6 tiers of the Pyramid to Investment

If you read page 261 of “Rich Dad’s Guide To Investing”, Robert Kiyosaki has this to say:

“One of my greatest teachers was Dr. Buckminster Fuller.  Dr. Fuller set out years ago to find what he called “the building blocks of the universe”. In his search, he found out that squares and cubes do not exist in nature.

He would say, “Tetrahedrons are the basic building blocks of nature”.  When I look at the great pyramids of Egypt, I understand a little more about what Dr. Fuller was talking about.  While tall skyscrapers come and go, those pyramids have withstood the test of tens of centuries.  While a skyscraper can come down with a few well-placed sticks of dynamite, the pyramids would not budge with the same blast.Pyramid

In the book, “The Millionaires’ Club:How To Start & Run Your Investment Club And Make Your Money Grow” by Carolyn M. Brown, the pyramid was depicted as a means of balancing portfolio. The author posits that, “One technique used to help spread the risk is the pyramid model. The pyramid is built on the idea that an investment portfolio should have the right balance of safe, income and growth investment.  The higher up the pyramid, the more risky it becomes”.

In that book, he identifies 6 basic tiers of the pyramid:

1st Tier: (Base): This is the foundation of your portfolio which is designed for capital preservation.  Investments here are lowest-risk, lowest-return types such as Certificates of Deposit (CDs), Treasury Securities (bills, notes, and bonds), US Savings bonds, and FDIC-insured bank accounts (checking and savings). Here cash is readily available to meet urgent needs.

2nd Tier: Low risk, low-return investments include money market accounts, bonds, mutual funds, high grade corporate bonds, and high quality municipal bonds.

3rd Tier: Relatively, low-risk investments. This includes high quality convertible bonds. These pay fixed rate of interest, but can be swapped for shares of common stock others include balanced mutual funds (stocks bonds) and preferred stocks.

4th Tier: Intermediate-risk. These include quality growth stocks or mutual funds and large cap stocks (blue chip common stock).

5th Tier: High/Medium Risk types of investments.  They include midcap mutual funds or stocks (companies of $1-$5 Billion market capitalization), real estate investment properties, puts and call, speculative common stocks and bonds (eg, junk bonds), collectibles (autographed baseball cards, rare coins, historical mementoes).

6th  Tier: Experienced Investors Level.  Here speculation is a basic and risk is high.  These include futures/commodities, options, gold, silver and precious metals.