From capital growth to income. The possible life phases of Investment & Savings

Everybody tends to move through their personal life phases over time. It would be natural for their money to do the same as their needs develop and evolve.

This usually requires some financial planning and I have considered below some of the issues that might need to be considered through the phases of a lifetime.

Starting the savings process 

Capital accumulation usually needs (amongst others) time and money. This might sound a bit obvious, but the sooner you can start saving the better, and the more you can put in at the earliest points usually creates the most capital (not guaranteed ) for the future. This might start with smaller amounts in your early working years and build as the pressures of household and family expenses come under control and household income rises as your career develops.

The desire to save can be fuelled by any number of objectives, from buying a house, to saving for a wedding, to paying for school fees, to name just a few examples. It might be simpler than that, just paying for this year’s summer holiday.

Accumulation phase / Capital Growth 

As you move through your working life, and savings are invested, many will focus on capital growth as the objective. They have no real need for additional income and their investment objective is capital growth, with any income produced being re-invested accordingly.  Savings might be invested in tax efficient plans, such as ISAs and pensions, and also balanced across spouses/ partners to ensure that annual allowances are maximised where possible. This last point also has the potential to help balance income using income tax allowances in later years, such as retirement.

Attitudes to investment risk might be balanced or aggressive in this phase to endeavour to maximise returns, accepting that this is likely to import volatility in returns. More information on investment risk (and notes on volatility) can be found on our website here. The important issues of volatility can be considered further at our Investment Risk Scale here.

Income Phase 

It is possible that at the end of a working life (and usually the end of the accumulation phase), savings and investments would be re-balanced with the emphasis being focussed on income generation (rather than capital growth previously targeted) to boost income in retirement.  Attitudes to investment risk should also be checked at this time to re-test tolerance to risk and capacity for loss (ability to withstand falls in the value of the investment and/or reductions in the amount of income it can generate). Some may want to reduce their previous investment risk ratings, becoming less accepting of significant volatility in the capital they have accumulated.

This income phase may sometimes be deferred if not needed, being initiated when higher costs are incurred in later life, such as Long Term Care. More information on this topical point can be found on our website here.

Summary 

As the notes above indicate, a regular review of the allocation of your investment assets is worthwhile, partly to ensure that they continue to match your attitude to investment risk and partly to ensure that they match the life phase (and its requirements) that you reach. Past performance is not a guarantee of future performance.

No individual advice has been provided in the content of this blog. For individual advice on your pensions, savings and investments needs, please contact the team at Chapters Financial on 01483 578800.

Keith Churchouse FPFS
Director
Chartered Financial Planner, ISO22222 Certified Financial Planner Chapters Financial Limited

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.