Markets in a Minute
Identifying Your Stage on the Investor Lifecycle
This Markets in a Minute Chart is available as a poster.
This Markets in a Minute Chart is available as a poster.
Identifying Your Stage on the Investor Lifecycle
As people age and progress through their careers, their financial goals continuously evolve. Understanding one’s current goals, while also planning for those in the future, are two important elements of financial planning.
In this Markets in a Minute chart from New York Life Investments, we outline the investor lifecycle, a three-staged theory designed to help individuals optimize their portfolios as they age.
The Three Stages
Each lifecycle stage is associated with a set of distinct objectives that, when incorporated into a long-term investment plan, will guide the investor through to retirement.
| Lifecycle Stage | Common Short-term Objectives | Common Long-term Objectives | |
|---|---|---|---|
| Accumulation Stage (Ages 20-35) | - Paying off student debt - Buying real estate - Building emergency savings | - Saving for children's education - Accumulating wealth | |
| Preparation Stage (Ages 35-60) | - Taking vacations - Funding children's education | - Planning for retirement | |
| Retirement Stage (Ages 60+) | - Achieving desired lifestyle - Covering medical expenses | - Estate planning |
These age-sensitive objectives will ultimately shape an investor’s risk profile and portfolio allocations.
The Accumulation Stage
Individuals in the accumulation stage are just beginning their careers, meaning they have a relatively low net worth and a long time horizon until retirement.
With over 30+ working years ahead of them, it’s often an ideal time for these investors to build more aggressive portfolios geared towards capital gains. In practice, this usually results in a significant allocation to equities.
This is because equities boast a relatively higher return potential, making them suitable for younger investors looking to accumulate wealth. Their long time horizons also allow them to ride out periods of short-term volatility that equity markets sometimes experience.
The Preparation Stage
Individuals in the preparation stage will likely reach their peak earning years, and as a result, will have a greater capacity to save and invest.
Getting the most out of this capacity will require these investors to establish a long-term financial plan centered around retirement. Because they now face a shorter time horizon, they may want to consider a more balanced risk profile.
While equities may still play a major role in these individuals’ portfolios, the asset class’s overall allocation is often dialed back in favor of safer securities such as investment-grade bonds.
The Retirement Stage
As individuals begin to retire, their risk profiles typically become more conservative. Capital preservation and steady income are the top priorities, and in most cases, portfolios become predominantly weighted towards fixed income and money market securities.
Retirees may want to retain an allocation to equities, however. The possibility of outliving one’s savings, also known as longevity risk, is a real possibility—especially given the higher medical costs associated with old age:
| Age Group | Average Annual Healthcare Spending ($) |
|---|---|
| 0-18 | $3,749 |
| 19-44 | $4,856 |
| 45-64 | $10,212 |
| 65-84 | $16,977 |
| 85+ | $32,903 |
Source: Peter G. Peterson Foundation
According to the data, the average American experiences a sharp increase in medical costs once past the age of 45. This could spell the need for returns higher than what is provided by a fixed income-only portfolio. Maintaining exposure to equities—an asset class that has historically generated higher returns than fixed income—could help to mitigate longevity risk.
Putting It All Together
According to the investor lifecycle, a typical portfolio will transition through three broad stages over one’s lifetime. At each consecutive stage, the types of assets used should be adjusted to reflect the investor’s shifting risk profile.
By the final retirement stage, the appetite for risk is often low, and the core of a portfolio will be typically comprised of high quality, income-oriented investments. Careful monitoring of income and expenditures will also be required to reduce longevity risk.
While unique circumstances can sometimes warrant a deviation from the three stage lifecycle, its underlying theme still holds true—an investment portfolio should always be optimized to support one’s goals.
Markets in a Minute
The Average American’s Financial Portfolio by Account Type
From retirement plans to bank accounts, we show the percentage of an American’s financial portfolio that is typically held in each account.
The Average American’s Financial Portfolio by Account Type
Where does the average American put their money? From retirement plans to banks, the typical financial portfolio includes a variety of accounts.
In this graphic from Morningstar, we explore what percentage of a person’s money is typically held within each account.
Breaking Down a Typical Financial Portfolio
People put the most money in employer retirement plans, which make up nearly two-fifths of the average financial portfolio. Bank accounts, which include checking, savings, and CDs, hold the second-largest percentage of people’s money.
| Account Type | % of Financial Portfolio |
|---|---|
| Employer retirement plan | 38% |
| Bank account | 23% |
| Brokerage/investment account | 14% |
| Traditional IRA | 10% |
| Roth IRA | 7% |
| Crypto wallet/account | 4% |
| Education savings account | 3% |
| Other | 1% |
Source: Morningstar Voice of the Investor Report 2024, based on 1,261 U.S. respondents.
