Life Cycle Investing: The Art of Investing

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Authors
Sherwood, David
Issue Date
1995
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Thesis
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en_US
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Abstract
Is money simply a medium of exchange or does it represent the goal of every individual in the world. It is often thought that this monetary goal will result in freedom, but what does the word freedom actually mean? Freedom to make choices, freedom to pursue our own unique forms of happiness, freedom to choose a lifestyle which creates a piece of mind with ones surroundings. This whole concept of freedom is somewhat of a contradiction, however. Like anything else in our world that has a price, freedom is no exception. Does money buy freedom or does money act as a watchdog over everyday activities? Your actions today will determine your financial security of tomorrow. By disciplining yourself today and determining your investment strategies, regarding the amount of risk you want to take on, you enable yourself to create the lifestyle you desire without giving up as much of your highly coveted freedom. The return on your assets will provide you with a freedom to enjoy life and the material things investments can produce. This freedom, however, comes with an underlying discipline that must be adhered to in order to provide funds for investing. This paper will suggest portfolios to encompass these funds for the different stages of the investors life. There are a number of theories that suggest that returns on investments can by calculated by equations. The truth of the matter, and the premise of my paper, is that investing is not a science, but rather an art. The human factor, that must be injected into the investment returns, is a variable that cannot be quantified. As long as the humans continue to act irrationally and out of their own free will, investment analysis will remain an art and not a scie_nce. The one human factor which is inevitable are the stages of life that an individual experiences over a lifetime. This process, along with the investment decisions that accompany it, is the main focus of this paper. The life cycle analogy is one that provides an investment decision framework for every individual at differing stages in life. The war on the difficult task of investing must be waged on many different fronts. The Efficient Market Theory and the Random Walk Theory will be discussed in order to provide a spectrum of the relationship between the work of analysts and brokers and their returns. lnvestor's tolerance of different forms of risk is also a topic that will be explored in part one. Part One deals with this aspect along with the risk-return relationship. Part two of section one gives information on the different tools of investing. These tools are then utilized to develop the different elements that make up a portfolio. This information is then used to offer different views about the diversification process. With the foundation being laid from the previous two parts of section one, the topic of life cycle investing can be addressed. First, a general theory on life cycle investing is introduced along with reasoning for this type of approach. Next, the different stages of investment are presented accompanied by suggested portfolio allocations. Finally, inflation and investments that help hedge against it are brought into the portfolio mixture. This last section is accompanied by an easy-to-use indicator which helps provide a tool for the investor in determining market timing. Section two describes my internship at Gorian-Thornes Investments. This section outlines the readings that influenced my paper and some of the contents of them. It also provides information on the tasks completed, meetings attended, and how .1 used the computer system during my stay at GTI. Accompanying these duties are exhibits that are used to illustrate the work performed. The last part of section two consists of a professional journal. This journal shows my experiences at GTI and my reactions to them. Section three reflects upon my internship and how previous coursework has aided me during the process. My career outlook is then provided, taking into consideration my experience at Gorian Thornes Investments.
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55 p.
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U.S. copyright laws protect this material. Commercial use or distribution of this material is not permitted without prior written permission of the copyright holder.
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