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- Lifestyle investing can provide investors with a personalized approach to money management.
- The strategy helps investors capitalize on the things that matter most to them, like education, health, travel, and relationships.
- With the guidance of a financial planner, investors can enjoy life now and still save for the future.
Many people invest their money with a singular goal in mind: Build a nest egg for retirement.
But saving for retirement requires a long-term view, and there’s a lot of life to fund in the meantime. Perhaps an investor wants to start a business, buy a house, or pay for a secondary degree.
Enter lifestyle investing, a strategy that focuses on investments that enhance your day-to-day experience and how you hope to live your life — both now and in retirement.
“Younger generations are putting a higher premium on living life today,” said Paul Deer, vice president of Private Client Services at Empower and a CFP®. “With there being so much more to life than only achieving retirement, lifestyle investing focuses on using your assets to achieve your specific life goals.”
Traditional investing focuses exclusively on your money. But Deer notes that lifestyle investing also capitalizes on other assets, such as education, health, time, relationships, and community involvement. A lifestyle investor uses their resources to build a meaningful life now — while preparing for a vibrant and comfortable future.
“Younger generations are putting a higher premium on living life today. With there being so much more to life than only achieving retirement, lifestyle investing focuses on using your assets to achieve your specific life goals.”
Personalizing your plan
Deer asserts that a successful lifestyle investor’s first step is defining short-, medium-, and long-term priorities.
“Are you focused purely on achieving retirement at a set age?” Deer said. “Do you want to change careers every decade? Are you trying to buy a vacation home before you retire? Do you want to spend more time with your family?”
Take the time to reflect on your overall strategy.
Some investors, for example, value early retirement above all else — choosing a frugal lifestyle now to reach that finish line sooner. Others, meanwhile, weigh future assets against today’s priorities — working a lower-paying job that offers greater work-life balance, investing in a second home, or saving for a child’s education.
It’s up to each investor to customize this path based on their individual goals.
“Depending on your priorities, you may have a very different investment focus than someone of a similar age and net worth as you,” Deer explained.
Rethinking your approach to time and money
According to Deer, lifestyle investors must also look at two critical assets: time and money.
“As a young investor, typically your most abundant asset is your time, and your least abundant assets are financial,” he said.
In other words, young investors don’t always have a ton of money to invest. But they can usually take on greater investment risk with what they do have because they’re afforded a longer time horizon to wait for the market to recover from any dips or volatility.
The equation flips, however, as the investor ages.
“As an investor approaching retirement, you likely have a much stronger financial asset base but significantly less time,” Deer said. As a result, your risk tolerance decreases. But Deer notes that these investors often have more financial assets and a clearer sense of how they want to spend their time.
A lifestyle investor regularly evaluates this money-time tradeoff. They weigh carefully if their time is better spent with an income-generating activity (such as receiving an education or training that could result in a job) versus something less productive. Of course, lifestyle investors know how to relax, but they are also choosing to spend their time in ways that enhance their long-term earning potential — even if they aren’t receiving a possible paycheck right away.
Navigating economic uncertainty
As investors prepare for retirement and other life goals, many have questions about how to respond to changing economic circumstances, like inflation, recessions, and market shifts. Deer recommends focusing on what you can control to help ease economic anxiety.
Consider a portfolio that’s broadly diversified and targeted for growth across most economic situations. You can build one yourself or work with an advisor to craft a robust set of investments. From there, optimize other levers over which you have control. Use intelligent tax management strategies, adjust asset allocation as your life circumstances change, and avoid reactive responses to market downturns.
Get a knowledgeable professional in your corner
Lifestyle investing requires investors to balance their current and future goals. But maintaining that equilibrium can be tricky, especially when life introduces new changes and challenges that you don’t always expect.
Deer recommends considering partnering with a financial advisor — even when you’re young — to make the most of lifestyle investing.
A financial advisor can help you clarify your goals, construct a portfolio, and weigh financial decisions. As you journey toward retirement, you can potentially maximize the power of your money with a trusted guide. Empower offers a variety of personalized wealth management solutions to help you meet your goals, now and in the future.
“A financial advisor can act in many ways as a coach to help you improve your life,” Deer said. “It’s a consideration for many individuals from all walks of life.”
Lifestyle investing seeks to combine the potential for a happy lifestyle now with a fulfilling retirement down the road. With a fresh perspective and some savvy strategies, you can use your resources to hopefully get the best of both worlds.
Ready to achieve your lifestyle investing goals? Talk with an Empower financial professional today.
This post was created by Insider Studios with Empower.
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