It's time to summarize what we've learned about the elements of an investment, and to examine how we can use this knowledge as we journey toward financial freedom. Throughout our discussion of the individual elements, we have repeatedly referred to your position in the wealth cycle, and its importance in determining how you use the elements grid. Now, let's bring the two ideas together.

The wealth cycle is comprised of three stages: accumulation, preservation and distribution. While we often define each phase using a particular range of ages, there are other, equally important factors that you must consider as you determine your own position in the wealth cycle. For more detail on this topic, please refer to "The Wealth Cycle" in the August, 1992 edition of Financial Advisory. As we demonstrate on the chart to the right, your position in the wealth cycle will tell you which of the nine elements will be more or less important to you when choosing your investments.

While you are in your accumulation stage, all nine elements should receive about equal weight. Keep in mind, this is a personal rating, and your individual score for any one element in any particular investment category may differ from mine. That's okay; just remember that dur-ing your accumulation phase, the total you give for all nine elements will be your guide. Obviously, the higher the score, the more appropriate the investment will be for you. That does not mean that you would not want to invest in a low-scoring asset; it only means that such an investment would be less in keeping with your overall investment goals.

Once you reach the preservation stage of your wealth cycle, the last three elements (appreciation, leverage and taxes) become much less important in determining the appropriateness of an investment. Those three elements—the yeast that helped you accumulate your wealth—are simply no longer important to your new goal, preserving your assets. As you can see, when we eliminate those elements, and total our grid below the rate of return element, the high-scoring investments have changed slightly. As an example, now bonds become a more attractive investment than real estate. Does that mean you should dump the real estate in your portfolio the minute you retire? Of course not. But neither will you run out and invest in more.

In the distribution stage of your wealth cycle, even fewer of the elements will concern you. Unless you have chosen to manage certain of your assets on behalf of your heirs, you will want investments that are very liquid and flexible, that require little management and that have very little risk. Subtotaling again to include only these first four elements, we see another shift in which assets receive top scores.

Finally, you should understand that the actual individual scores you assign to any asset for any element will also change with your stage in the wealth cycle. For instance, an investment that might receive a low risk score from you during your distribution phase (too risky) might very well receive a higher score (less risky) when you are still in your accumulation phase.

So there you have it. This rating system, when combined with your position in the wealth cycle, can be your guide to structuring and adjusting your portfolio as you journey to financial freedom.