How To Design Your Investment Portfolio

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How you structure your investment portfolio is one of the most important aspects of creating for financial freedom AND ensuring the stability and sustainability of your freedom.

How you design a well asset allocated and diversified portfolio is 

THE INVESTMENT PYRAMID!

The investment pyramid is the juiciest, sexy thing. 

Once you understand this, it will transform your life, well your investing life at the very least.

The investment pyramid gives you a framework to structure your asset portfolio, understanding what you should be investing in, what percentage of your investments should be in each asset class and within an asset class, how to balance volatility between speculative investments and solid “boring” investments.  

That’s what this video is all about. Watch it now.

When people chat with me about their money stuff, inevitably this question comes up…

“Ann should I invest in this? Should I invest in that?” And I go, “I haven’t a clue because I don’t know what your overall Investment Pyramid looks like. I don’t know what other assets you’ve got or what else is going on in your money world.”

Assets give us freedom because assets grow in value and earn income without us having to be involved. Having assets working for us, is the name of the game. 

And we need a spread of assets, a mix of different asset classes and diversification in our assets to provide stability and sustainability. 

It’s the old adage – “Don’t have all your eggs in one basket.”

When it comes to your wealth, you definitely don’t want all your eggs in one basket and you also don’t only want eggs. 

So how do you “design” your asset portfolio to give you the asset allocation and diversification you need?

That’s where the Investment Pyramid comes in, it’s an investment template. 

THE INVESTMENT PYRAMID EXPLAINED

The civil engineer in me is a supergeek and knows that a pyramid is the most stable structure in the world. A four or three sided triangular structure is the most solid, stable structure there is. Almost indestructible and you certainly can’t push it over. A nice, wide base with a small tip gives it this great solidity. 

You want this structure in your assets portfolio. You want this great, solid, stable asset portfolio that you can rely on because it’s your financial wellbeing it’s supporting. 

The aim of your investing is to create a four-sided asset pyramid. Each side of the pyramid represents one of the four different asset classes. 

The first asset class is Liquid Assets. These are your stocks and shares also called equity. Equity just means shares in businesses. It can also be referred to as intangible assets or even paper assets. Investments that fall into this asset category is your index tracker portfolio, shares in companies, unit trusts or mutual funds and also private equity shares. 

The second asset class is Fixed Assets. Also called tangible assets because these are things you can touch. The most common assets we’ll have in this part of our pyramid are investment properties. 

You want at least two different types of assets (also called asset classes) in your portfolio because each asset class tends to fluctuate in different cycles. 

This gives you asset allocation and diversity across asset groups. 

The third asset class is Low Input Businesses. I hate the word Passive Income Businesses because why would we want to passive in our life and anyway, there is no such thing. 

A Low Input Business is where you no longer exchange the value of your time for money. The Business uses systems, processes, equipment, and other people’s time to do the value exchange. This could be your online business where you sell knowledge and use automated systems to deliver the content and hence the value. 

It could be a royalty businesses through photography, music or writing. 

The point is, you do something once but it then gets sold over and over and over. Your systems and processes keep delivering the value and keep the money flowing in. 

Also included in this asset class are residual income businesses like multi level marketing and referral programmes and also brick-n-mortar businesses where machines and automation delivers the value such as vending machines, automated car wash, automated laundry,  etc.

The fourth asset class is YOU! You are the most important asset you have hence you are part of this asset pyramid. 

Where most people start off their wealth creation life, they are the only asset they have to start off with. To exchange value and earn income. Exchanging your value into the world is fabulous, and it’s super important we don’t make active earning a bad thing. The problem comes if you only have you and never get these other asset classes working for you. 

When you recognise you as an asset you make sure you keep investing in you. You keep expanding your knowledge and skills not only to earn more, but also to know how to create these other assets and look after them so they can support you and earn for you.

Your assets and your wealth can only grow in direct proportion to your ability to manage your money. Your ability to earn it, to keep some of it, to invest it, to grow it, and manage it in a way that is sustainable and healthy. 

You must ensure that you keep expanding you – your knowledge, your skills, your self worth, your education, your beliefs – all the aspects of you as an asset. 

You could have a three-sided pyramid but you absolutely cannot have just you or you and one other asset class. 

I see so entrepreneurs creating their own business, get caught into cycles, say oh but Anna, reinvesting in my business, I’m growing my business. Then well, that is super dangerous because you are in your business and so you’ve got huge entanglements there but also you only invest in one dimension. 

If you only have you earning an income through a job or your own business, you are putting yourself and your financial well-being at serious risk.

If that’s all you have you don’t even have all your eggs in one basket, hell you don’t even have the basket. You are wandering around with one egg and hoping that will feed you for life – that is super dangerous.

Your aim is to have at least two asset classes and yourself, growing and expanding. 

But it doesn’t end there.

Let’s look at the vertical axis of your Investment Pyramid.

The Investment Pyramid is designed with a nice, broad fat-assed base. 

The base of each asset class within your pyramid forms your solid, reliable asset base.  This is where you want your boring, consistent, reliable, juicy, safe investments sitting. 

In your Equity /  liquid / intangible asset class this base is made up of your:

  • cash safety net, 
  • loan instruments (bonds and fixed deposits), 
  • index tracker funds. 

Your regular, automated investing and saving gets put onto autopilot and fills up the base of your pyramid and forms the bulk of your wealth.

If you haven’t yet set up your automated index tracker investing, watch this free training to get going >>> Free Savvy Investor Webinar

In your investment property asset class, the base of your pyramid will include:

  • REITS ( Real Estate Investment Trusts) and Property ETF’s,
  • property crowdfunding investments through platforms like Wealth Migrate  and 
  • positive cash flowing directly owned buy to let properties . 

The vertical axis of the pyramid is about volatility. As you go up, so does the volatility of your investment. 

I don’t like using the word “risk”, because when people hear the word “higher risk investment” they think investing is scary.

So let’s use the word volatile instead. 

If you choose to invest in very volatile, speculative investments, like crypto’s , pot stocks and venture capital / start ups, these go right at the top of the pyramid, and form a tiny percentage of your investment capital. You also only consider them once you have your solid base in place. 

Sadly, many people rush to these sort of investments, looking for the “ONE THING” that will solve their money problems and make the rich. This lottery mentality of chasing the one big thing, is a guaranteed way to stay poor.

Top of the pyramid property investing includes strategies like land use change. 

You must cap your speculative investing to under 10% of the value of your wealth generating net worth.

In the comments below I’d love to know:

  • Which sides of the Investment Pyramid do you already have in place?
  • Are you going for a four or a three sided pyramid? 
  • If you currently only have you working for you, which side of your pyramid are you going to get going fast?

So until next time, keep expanding you and keep getting assets working for you so you can focus on living your amazing, juicy life.

 

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