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.]

Whatever You Do, Don’t Manage Your Money Like Many Professional Athletes

Photo by yoyo du 33

Photo by yoyo du 33

From Riches To Rags

Broke. Tapped Out.

Would it surprise you to know that some of the greatest athletes of the last 40+ years are now poorer than dirt?

I’m talking athletes like Mike Tyson, Johnny Unitas, Latrell Sprewell, Dorothy Hamill, Scottie Pippen, Evander Holyfield, and Michael Vick.

All of these famous, well accomplished athletes have made millions upon millions of dollars in their careers, and what do they have to show for it? Not a whole heck of a lot.

On a percentage basis, professional athletes are the WORST money managers.

I recently read the following statistics when it comes to professional athletes and money: Around 78% of NFL players and 60% of NBA players go broke within five years of leaving the field, according to a Sports Illustrated estimate made in 2009 (Source: UK Guardian).

Just look at the life of professional boxer Mike Tyson.

At the height of his career, here’s what Mike was able to accomplish. He was the undisputed heavyweight boxing champion of the world. He was the youngest man to ever win the WBC, WBA and IBF Heavyweight Titles. Finally, he was the first man to win 12 of his first 19 fights in the first round by KO. His estimated lifetime earnings range from $300-400 million.

Yes, you read that correctly, $300-400 million!

But then, the wheels came off and his life fell apart. Mike Tyson’s story reads like the Great American Tragedy: domestic violence, bad press interviews, the death of his father-figure trainer, a nasty divorce, a federal rape charge, felony possession of drugs, a DUI, and a bloody ear incident.

And, at one point after this whole mess, Tyson was worth less than $700. Now, how in the world do you go from $300 million all the way down to less than $700?

3 Ways To Go Broke Quickly As A Professional Athlete

When you investigate the lives of professional athletes who have gone from millions to bankruptcy, you can definitely see a pattern that led them down a bad financial path. If I had to pick three areas that led these athletes in the wrong direction, then here are the three I would list:

  1. Fast Living. Sex, drugs, and rock-n-roll. If you want to make millions of dollars and lose it all, then simply live fast and loose. In this way, you can lose your career faster, go to court, land your butt in jail, get divorced, and then pay millions in alimony and child support. Yeah, that’s pretty easy to do.
  2. Toy Gathering. Expensive luxury cars. Multi-million dollar homes. Massive yachts. These are the high dollar items that get many athletes in trouble. But, this is what happens though when young athletes go from financially poor to massively wealthy as soon as they sign on the dotted line of an incredible contract deal. They don’t know how to handle that kind of wealth. So, they run out and go on spending sprees. Plus, they end up spending more than they actually make on stuff that will sharply go down in value within a few short years.
  3. High Risk Investments. Getting investment advice from those people closest to you (family and friends) is always a bad idea. But, when you look at these riches-to-rags athletes, this is definitely what you observe – rich people taking investment advice from other people around them who are just plain money hungry. Bad restaurant deals are pretty typical with athletes. The restaurant business is a brutal industry and not a wise place to invest large sums of money.

Questions: Ok, so you’re not a wealthy athlete, but are you making some of the same mistakes as these athletes? Are you living a questionable lifestyle that will damage your finances at some point in the future? Are you buying a bunch of stuff that is dropping like a rock in value? Are you making any risky investments that will come back to bite you in a few years? What decisions do you need to make, today, in order to put yourself in a better financial position?






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