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Why We Can’t Use Lifecycle Investing In Practice

I’m very intrigued by the idea of Lifecycle Investing, an investing theory that says that to reduce overall risk, young people should use leverage to invest 200% in stocks so that later in the life, when they have more money in their investment accounts, they can limit their exposure to stocks.

How I’m Using Lifecycle Investing

As soon as I read the book, I knew that this was for me. I am a huge proponent of investing in index funds, but this takes diversification to a whole new level. I looked into the options of how to use leverage to invest over 100% in stocks. While there are some funds that do this for you, they require large minimum balances and over a long period of time, they don’t track their underlying indices well and end up lagging in performance. I wasn’t interested in giving up a lot in returns for the ability to double the performance (good or bad) of the S&P 500 index, so I decided to buy a few options of SPY, which gives me exposure to twice . For more details of how these options work and how to get 200% exposure, seeking alpha has a good explanation.

Why Lifecycle Investing Is Hard To Employ

I’m not investing all of my money using this strategy. It’s not that I don’t believe it in or I’m scared of losing too much if the market goes down. It’s that most of my investments are in my individual 401(k) with Vanguard, which doesn’t allow me unlimited investment options. In fact, I’m limited just to Vanguard funds, all of which are tracking the S&P 500 as the moment.

If you have a 401(k), your investment options are likely limited and you aren’t able to use it as a brokerage account. It is possible to use the Lifecycle Investing strategy using a traditional brokerage account or using an IRA (or better yet, a Roth IRA, where the returns are tax free!).

Eventually I’ll Be Able To Invest More Using Lifecycle Investing

While I would love to have more invested in stocks, I am limited for now. Maybe eventually I’ll be able to roll over my 401(k) into an IRA and then invest in options. So while 200% sounds amazing, I am only at about 115% invested in stocks. Now is the time I want to take advantage of it, but the benefits of being able to invest in a tax-advantage 401(k) (and having most of that money invested in the Roth version) is hard to pass up!


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