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Markets in a Minute

Identifying Your Stage on the Investor Lifecycle

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Investor Lifecycle Diagram

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 StageCommon Short-term ObjectivesCommon 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 GroupAverage 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.

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Markets in a Minute

Visualizing the Hierarchy of Financial Needs

This diagram showing the hierarchy of financial needs is a direct spin-off of American psychologist Abraham Maslow’s famous concept.

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Visualizing the Hierarchy of Financial Needs

Behavioral scientist Abraham Maslow wrote “A Theory of Human Motivation” in 1943, arguing that humans worldwide are influenced by a “hierarchy of needs”.

This theory organizes human needs across five levels, where needs in the lower end must be satisfied before progressing onto the next level. At one end are physiological needs such as sleep and shelter, while at the other end are esteem and self-actualization.

This Markets in a Minute chart from New York Life Investments explores how Maslow’s theory applies to our financial needs, pinning down the steps to creating a strong financial foundation.

The Essentials

What are the five levels in the hierarchy of financial needs?

  1. Cash flow and basic needs:
    Covering food, housing and daily expenses. Ensuring the fundamentals, including our physiological needs, are covered financially.
  2. Financial safety:
    This covers insurance and an emergency fund to help prepare for unforeseen events and risks. As a safety cushion, an emergency fund should cover three months of living expenses in case of an accident, an unexpected health or family issue, or losing a job.
  3. Accumulating wealth:
    This includes growing investments, paying down debt, and saving for retirement. At this level, the focus shifts to growing assets for long-term success and longevity.
  4. Financial freedom:
    Long-term care and children’s education are found within this category, along with retirement savings and vacations. These financial needs are linked with esteem needs, such as self-respect and personal accomplishment.
  5. Legacy:
    Estate planning, tax planning, and business succession planning all fall within this category, connecting with self-actualization in Maslow’s pyramid.

Naturally, financial needs can shift based on a given situation. But as a general rule of thumb, moving along this path can help create an enduring roadmap for financial heath.

Financial Needs Under the Microscope

While it’s easy enough to describe the theory in concept, how does the hierarchy of financial needs impact our day-to-day lives in practice?

To start, as individuals live longer, many are concerned with having enough savings for retirement—across all income levels. For Americans in the lower income bracket, 50% worry about their retirement savings, while 26% worry in upper income levels.

Worry about each of the following oftenLower IncomeMiddle IncomeUpper Income
Being able to save enough for retirement50%37%26%
Paying their bills59%35%15%
The amount of debt they have51%35%21%
The cost of health care for them and their family47%35%18%
Take a pay cut due to reduced hours or demand for their work51%25%18%
Losing their job40%21%11%

Source: Pew Research Center, survey of U.S. adults conducted April 7-12, 2020

Debt is also a primary concern among many Americans, as the cost of both healthcare and education have continued to rise. Average annual college costs, for example, have risen 25% over the last decade, while U.S. household debt has roughly doubled to $14 trillion since 2004.

It’s only once these above needs are taken care of that individuals can focus on the top of the financial needs hierarchy, taking care of legacy-focused items such as estate and tax planning, or business succession planning.

The Importance of Wealth Management

To navigate the hierarchy of financial needs, the importance of having a robust financial plan comes into focus.

Especially during times of uncertainty, individuals need a framework that accounts for changing life circumstances, such as a new job or purchasing a house. And when individuals move up each rung of the financial needs pyramid, they must also recognize how their tactics might need to change to best pursue their financial goals.

Cultivating a stronger awareness of financial needs can help individuals make more informed choices, on both a micro and macro level—from day-to-day purchases to long-term investment decisions.

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Markets in a Minute

The World Macroeconomic Risk Map in 2020

Which countries have the highest macroeconomic risk? This macroeconomic risk map shows how countries are positioned going forward in 2020.

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The World Macroeconomic Risk Map in 2020

In times of crisis, risk is thrown under the microscope and former assumptions are reassessed.

From the political climate to the flow of international trade, the impact of COVID-19 has destabilized macroeconomic conditions in many jurisdictions globally.

The above Markets in a Minute chart from New York Life Investments is a macroeconomic risk map of 241 countries and regions as global economies shift.

Measuring Risk

Data for the risk map comes from Euler Hermes, and it scores macroeconomic risk primarily based on the following categories: political risk, structural business environment, commercial risk, and financing risk.

The political risk category, for example, takes into account the concentration of power in a country. It also assesses the degree of independence of national institutions and social cohesion.

In total, a country’s macroeconomic risk profile is determined, representing the broad risk of non-payment of companies within a country.

Highest Macroeconomic Risk

Given the sheer weight of the current economic climate, which countries have the highest macroeconomic risk?

