In this section I aim to break down the temple components into more detail that one can start working with constructively. Keep in mind as you read along that the temple components is really analogous to building an investment strategy.
First, let’s look at the temple metaphor from a different angle that I hope will reinforce the key themes that are crucial to long term success: I call them the '4 Ps' of investing. The 4 Ps are Planning, Products, Patience & Performance. And they map perfectly into our temple. Below I describe each component and map the relevant P into a much nicer picture than found in the preceding webpage (J).
One should note that, just like in building a real temple (investment strategy), one starts from the bottom up. You first build the foundation then the columns then the roof. And if the foundation isn’t well designed or well built, the entire structure above may topple over. Likewise, if the columns are not built to spec, the roof may collapse. When building your financial plan you should always start from the bottom and build your way up.
Before you build anything, be it a house, temple or an investment portfolio, you start with a foundation. In the context of an investment temple, I divide the foundation into 3 parts – all of which are related to the 1st P, Planning: information, investment strategy & portfolio allocation.
click the above picture for more detail on the foundation
Once the foundations are built you are now ready to start working on your columns. The corresponding P of the 4 Ps represented by the columns is Products. These are the actual investments you will make as you seek to grow your long-term wealth.
One of the ‘metaphoric bonuses’ of using a temple as the model for our long-term investment planning is that it requires several columns, all of which are needed to ensure the temple does not collapse. In other words, the intelligent investor needs some level of diversification or the structure will not be stable.
The great thing about modern financial products is that for very little cost, you can easily diversify across many stocks. The product? ETFs (covered below). Unlike those rip off mutual funds, ETFs can provide real value to the modern investor. The primary products represented by our columns are as follows: stocks, DRIPs (a derivative of stocks), ETFs, commodities and exotics.
click the above picture for more detail on products
I leave bonds - a huge investment sector, bigger than the stock market - out of the choices because I don’t believe the young investor benefits greatly from owning them in our current very low interest rate environment. This may change, however, if the underlying economic situation changes and interest rates rise considerably. But for now, let’s stick with the best long-term wealth generating tool, the stock market.
The roof of the temple is divided in 2 parts – the ‘headstone’ or entablature, that represents Patience & our long-term investment goals, the tympanon, that represents Performance.
In order to benefit from the massive power of compounding, the investor needs time to work its magic. A long time. I think it appropriate that the entablature represents patience because it rests on top of the columns (products) and holds up our long-term investment goals, found in the beautiful tympanon. Without the entablature, the tympanon would not be as stable and the columns could shift.
There is nothing magic about the tympanon. In the investment temple methodology, it is meant to represent your long term investment objectives. And the only way to reach these objective is to have a solid foundation and solid investments (remember the importance of those columns!).
For the individual investor who is starting to invest at a young age (hopefully you!), having a pot of money ready for use when you stop working, to live out your retirement in comfort, perhaps help your grandchildren get started in life and, possibly, donate some extra funds to good causes are all valid objectives (and happen to be my 'Golden Year Objectives'). It is nigh impossible for me to write here, in a meaningful way, what is ultimately a very personal thing that involves time reflecting what is important to you in life. Recognizing, of course, that in 20 or 30 or even 50 years from you it may have changed considerably! So every few years or so update your long-term financial objectives, to ensure that you are still on a proper trajectory to reach them.
Remember why I use the metaphor of the temple. To create a successful investment plan, especially if you are to design, implement & manage yourself (which I strongly recommend as you will save fees paid to third parties), you need all of component parts….and they need to work with each other in order to have a successful outcome.
In short, you want to build a beautiful Greek / Roman / (your choice goes here) temple, not something like this….
Ready to begin? Let’s go design & build your own temple!