Outside of employer retirement plans and bank accounts, the average American keeps nearly 40% of their money in accounts that advisors typically help manage. For instance, people also hold a large portion of their assets in investment accounts and IRAs.
![Three pages with data visualizations that are zoomed out so they arent fully readable along with the text](https://advisor.visualcapitalist.com/wp-content/uploads/2024/09/In-article-ad.png")
Account Insight for Advisors
Given the large focus on retirement accounts in financial portfolios, advisors can clearly communicate how they will help investors achieve their retirement goals. Notably, Americans say that funding retirement accounts is a top financial goal in the next three years (39% of people), second only to reducing debt (40%).
Americans also say that building an emergency fund is one of their financial goals (35%), which can be supported by the money they hold in bank accounts. However, it can be helpful for advisors to educate clients on the lower return potential of savings accounts and CDs. In comparison, advisors can highlight that investment or retirement accounts can hold assets with more potential for building wealth, like mutual funds or ETFs. With this knowledge in mind, clients will be better able to balance short-term and long-term financial goals.
The survey results also highlight the importance of advisors staying up to date on emerging trends and products. People hold 4% of their money in crypto accounts on average, and nearly a quarter of people said they hold crypto assets like bitcoin. Advisors who educate themselves on these assets can more effectively answer investors’ questions.
Markets in a Minute
5 Factors Linked to Higher Investor Engagement
Engaged investors review their goals often and are more involved in decisions, but which factors are tied to higher investor engagement?
5 Factors Linked to Higher Investor Engagement
Imagine two investors. One investor reviews their investment goals every quarter and actively makes decisions. The second investor hasn’t reviewed their goals in over a year and doesn’t take part in any investment decisions. Are there traits that the first, more involved investor would be more likely to have?
In this graphic from Morningstar, we explore five factors that are associated with high investor engagement.
Influences on Investor Engagement
Morningstar scores their Investor Engagement Index from a low of zero to a high of 100, which indicates full engagement. In their survey, they discovered five traits that are tied to higher average engagement levels among investors.
| Factor | Investor Engagement Index Score (Max = 100) |
|---|---|
| Financial advisor relationship | Don’t work with financial advisor: 63 |
| Work with financial advisor: 70 | |
| Sustainability alignment | No actions/alignment: 63 |
| Some/full alignment: 74 | |
| Trust in AI | Low trust: 61 |
| High trust: 74 | |
| Risk tolerance | Conservative: 62 |
| Aggressive: 76 | |
| Comfort making investment decisions | Low comfort: 42 |
| High comfort: 76 |
Morningstar’s Investor Engagement Index is equally weighted based on retail investors’ responses to seven questions: feeling informed about composition and performance of investments, frequency of investment portfolio review, involvement in investment decision-making, understanding of investment concepts and financial markets, frequency of goals review, clarity of investment strategy aligning to long-term goals, and frequency of engagement in financial education activities.
On average, people who work with financial advisors, have sustainability alignment, trust AI, and have a high risk tolerance are more engaged.
The starkest contrast was that people with high comfort making investment decisions have engagement levels that are nearly two times higher than those with low comfort. In fact, people with a high comfort level were significantly more likely to say they were knowledgeable about the composition and performance of their investments (84%) vs. those with low comfort (18%).
Personalizing Experiences Based on Engagement
Advisors can consider adjusting their approach depending on an investor’s engagement level. For example, if a client has an aggressive risk tolerance this may indicate the client is more engaged. Based on this, the advisor could check if the client would prefer more frequent portfolio reviews.
On the other hand, soft skills can play a key role for those who are less engaged. People with low comfort making investment decisions indicated that the top ways their financial advisor provides value is through optimizing for growth and risk management (62%), making them feel more secure about their financial future (38%), and offering peace of mind and relief from the stress of money management (30%).
The Average American’s Financial Portfolio by Account Type
5 Factors Linked to Higher Investor Engagement
The Top 5 Reasons Clients Fire a Financial Advisor
The Top 5 Reasons Clients Hire a Financial Advisor
Visualizing the Growth of $100, by Asset Class
-
Markets in a Minute3 years agoHow Closely Related Are Historical Mortgage Rates and Housing Prices?
-
Infographics3 years agoA Visual Guide to Stagflation, Inflation, and Deflation
-
Markets in a Minute2 years agoMapped: Global Energy Prices, by Country in 2022
-
Infographics2 years agoVisual Guide: The Three Types of Economic Indicators
-
Markets in a Minute2 years agoVisualizing 90 Years of Stock and Bond Portfolio Performance
-
Markets in a Minute2 years agoVisualizing Every Company on the S&P 500 Index
-
Markets in a Minute3 years agoMapped: Global Macroeconomic Risk, by Country in 2022
-
Markets in a Minute2 years agoMapped: GDP Growth Forecasts by Country, in 2023
