I've been following AK71 on YouTube throughout 2024 and was thrilled to
hear about his "Evening with AK and Friends 2025" in Jan. Of course I have to attend. During the session, he shared his pyramid
framework, which he uses to ensure portfolio stability.
I cannot remember exactly everything so I did some research on this topic:
I cannot remember exactly everything so I did some research on this topic:
Cash (Base Layer)
- Purpose: Provides liquidity and safety. This layer ensures you have immediate access to funds for emergencies, daily expenses, or unexpected needs without market risk.
- Examples: Savings accounts, fixed deposits, SSB, T-bills
- Characteristics: High liquidity, low or no risk, but minimal returns (often below inflation). Acts as a financial cushion, typically recommended to cover 6-12 months of living expenses.
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Role in Stability: Forms the foundation, ensuring you’re not forced to sell other investments during market downturns or
personal emergencies.
- Purpose: Generates steady, reliable cash flow to cover regular expenses or reinvest. Focuses on assets that produce consistent income with relatively low risk.
- Examples: Dividend-paying stocks, CPF*, SRS, Corporate Bonds, REITs, or rental properties.
- Characteristics: Moderate risk, predictable returns (e.g., dividends or interest), less volatile than growth assets. Prioritizes income over capital appreciation.
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Role in Stability: Provides financial security by replacing or supplementing earned income, reducing reliance on selling assets.
*CPF’s restricted access excludes it from Cash, as it doesn’t serve short-term liquidity needs.
- Purpose: Balances income generation with moderate capital appreciation. This layer aims to grow wealth while still providing some cash flow.
- Examples: Blue-chip stocks with dividends (e.g. DBS), balanced mutual funds, or ETFs that invest in both bonds and equities.
- Characteristics: Moderate risk and volatility, with a mix of stable income (e.g., dividends) and potential for price appreciation. Suitable for medium-term goals.
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Role in Stability: Diversifies the portfolio by combining income stability with growth potential, cushioning against inflation.
- Purpose: Focuses on capital appreciation to build wealth over the long term, typically for goals like retirement or major future expenses.
- Examples: Growth stocks, equity ETFs (e.g. S&P500), index funds, or real estate (non-income producing, like development land).
- Characteristics: Higher risk and volatility, with returns driven by price increases rather than income. Less predictable but higher potential returns.
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Role in Stability: Drives wealth accumulation but requires a longer time horizon to weather market fluctuations. Relies on the stability of lower layers.
- Purpose: Seeks high returns through high-risk investments, often with a chance of significant loss. This is the smallest portion of the portfolio.
- Examples: Individual small-cap or penny stocks, cryptocurrencies, options, futures, or startup investments.
- Characteristics: Very high risk, highly volatile, and often illiquid. Returns are uncertain, with a high chance of losing the entire investment.
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Role in Stability: Adds potential for outsized gains but is limited to a small allocation to avoid destabilizing the portfolio.
The pyramid is widest at the base (Cash), emphasizing a strong foundation,
and narrows toward the top (Speculative), indicating smaller allocations to
riskier investments.
A common approach is to allocate the most capital to Cash and Income layers (e.g., 50-70% combined), a moderate amount to Income and Growth and Growth (e.g., 20-40%), and a small fraction to Speculative (e.g., 0-10%), depending on risk tolerance and financial goals.
The lower layers protect against financial shocks, while the upper layers aim to grow wealth. The pyramid ensures you only take risks with money you can afford to lose.
A common approach is to allocate the most capital to Cash and Income layers (e.g., 50-70% combined), a moderate amount to Income and Growth and Growth (e.g., 20-40%), and a small fraction to Speculative (e.g., 0-10%), depending on risk tolerance and financial goals.
The lower layers protect against financial shocks, while the upper layers aim to grow wealth. The pyramid ensures you only take risks with money you can afford to lose.
Currently, my portfolio is unbalanced: 🤣
I'm not very sure if the pyramid make sense for everyone since all our circumstances are different. I will revisit this again in another 6 months time!
- Speculative: No plan to add on to my trading account at the moment.
- Growth: This portfolio dominates primarily because my fully-paid HDB is classified as a Growth asset. May want to remove or re-classify in the future.
- Income and Growth: Nearly non-existent due to my micro allocation in bank stocks.I don't have too much spare cash now to invest in banks and I am pulling away from REITS. I have sold 90% of my REITS.
- Income: Mostly in CPF and SRS. I will continue to invest spare cash here to hit FRS. I've also placed my investment in Chocolate Finance here too.
- Cash: I am satisfied with my allocation even though it is a bit lesser than Income.
I'm not very sure if the pyramid make sense for everyone since all our circumstances are different. I will revisit this again in another 6 months time!