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Investments: An Introduction
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There is a body of literature labelled life-cycle theory of consumption. Its genesis was in the 1950s and its champions were Franco Modigliani and his student Richard Brumberg, as expounded in papers published in 1954 and 1980. In essence the theory postulates that individuals make intelligent choices on the volume of their spending at each phase of their lives, and this is constrained only by the financial resources available over their lifetime. They tailor their consumption to their needs over the phases, independently of their income, and in so doing build up and deplete a portfolio of assets during their lives enabling them to live the last part of their lives (“retirement”) sans recurring income from labour. This simple theory leads to important predictions about the broader economy.1
The reality is that few individuals are able to reach their financial FSG, and the majority are dependent in the last phase of their lives on sources of income unrelated to themselves (usually their children / friends / government social security). We define “reaching your FSG” as building a portfolio of assets during the labour (income-earning) phases to a size that will sustain the individual and his/her dependent/s during the non-labour phase (“retirement”). Some individuals wish to reach their FSG early at, say, 40 years of age, while others wish to pursue an occupation until they are no longer able to.2
Prof. Dr AP Faure - Personal Name
1st Edtion
978-87-403-0604-0
NONE
Investments: An Introduction
Management
English
2013
1-154
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