12-22-2013, 05:11 PM
I think there are three phases that an investor experiences that will affect the investing style.
The accumulation phase is when the investor contributes money on a more or less regular basis to the portfolio. Dividend growth is more important than income, since the higher growth rate will translate into higher capital and dividend amounts in the future. This phase can tolerate more risk, since the regular contributions can be used to recover from problems. Small cap stocks are more appropriate for this phase.
The reinvestment phase occurs at times in the investor's life when regular contributions are not possible, but income distribution is not required. This phase can occur during a temporary job loss, paying for college tuition, part-time employment, etc. For this phase, growth is still important, but there is much less tolerance of risk. Small cap stocks would not be appropriate for this phase.
The distribution phase is living off your investments. For this phase, there is also a low tolerance for risk and income becomes more important than growth. You want the growth rate to compensate for inflation, but greater income allows less capital to be expended.
The accumulation phase is when the investor contributes money on a more or less regular basis to the portfolio. Dividend growth is more important than income, since the higher growth rate will translate into higher capital and dividend amounts in the future. This phase can tolerate more risk, since the regular contributions can be used to recover from problems. Small cap stocks are more appropriate for this phase.
The reinvestment phase occurs at times in the investor's life when regular contributions are not possible, but income distribution is not required. This phase can occur during a temporary job loss, paying for college tuition, part-time employment, etc. For this phase, growth is still important, but there is much less tolerance of risk. Small cap stocks would not be appropriate for this phase.
The distribution phase is living off your investments. For this phase, there is also a low tolerance for risk and income becomes more important than growth. You want the growth rate to compensate for inflation, but greater income allows less capital to be expended.