The following pyramid, which is a take off of Maslow’s Hierarchy of Needs, consists of 5 different investment time horizons:
- Less Than 1 Year
- 1-2 Years
- 2-5 Years
- 5-10 Years
- Greater Than 10 Years
Inside of each time horizon, are the recommended asset classes for reaching your goal. For example, if you had a goal that was 4 years away, you would look at the third box from the bottom and see that your recommended asset classes are Savings Accounts, Money Market Funds, CD’s, and Short-Term Bond Funds.
A Few Explanations…
- The assets are listed in order of lowest to highest risk inside each time horizon. For example, a money market fund has less risk than a short-term bond fund and a long-term bond fund has less risk then a stock index fund.
- This chart by no means includes every asset class. There are many I left out (gold, silver, art, etc…). However, one can easily get by with investing in nothing but the these asset classes.
- You can always spread your risk out between different asset classes inside of each time horizon. For example, if you had a goal that was 7 years away, your portfolio can be split between a Money Market Fund and a Short-Term Bond Fund. Although, please don’t forget that you should rebalance once a year.
- This chart is certainly up for debate. I’m a bit on the conservative side. If you had anything you would add or change, let me know in the comments.
A Few More Things…
Hats off to Michael Piper from a great investment blog, Oblivious Investor, who inspired this idea with his asset allocation pyramid.
If any bloggers want to copy this image, go on ahead. A link back to the original is appreciated.
If you’re having trouble viewing the smaller print, press Ctrl + on your keyboard to zoom in.
Last, if this image helped you out in any way, do you mind helping me out by posting this on your favorite social network? Thanks!