What would a food pyramid look like for your investments?

We love this comparison of the familiar U.S. Department of Agriculture Food Pyramid – and different diet trends – to various approaches to investing over the years.

Like our diets, investing recommendations have evolved. Of particular interest is Meb Faber’s take on what the current investment pyramid should look like, with “Don’t do dumb things” as its base.

Investment Pyramid1

Source: Cambria Investments

He’s right. The typical investor routinely exhibits bad behavior by selling low and buying high, trying to time the market and chasing the latest hot stock. The result is usually underperformance compared to, say, a vanilla mutual fund.

The other layers of the investment pyramid include:

  • Diversify globally across stocks, bonds and real assets
  • Have a rules-based plan and rebalance accordingly
  • Implement with low-cost funds and a low-cost brokerage
  • Implement tax-aware investing
  • Tilt away from market-cap weighting

Our investment process is generally in line with these recommendations.

Faber also creates a financial planning pyramid with these sensible priorities:

  • Fund an emergency account and pay down high-interest debt
  • Track expenses, set a budget and save
  • Max out retirement and tax-exempt investment accounts
  • Buy a home
  • Address your investments

Note that investments are at the top of the pyramid, not the bottom. That’s because a financial plan is the way to create a solid foundation for all of your financial and investing decisions.

Financial Planning Pyramid

Source: Cambria Investments

 

Important Disclosures
*Past performance is not an indicator of future results. This material is not financial advice or an offer to sell any product. The statements contained herein are solely based upon the opinions of Elevage Partners, LLC (“Elevage”). Elevage is a registered investment adviser. More information about the firm can be found in its Form ADV Part 2, which may be requested by calling (877) 922-8243 or visiting http://www.adviserinfo.sec.gov. The information contained herein is derived from sources we believe to be reliable, but which we have not independently verified. Elevage assumes no responsibility for errors, inaccuracies or omissions in this information. Elevage reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. The information provided in this report should not be considered a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive. It should not be assumed that any of the securities transactions, holdings or sectors discussed were, or will prove to be profitable, or that the investment recommendations or decisions Elevage makes in the future will be profitable or will equal the investment performance of the securities discussed herein.
ELV-17-02

Leave a Comment