CountryRisk Level
🇦🇫 AfghanistanHigh Risk
🇦🇱 AlbaniaHigh Risk
🇦🇴 AngolaHigh Risk
🇦🇷 ArgentinaHigh Risk
🇦🇲 ArmeniaHigh Risk
🇦🇿 AzerbaijanHigh Risk
🇧🇩 BangladeshHigh Risk
🇧🇧 BarbadosHigh Risk
🇧🇾 BelarusHigh Risk
🇧🇿 BelizeHigh Risk
🇧🇴 BoliviaHigh Risk
🇧🇦 Bosnia and HerzegovinaHigh Risk
🇧🇮 BurundiHigh Risk
🇨🇲 CameroonHigh Risk
🇨🇻 Cape Verde IslandsHigh Risk
🇨🇫 Central African RepublicHigh Risk
🇹🇩 ChadHigh Risk
🇰🇲 ComorosHigh Risk
🇨🇩 Congo (Democratic Rep Of)High Risk
🇨🇬 Congo (People's Rep Of)High Risk
CubaHigh Risk
DjiboutiHigh Risk
Equatorial GuineaHigh Risk
EritreaHigh Risk
FijiHigh Risk
GabonHigh Risk
GambiaHigh Risk
GeorgiaHigh Risk
Guinea (Rep Of)High Risk
Guinea BissauHigh Risk
HaitiHigh Risk
IranHigh Risk
IraqHigh Risk
KazakhstanHigh Risk
KyrgyzstanHigh Risk
LaosHigh Risk
LebanonHigh Risk
LiberiaHigh Risk
LibyaHigh Risk
MadagascarHigh Risk
MalawiHigh Risk
MaldivesHigh Risk
MaliHigh Risk
Marshall IslandsHigh Risk
MauritaniaHigh Risk
MoldovaHigh Risk
MongoliaHigh Risk
MontenegroHigh Risk
MozambiqueHigh Risk
Myanmar (Burma)High Risk
NauruHigh Risk
NepalHigh Risk
NicaraguaHigh Risk
NigerHigh Risk
NigeriaHigh Risk
North KoreaHigh Risk
PakistanHigh Risk
Papua New GuineaHigh Risk
SeychellesHigh Risk
Sierra LeoneHigh Risk
Solomon IslandsHigh Risk
SomaliaHigh Risk
South SudanHigh Risk
Sri LankaHigh Risk
SudanHigh Risk
SurinameHigh Risk
SyriaHigh Risk
TajikistanHigh Risk
Timor LesteHigh Risk
TogoHigh Risk
TongaHigh Risk
TurkmenistanHigh Risk
UkraineHigh Risk
UzbekistanHigh Risk
VenezuelaHigh Risk
YemenHigh Risk
ZambiaHigh Risk
ZimbabweHigh Risk

Argentina’s soaring inflation is estimated to reach 40.7% in 2020. Coupled with a poorly-timed debt restructuring, its economy is anticipated to shrink 12% over the course of the year. Yet for all its hardship, the country managed to send COVID-19 relief money to its citizens in just three days.

Meanwhile, countries including Venezuela and Bolivia are at steeper risk, compounded by their heavy reliance on commodity exports, such as oil.

Medium to Sensitive Risk

Overall, roughly 100 jurisdictions live within this mid-range risk threshold.

CountryRisk Level
🇦🇼 ArubaMedium Risk
🇧🇼 BotswanaMedium Risk
🇧🇷 BrazilMedium Risk
🇧🇬 BulgariaMedium Risk
🇨🇳 ChinaMedium Risk
🇭🇷 CroatiaMedium Risk
🇨🇾 CyprusMedium Risk
🇩🇴 Dominican RepublicMedium Risk
🇸🇻 El SalvadorMedium Risk
🇬🇷 GreeceMedium Risk
🇬🇹 GuatemalaMedium Risk
🇭🇺 HungaryMedium Risk
🇮🇸 IcelandMedium Risk
🇮🇳 IndiaMedium Risk
🇮🇩 IndonesiaMedium Risk
🇯🇴 JordanMedium Risk
🇰🇼 KuwaitMedium Risk
🇲🇦 MoroccoMedium Risk
🇳🇺 NiueMedium Risk
ParaguayMedium Risk
PhilippinesMedium Risk
QatarMedium Risk
RomaniaMedium Risk
RwandaMedium Risk
Saudi ArabiaMedium Risk
ThailandMedium Risk
Trinidad & TobagoMedium Risk
AnguillaMedium Risk
BahamasMedium Risk
BruneiMedium Risk
ChileMedium Risk
ColombiaMedium Risk
Costa RicaMedium Risk
French PolynesiaMedium Risk
Hong KongMedium Risk
IsraelMedium Risk
LatviaMedium Risk
LithuaniaMedium Risk
MacaoMedium Risk
MalaysiaMedium Risk
MauritiusMedium Risk
MexicoMedium Risk
MontserratMedium Risk
PanamaMedium Risk
PeruMedium Risk
PolandMedium Risk
PortugalMedium Risk
Puerto RicoMedium Risk
SloveniaMedium Risk
United Arab EmiratesMedium Risk
UruguayMedium Risk
AlgeriaSensitive Risk
Antigua & BarbudaSensitive Risk
BahrainSensitive Risk
BeninSensitive Risk
BhutanSensitive Risk
Burkina FasoSensitive Risk
CambodiaSensitive Risk
Cook IslandsSensitive Risk
Côte d'IvoireSensitive Risk
CuracaoSensitive Risk
DominicaSensitive Risk
EcuadorSensitive Risk
EgyptSensitive Risk
EswatiniSensitive Risk
EthiopiaSensitive Risk
GhanaSensitive Risk
GrenadaSensitive Risk
GuyanaSensitive Risk
HondurasSensitive Risk
JamaicaSensitive Risk
KenyaSensitive Risk
KiribatiSensitive Risk
LesothoSensitive Risk
MicronesiaSensitive Risk
NamibiaSensitive Risk
North MacedoniaSensitive Risk
OmanSensitive Risk
PalauSensitive Risk
RussiaSensitive Risk
SamoaSensitive Risk
Sao Tome & PrincipeSensitive Risk
SenegalSensitive Risk
SerbiaSensitive Risk
South AfricaSensitive Risk
St. Kitts & NevisSensitive Risk
St. LuciaSensitive Risk
St. MaartenSensitive Risk
St. Vincent & The GrenadinesSensitive Risk
TanzaniaSensitive Risk
TunisiaSensitive Risk
TurkeySensitive Risk
TuvaluSensitive Risk
UgandaSensitive Risk
VanuatuSensitive Risk
VietnamSensitive Risk

