The Evolution of Asset Allocation: Building Financial Resilience Across Life Stages

In the journey toward financial wellbeing, how we allocate our assets isn't static - it evolves as we move through different life stages. Understanding these shifts is key to building lasting financial resilience, and to achieving your goals.

Early Years: Establishing the Foundation

1. Maximising Workplace Pensions

Your workplace pension is often your first exposure to investing, and for good reason:

• Aim to contribute at least enough to receive your full employer match.

• Take advantage of salary sacrifice options, where available, to boost tax efficiency.

• Remember: time is your greatest asset - early contributions have decades to compound.

2. Embracing ISAs for Tax-Efficient Growth

Individual Savings Accounts (ISAs) should form a core part of your early investment strategy:

• Start with an emergency fund in a Cash ISA (3-6 months of essential expenses).

• Once established, direct funds to a Stocks & Shares ISA.

• For early career stages, consider a higher allocation to equities (70-80%).

• If saving for your first home, a Lifetime ISA provides an additional government bonus.

3. Balancing Saving and Investing

One of the most common mistakes in early financial planning is over-saving and under-investing:

• Prioritise investing over holding excess cash once your emergency fund is established.

• Understand that inflation erodes the value of cash over time.

• Start with simple, low-cost index funds before expanding to more complex investments.

4. Managing Debt and Spending Habits

Building good financial habits early creates a foundation for lifelong financial wellbeing:

• Prioritise clearing high-interest debt before aggressively investing.

• Develop a spending plan that allows for both present enjoyment and future security.

• Automate regular investments to remove emotion from the process.

Mid-Career: Optimising and Expanding

As your career progresses and financial responsibilities grow, your asset allocation should adapt:

1. Diversifying Investment Vehicles

• Explore beyond pensions and ISAs into other tax-efficient vehicles.

• Consider whether a SIPP offers advantages based on your tax situation.

• Begin incorporating a wider range of asset classes (bonds, property, alternatives).

• Reduce equity allocation slightly (perhaps to 60-70%) to reflect a shorter time horizon.

2. Optimising Tax Efficiency

• Coordinate between pensions, ISAs, and taxable accounts to maximise tax efficiency.

• Consider asset location strategies (holding income-generating investments in tax-sheltered accounts).

• Begin planning for potential inheritance tax implications.

Later Years: Focusing on Income and Preservation

As retirement approaches, significant shifts in asset allocation become necessary:

1. Transitioning from Accumulation to Decumulation

• Gradually shift from growth-focused investments toward income-producing assets.

• Consider creating a "retirement income bridge" before pension access.

• Build a more substantial cash buffer to reduce the need to sell investments during market downturns.

2. Liquidity and Tax Planning

• Ensure sufficient liquidity for anticipated major expenses.

• Develop a strategic withdrawal plan that minimises tax burden.

• Consider using tax allowances across different account types.

• Plan for potential care costs and inheritance considerations.

3. Legacy and Estate Planning

• Consider how your asset allocation supports your legacy goals.

• Explore whether certain investments offer inheritance tax advantages.

• Ensure proper documentation is in place for smooth transition of assets.

Introducing the InvestCatapult Glider: Dynamic Asset Allocation

As we've explored, your asset allocation needs to evolve throughout your life journey. But tracking these changes, and knowing exactly when and how to adjust your investments, can be challenging.

That's why we’re developing our InvestCatapult Glider to help you manage this with ease.

The InvestCatapult Glider is our innovative solution designed to ensure your asset allocation continuously adapts to your changing life circumstances and financial goals. Unlike traditional "set and forget" approaches, the Glider:

• Responds intelligently when you reset your financial goals or experience major life events.

• Provides personalised recommendations for portfolio adjustments based on your evolving needs.

• Helps you visualise how current decisions impact your future financial wellbeing.

Think of the Glider as your financial co-pilot, constantly scanning the horizon for changes in your personal circumstances, market conditions, and financial goals - then smoothly adjusting your investment trajectory to keep you on course.

Whether you're experiencing a career change, starting a family, preparing for retirement or facing unexpected financial challenges, the InvestCatapult Glider ensures your asset allocation remains optimally aligned with your current reality, while still supporting your long-term objectives.

The Constant Elements: Financial Wellbeing Principles

Throughout all life stages, certain principles remain essential:

1. Maintaining balance between present and future needs.

2. Regular reviews and adjustments to your strategy.

3. Focusing on the four pillars of financial wellbeing:

• Control over day-to-day finances.

• Capacity to absorb financial shocks.

• Financial freedom to make choices.

• Staying on track to meet financial goals.

Conclusion

Your asset allocation journey is uniquely yours, influenced by your goals, risk tolerance and life circumstances. The key is recognising that what works in your 20s may not be appropriate in your 50s, and being willing to evolve your approach accordingly.

Building financial resilience isn't just about maximising returns - it's about creating a personalised strategy that provides security, flexibility and ultimately the freedom to live life on your own terms.

Follow our build in public journey for regular updates and insights into how we're developing InvestCatapult.

This blog post is part of InvestCatapult's commitment to improving financial wellbeing through accessible education and personalised guidance. For more information on how we can help you build financial resilience, visit investcatapult.com.