A Different Approach To Financial Investing: The Investment Pyramid

Diagram Source: You, Inc. Investment Hierarchy from Financial Fitness: The Offense, Defense, and Playing Field of Personal Finance by LIFE Leadership. Used by permission.

Diagram Source: You, Inc. Investment Hierarchy from Financial Fitness: The Offense, Defense, and Playing Field of Personal Finance by LIFE Leadership. Used by permission.

[Excerpts from this post are taken from Larry’s book, Beyond Peace In Christian Finances: Accelerating Past Average With Your Money Plan.]

In the book Financial Fitness: The Offense, Defense, and Playing Field of Personal Finance by LIFE Leadership (Brady and Woodward), the authors include a recommended investment strategy they call the “investment pyramid.” The plan starts at the bottom of the pyramid with what the authors view as the safest form of investing. Then, they encourage readers to work their way to the top of the pyramid to what they view as riskier forms of investing. There is validity to the investment pyramid concept, and it is definitely a unique way of looking at investing. This step-by-step investing approach is not taught in Financial Peace University. After a fully funded emergency fund is established in Baby Step 3, Dave jumps into Baby Step 4—Invest 15 percent—and then talks about 401(k)s and IRAs. If you charted Dave’s action on the investment pyramid, he moves from a Level Two emergency fund directly to Level Six stock market investing. He completely bypasses Levels Three, Four, and Five. Dave would appear to have a lot more risk tolerance than Brady and Woodward.

The Seven Levels of the Investment Pyramid

Level One, the bottom of the pyramid and the safest part of this investment strategy, is to invest in one’s self. What Brady and Woodward are referring to in this level is learning to think wealthy thoughts. Investing in education and training will take a person farther into their careers as they believe they can go. This investment into personal growth may even take a person into another career or area of expertise. I’m not talking about spending a bunch of money to go back to college and finish another degree, either; I’m talking about educational investment through reading relevant books, magazines, and blogs. Or, it can be as simple as listening to audio books, training programs, and podcasts, or attending conferences. Allow other leaders in the industry to be mentors. There are many ways to invest in one’s self that will cost more in time than in money. Investing time and money at the base of the financial pyramid will lay a firm foundation before advancing into other complex forms of financial investing.

Steve Siebold is a former professional athlete and national coach. He has spent the past twenty-six years studying the thought processes, habits, and philosophies of world-class performers. Steve has interviewed more than 1,200 of the world’s wealthiest people. According to Siebold’s research, “Self-made millionaires get rich because they’re willing to bet on themselves and project their dreams, goals, and ideas into an unknown future.”

Level Two, the next level of the pyramid in which to invest, is an emergency fund. This level is equal to what Dave teaches in Baby Steps 1 and 3. Baby Step 1 is get $1,000 in savings as fast as possible and then get out of debt as fast as possible. After completing the debt snowball in Baby Step 2, the next goal is to establish a fully funded emergency fund of three to six months of expense money in Baby Step 3. Depending on income, expenses, and needs, this could equal out to a range of approximately $10,000 to $30,000.

Level Three advances to investing in survival preparation. An important point to consider when it comes to this level is that survival preparation is a form of savings. It is translating money into purchasing important goods such as food, water, generators, fuel, guns, and ammo. This is to protect the family during a worst-case scenario and an important part of a sound investment strategy.

Level Four focuses on investing in long-term and targeted savings. Brady and Woodward recommend that regularly saving 10 percent of total income into typical savings accounts. They favor safer investment strategies than Dave does. At this level, they also recommend people have targeted savings accounts (sinking funds) to save for car replacement, new furniture, and so on.

Levels One through Four are conservative levels of investing in one’s self with little risk. They are basic levels of savings. Brady and Woodward contend that if people focused only on these four levels of the investment pyramid, people would do well, financially. The authors reserve the final three levels for what they consider more speculative investing.

In Level Five, people should begin investing money into secure investments such as CDs, money market accounts, and municipal bonds. Many financial experts (including Dave) undervalue these investments because they pay lower interest, but they also carry lower risk.

Brady and Woodward consider Level Six and Seven to be highly speculative investing. In fact, their recommendation is to avoid the top of the pyramid altogether, unless the investor is knowledgeable in the areas of real estate, the stock market, ventures, and start-ups. Deciding to invest in Level Six and Seven involves a willingness to put money in these areas that wouldn’t be missed if it were lost completely.

[The information shared in this post can be found Larry’s book in the Amazon Kindle store: Beyond Peace In Christian Finances: Accelerating Past Average With Your Money Plan.]

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