Planning personal finance Essay Example | Topics and Well Written Essays - 2000 words

Planning personal finance - Essay Example The traditional lifecycle investing theory that was authored by Modigliani and Miller, holds that every individual will pass through several lifecycle stages, within which then needs for investment are different (Brigham & Houston, 200, pp. 73-4).   The first stage is when younger, exists the ‘accumulation phase’ (between 20’s and 30’s age periods), when the person is capable of investing in greater risk assets as well as follow an aggressive strategy of investment, designed to attain maximum longer term growth.   The second stage of lifecycle, is known as the ‘consolidation phase’, a middle life stage (between 40’s and 50’s age periods), during which the person has stopped working and is depending on the income as well as capital accumulated during the first two stages of life. The third and final stage is the ‘gifting phase’, (between 80’s and 90’s age periods) within which persons who have already accumulated a greater amount of wealth than they require for their own lifetimes, make a decision to of passing on some of their assets to others – maybe as a charitable donation or an inheritance (Brigham & Houston, 2001, pp. 74-5).   According to this theory, individuals go through these phases of life, their investment objectives and needs change significantly and, even though they were capable of holding mostly risk carrying assets in their youthful years (the theory depends mostly on equities, for maximizing long-term growth), the person needs to eradicate most investment peril as they age up.