The fifth and final installment of my “Long-Horizon Investing” series is now published on Advisor Perspectives (VettaFi). The focus of the final article is the longest-horizon investing most individuals ever do: Investing *for* retirement *before* retirement.
Often you’ll hear discussion of the “accumulation” (pre-retirement) phase and the “decumulation” (retirement) phase of the investment lifecycle, as though there’s a major break in how you should invest once you retire. The optimal reality is far different and looks more like a spectrum, wherein the maximum sensitivity to market risk occurs at the time of retirement and grows less the further you move in either direction.
Post-retirement, risk sensitivity decreases as time passes because there are fewer and fewer remaining years of life to support, as was discussed in Part 4 of this series. Pre-retirement, risk sensitivity decreases the younger you are, primarily due to “human capital,” which is the present value of future savings from earnings. “Optionality”–the ability to modify the investment plan as circumstances change–adds flexibility pre-retirement as well.
These topics and more are discussed in depth in “Long-Horizon Investing, Part 5: Real-Life Applications Pre-Retirement.”
Finally, my thanks again to Joe Tomlinson and Michael Finke for their analytical and editorial aid with this series. Even just reading all the article drafts was a big undertaking, and I’m grateful for their willingness to help and for the significant improvements to the final product that resulted.
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