Dollars & Sense
Build Your Financial Portfolio with an Investment Pyramid
By Daniel Roccato
Last month, Daniel wrote about the basics of investing. This month, he’ll discuss the concept of the investment pyramid to help you construct a bright financial future.
Picture the top of an investment pyramid (we will get to the middle section in a moment). This is the smallest section and perhaps the most delicate. We are going to use this section to hold the actual investments you will own (for example, a specific mutual fund, a CD or an individual stock or a bond).
Most people jump right to the top of the pyramid without carefully constructing the base. Jumping right to the top box is like skipping dinner and going right to desert. It may taste good right now, but it will hurt your health later. Don’t expect the financial services industry to help you resist going right to the top of the pyramid. In order to make money, they must sell you a particular investment. So most of their attention is spent on specific investments rather than helping you with an overall investment plan. Don’t do business with any salesperson or firm that spends more time talking about individual investments than helping you determine an ideal Asset Allocation plan.
The middle section of our pyramid connects the top and the bottom. This is the section where we will put the actual companies or advisors that you will trust with your investments. For example, you may want to do business with a brokerage firm, a bank or a local independent investment company. This is an important part of your investment process since it links your strategy (asset allocation) with the actual tools you will use (specific investments).
Selecting the right individual or company to trust with your money is no easy task. Sadly, there are far too many examples of companies and advisors that have put their own interests ahead of their clients. Americans are the savviest shoppers on the planet, so do your homework. Personal referrals from someone you trust can be the best source of information. Also, make sure you check references. Finally, you need to feel comfortable with the person or company. Your advisor should listen carefully to your unique requirements and provide you with carefully constructed plans that can help you achieve your goals. You also want to make sure that you fully understand what fees or commissions will apply and how you will be charged.
Understanding and implementing this simple investment pyramid can be a great way for anyone to begin a successful investment program. There is no better time than right now to get started!
Investment Process Pyramid
Top
Individual Investments
Money Market Account, CDs
Bonds
Stocks
Mutual Funds
Middle
Investment Providers
Bank
Independent Advisor
Brokerage Firm
Base
Asset Allocation(Proportion of Cash, Stocks and Bonds)
Your age
Your time horizon
View toward risk
Daniel Roccato, MBA, is a Managing Partner with Lane Bridgers Associates (LBA) Wealth Management in Moorestown, NJ. LBA is an independent financial planning and investment management firm serving families and businesses throughout the Delaware Valley. In addition, Daniel is an Assistant Professor of Business at Mercer County College. He can be reached at 856-638-1855 or dan@lanebridgers.com for a no-fee initial consultation.
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