Lifecycle Investing

Lifecycle investing is a portfolio framework that determines how an investor's asset allocation should evolve from early career through retirement. The central insight is that human capital — the present value of future labor income — is a large, bond-like asset that declines with age, and the financial portfolio should adjust accordingly.

The lifecycle glide path:

• Young investors (20s-30s): human capital is large and bond-like, so the financial portfolio should be equity-heavy (80-100% stocks). The total portfolio (human + financial) is already diversified.
• Mid-career (40s-50s): human capital is shrinking. The financial portfolio gradually adds bonds to maintain a stable overall risk profile.
• Near retirement (60s): human capital is nearly depleted. The financial portfolio shifts toward bonds and short-duration assets to reduce sequence-of-returns risk.

This framework provides the theoretical foundation for target-date funds, which automatically reduce equity exposure as the target retirement year approaches. The typical target-date glide path moves from ~90% equities at age 25 to ~40% equities at age 65.

Lifecycle investing differs from the static 60/40 portfolio by recognizing that a fixed allocation ignores the investor's most important asset. A 30-year-old in a 60/40 portfolio is actually underweight equities relative to their total wealth, while a 65-year-old in the same portfolio may be overweight.

The framework assumes that risk aversion and the equity premium are relatively stable — if these change significantly, the optimal glide path shifts. The portfolio lifecycle calculator applies this framework to generate personalized allocation recommendations.