Life Cycle Investing

Stage of life:

1. Young
2. Middle-age: Earning peak
3. Old

Wealth Class:

1. Not Wealth: cannot consistently add to saving from income
2. Prosperous: small discretionary wealth relative to total asset. Can consistently adding saving
3. Significant net worth: large discretionary wealth relative to asset but not independently wealthy
4. Wealthy: Independently wealth

Discretionary Wealth = Asset – Liabilities

Independently wealth: passive income > expenses

Wealth dominates ages.

Wealthy => aggressive

Not Wealthy=> Conservative

Since middle age has less future liabilities, it can be more aggressive than old and young when they have prosperous or significant net worth.

Superannuation: Individuals outlive their assets

1. Increase margin
2. Buy annuity
3. Maintain real principals

Insurance: paying periodic premiums in exchange of lumpsum payment at death

Annuity: paying lumpsum in exchange of periodic payment until death