Master – Accelerating Your Financial Future
The top layer of the personal finance pyramid is focused on accelerating your path to financial freedom through investments in higher risk / higher reward assets. It’s not an area that everyone will get to, nor should you want to, because it involves accepting more risk for the potential of higher returns. Transparently, this isn’t an area I’ve spent much time investing in, but am very interested in exploring when I get there.
Investments in this layer are generally less liquid and/or require much more expertise and ongoing support and typical investments in mid-layer 2. They are often not found on traditional brokerage services and some of these investments are only available to accredited investors. Examples of investments in this layer are: real estate, art, private equity/venture capital, directly investing in a business, music and options.
Side bar: the most common argument I get is that real estate should be included in mid-layer 2 and not this level. The reason I am including it in the master level is that this finance pyramid is geared toward corporate athletes, meaning people who have a 9-5 job and don’t have time to manage as closely as you would need to if you were investing in real estate in mid-layer 2. I also should clarify real estate in this layer is directly investing and managing real estate.
Do your own research and find your personal board of directors
Any investments in this layer should be accompanied by your own research and lots of it. You should also be very careful of who you trust in this layer as many bad actors target this level with fraudulent schemes. It’s impossible to be 100% safe and de-risked, but there are some steps you can take, including creating your own personal board of directors, to help mitigate risk. A personal board of directors should be made up of a few people you trust and that you can run decisions by. You need to trust that they will give you an honest answer and they are qualified to have an opinion. You should also trust your intuition as well as model the “trust, but verify” mantra when evaluating everything.
Track Often and Sweat the small stuff
These investments are much harder to track than brokerage accounts because they often don’t have regular reporting so it’s hard to know current valuation, profit etc. It’s important you set up regular trackers so that you know what’s going on with your asset, even if it’s a manual Excel file. I suggest tracking real estate investments and small businesses monthly, but some assets like art may be better tracked quarterly. The most important part is tracking regularly and reviewing the details to makes sure your investment is performing the way you expect it should.
Expect Big Ups and Downs – If it were easy everyone would do it
You will have misses and you need to plan for it both mentally and financially. If this was easy everyone would be doing it. Risk management, both financially and emotionally, are important to set up and intentionally practice with these investments. Never invest more than you can lose and never get emotionally attached to an investment – both will break you. Stay objective and don’t chase bad money with good money. All of this is much easier to write these things on paper than it is to practice in real life. But it’s critical that you do.
Don’t Invest Money You Can’t Lost
I said it before and I’ll say it again (and again and again) – never investment money that you can’t afford to lose, especially in this layer. Sometimes it’s better to take a minor loss and sell an asset that hang on to it for too long that it’ll ruin you. This level is at the top of the pyramid for a reason – it’s not easy and it’s not for everyone.
