Step 3 - Deciding Your Mix

by: Daniel P. Matthews


Deciding where you put your money and in what amounts is important to achieving your financial independence. From Step 2 you read about discovering your risk tolerence. Now, you can use that knowledge to piece together a financial independence plan that is comfortable to you.

Lots of opinions abound describing how best to allocate your money amongst the options. When you read material from "Wall Streeters" you will notice that they would have you put all your money into investments in which they are interested. In their eyes your home doesn't count as an investment. It does. Real estate is important to your financial independence. So, take care when you read the "marketing" materials from brokerage firms.

There are three fundamental profiles to be considered. They are:

Conservative: Characterized by an investment period of less than ten years before you begin using the plan to generate income. This profile is primarily for individuals desiring to generate income and preserve their capital. Generally, if you decide to base your plan on this category, your principle concern is not increasing your wealth.

Moderate: Characterized by an investment period of between ten and fifteen years before you begin using the plan to generate income. This structure is for individuals desiring reasonable growth of personal wealth. The structure prefers stability over risk. If you center your plan on this category, you aren't concerned with generating income. But, you are bothered by frequent volatility and seek consistent performance in adding to your wealth.

Aggressive: Characterized by an investment period of more than fifteen years before you begin using the plan to generate income. This profile is for individuals desiring aggressive growth of personal wealth. This grouping persues high growth and accepts higher levels of risk. When you decide to use this category, you concentrate on generating rapid growth of your wealth. But, you are willing to endure frequent volatility.


Take a look at each of the three structures:
The Conservative Mix Graph
The Moderate Mix Graph
The Aggressive Mix Graph


You are the master of your own destiny. You must make the decision whether you want to:

  1. generate income, or
  2. pursue moderate growth, or
  3. fuel a potentially higher rate of return by assuming more risk.

And you must consider:

  1. your timeline, and
  2. your cash on hand for emergencies, and
  3. any other circumstances specific to you and or your family!

Go to step four now.