While many investors find a strategy which works for them at some point in their investment careers, the reality is that investment styles should change in different stages of life. Younger investors, for example, may be able to take more risk and may focus on capital growth. Similarly, retirees may seek lower-risk opportunities as well as greater income returns.
In addition, the types of investment, the sectors which an investor focuses on and the industries which are most popular are also likely to evolve during a period spanning multiple decades.
As an individual progresses through life, their circumstances naturally change. In the early years of investing, the requirement for an income may be minimal. Therefore, an investor can focus solely on capital growth, since dividends may not form a part of their requirements from an investment portfolio. Furthermore, a younger investor may be able to tie-up capital in riskier investments which have longer payback periods than more stable opportunities. This could lead to a more aggressive portfolio which comes with higher risks, but also potentially greater rewards.
As an investor progresses through life, they may begin to seek stocks which offer greater income returns. This is simply because they may come to rely on their portfolio for an income – especially in retirement. This may also translate into a desire for companies which are more stable and less volatile. Not only could this mean a more resilient income stream, it may also mean less worry about the value of a portfolio during a difficult period of time for the wider economy.
As well as a natural move towards lower risk and higher income return investments during a lifetime, investors may also wish to seek different types of companies as they progress through their careers. In other words, one sector may have offered huge opportunities in the past, but may no longer have the same relevance in a world where technology continues to change.
For example, in previous years the oil and gas sector was seen as an industry which could offer significant growth. Demand for cars is likely to increase substantially in future and while petrol and diesel cars may remain popular, the prevalence of electric vehicles may become much greater.
That’s not just in developed markets such as the UK (where new petrol and diesel car s will be banned from 2040), but also in developing economies such as China. It is becoming increasingly focused on environmental concerns, and this could make investing in electric vehicles and their components more attractive than the oil and gas industry.
The above is just one example of how investment themes change in the long run. However, it could be crucial for an investor to adapt their investment style in order to take advantage of evolving opportunities – especially since improved technology means the pace of change is now faster than at any point in history.
Alongside a natural progression towards lower risk, higher income stocks during a lifetime, it is clear that being flexible when it comes to investing could be crucial to long term portfolio performance.
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