As Russia contends with sanctions and counter-sanctions with the West, its political conditions face greater risks. Alongside this, increased involvement in the Syria crisis also factors negatively.

On the other hand, Indonesia’s strong banking system and solid fiscal policies are met with interest rates that fall around 4%. This means that its central bank has leeway to lower interest rates to help spur growth.

Lowest Macroeconomic Risk

As the dust begins to settle, which countries are positioned with the least risk?

France’s high quality education system and diversified economy provide key strengths. Sweden, also with a highly educated population, is cushioned with solid public finances. Also, its R&D spending is among the highest globally.

Meanwhile, Japan, Taiwan, and South Korea have favorable factors at play.

CountryRisk Level
🇦🇸 American SamoaLow Risk
🇧🇲 BermudaLow Risk
🇻🇬 British Virgin IslandsLow Risk
🇰🇾 Cayman IslandsLow Risk
🇨🇽 Christmas IslandLow Risk
🇨🇨 Cocos (Keeling) IslandsLow Risk
🇨🇿 Czech RepublicLow Risk
🇫🇰 Falkland IslandsLow Risk
🇫🇴 Faroe IslandsLow Risk
🇬🇮 GibraltarLow Risk
🇬🇱 GreenlandLow Risk
🇬🇺 GuamLow Risk
🇮🇪 IrelandLow Risk
🇮🇹 ItalyLow Risk
🗾 JapanLow Risk
🇲🇹 MaltaLow Risk
🇾🇹 MayotteLow Risk
🇳🇨 New CaledoniaLow Risk
🇳🇫 Norfolk IslandLow Risk
Northern Mariana IslandsLow Risk
Pitcairn IslandsLow Risk
San MarinoLow Risk
SlovakiaLow Risk
South KoreaLow Risk
SpainLow Risk
St HelenaLow Risk
St. Pierre Et MiquelonLow Risk
Svalbard & Jan MayenLow Risk
TaiwanLow Risk
TokelauLow Risk
Turks & CaicosLow Risk
US Virgin IslandsLow Risk
Wallis & FutunaLow Risk
AndorraLow Risk
AntarcticaLow Risk
AustraliaLow Risk
AustriaLow Risk
BelgiumLow Risk
BES Islands (Bonaire, St Eustatius, Saba)
Low Risk
Bouvet IslandLow Risk
British Indian Ocean TerritoryLow Risk
CanadaLow Risk
DenmarkLow Risk
EstoniaLow Risk
FinlandLow Risk
FranceLow Risk
French GuianaLow Risk
French Southern TerritoryLow Risk
GermanyLow Risk
GuadeloupeLow Risk
Heard and McDonald IslandsLow Risk
LiechtensteinLow Risk
LuxembourgLow Risk
MartiniqueLow Risk
MonacoLow Risk
NetherlandsLow Risk
New ZealandLow Risk
NorwayLow Risk
ReunionLow Risk
SingaporeLow Risk
South Georgia/Sandwich IslandsLow Risk
SwedenLow Risk
SwitzerlandLow Risk
United KingdomLow Risk
United StatesLow Risk
US Minor Outlying IslandsLow Risk
Vatican CityLow Risk

How about the U.S.? Backed by the world’s reserve currency, its strengths rest on its diverse GDP and low interest rates. However, the implications of high corporate debt—climbing to $10.2 trillion—weighs significantly, not to mention increasing political fragmentation.

As central banks in wealthy countries press ahead, the end of stimulus packages still seems like a distant prospect. Together, rich nations are projected to borrow a combined 17% of their GDP in this year alone. This, matched with low inflation, is helping to defend economies from collapse.

Still, it raises a key question—is this necessary for a sustainable global recovery ahead?

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