The Hierarchy of Personal Investments
Just like we have Maslow’s Hierarchy when it comes to human needs and desires, I feel personal investments also follow a hierarchy based on the total amount of money available for investments.
When a person’s income starts exceeding expenses, that person may start looking for investing this surplus. At this stage, this person tends to be very cautious and invests with a motive of reducing risk on the capital invested.
Suggested Investments – Bonds, Fixed Deposits
This is when the person’s surplus keeps growing and the person now starts thinking about being more aggressive with investments. A shift is seen in the investment approach of the person and investments with higher risk are typically looked at in this phase.
Suggested Investments – Mutual Funds, Real Estate
Once the person starts saving more money, the risk appetite of the person starts going up at an increasing pace. The demand for greater returns drives the investing approach in this stage.
Suggested Investments – Stocks, Currencies, ETFs, REITs, Commodities, Indices, Bitcoin
At this stage, the person starts looking at not only passive investing as above, but may actually start looking at active investments as well. The aim is to maximize returns using money and active participation in the asset operations and growth.
Suggested Investments – Crowd-Funding, Private Equity