You’ve been putting in the work, using the 80:20 ratio to establish an emergency account equal to about six months of living expenses. Now you can start allocating your money in ways that can make it work for you. Typically, this is done by investing.

If you and your adviser decide that investing is the right next step for you to take with your financial plan, it’s important to keep in mind that inherent in any investment strategy is risk. With how far you’ve come, risking any setback can be a significant point of anxiety, but there are strategies that can mitigate substantial risk, keep you on your current saving track, and still grow your money.

The word that comes to mind is “sturdy.” Instability is, at worst synonymous with risk, and at best, overexposes your investments to risk. So, what we’re doing is building a sturdy financial profile. One of the strongest structures mankind has ever produced is the pyramid, and that’s why I’ve chosen to model my ideal investment plan after it.

The Foundation

We want to seed our foundation with only the safest holdings. This starts with your savings and the interest it earns. While savings accounts aren’t wholly insulated from risk, only economic disasters like 2008 pose a significant threat. Other, income-oriented investments can make sense here too, but for the most part, we want to have almost zero risk in our foundation. This is where most of our money will live, even with the most aggressive strategies.

Moderate Risk

As we climb the pyramid, we’re investing less money, and incurring more risk, but also positioning our money for greater potential growth. At the moderate risk level, we might consider investing in well-established securities that have a long history of consistent returns. Certain mutual funds and ETFs can have a place here too, but consult with your adviser about which make sense at this level.

High Risk

Same principles apply. At this level, we’re hopeful for significant returns on our investment, but prepared to suffer some losses. With still less of our money invested at this level, we can be more comfortable with assuming such a level of risk. Here is where we start to consider growth-oriented investments, but nothing that should be too far removed from our comfort zone. If well-managed, this level of the pyramid could eventually prove to be reliably profitable. But, remember, with any investment, irrespective of the level, we’re speaking in probabilistic terms; there are no certainties.

Highest Risk

It’s possible that you and your adviser don’t include this on your investment pyramid at all. While there’s enormous potential in the kinds of exotic investments that are typically explored at this level, there is also enormous volatility. For most, only a sliver of their overall portfolio will be invested at this level, and to make it truly profitable, you’ll need substantial resources.

I’m a believer in a balanced investment portfolio. By using my pyramid approach, only certain portions of your money are vulnerable, but you’re still pursuing growth in a way that’s impactful, yet not reckless.

It’s unlikely that our money will immediately repay the work we put in to earn it in the first place, but a secure, long-looking investment strategy is an important stepping stone to financial independence, no matter your starting point. Where are you starting from and what do you need to do to position yourself to start investing? My Retirement Quiz can help provide answers.

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