees and retirees, there’s more to investing than simply the risk/return trade-off. We need to think in terms of a money cycle. Simply put, there are 3 stages to your Money Cycle: Accumulation, Preservation and Distribution.

The Accumulation stage is the easiest: you’re working hard and saving toward retirement and this is when it makes the most sense to maximize the risk/return tradeoff. But when you’re within 5 years of retirement, it’s time to start shifting into the Preservation phase of the Money Cycle. The Preservation phase is when it becomes more important to maintain what you’ve saved all of these years – the time for risky, high-flying investments is done and pre-retirees talk more in terms of “not wanting to lose what I have”.

The Preservation stage then gives way to the Distribution stage, when you’re fully retired and now relying on your assets to provide monthly income. The most common mistake I see pre-retirees make is that they move right from the Accumulation phase into the Distribution phase and skip the Preservation phase altogether. This might feel like jumping into the deep end of the pool before you know how to swim– it can be done, but it’s a lot more challenging!

Here's an easy solution to build the Preservation and Distribution stages of the money cycle into your investing decisions: use an investment “bucketing strategy”, where you invest your assets according to time and purpose. Assets in the Soon bucket will provide income in the first phase of retirement and need to be invested with less risk of loss. Assets in the Later bucket can still retain a growth strategy since they won’t need to be tapped for income until phase two of retirement.

If you’re close to retirement and still running full speed ahead in the Accumulation style of investing, it’s time to start applying the brakes on at least a portion of your accounts. Your Future Retired Self will thank you for it.


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