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Visualizing the Hierarchy of Financial Needs

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This Markets in a Minute Chart is available as a poster.

Hierarchy of financial needs

This Markets in a Minute Chart is available as a poster.

Visualizing the Hierarchy of Financial Needs

Behavioral scientist Abraham Maslow wrote “A Theory of Human Motivation” in 1943, arguing that humans worldwide are influenced by a “hierarchy of needs”.

This theory organizes human needs across five levels, where needs in the lower end must be satisfied before progressing onto the next level. At one end are physiological needs such as sleep and shelter, while at the other end are esteem and self-actualization.

This Markets in a Minute chart from New York Life Investments explores how Maslow’s theory applies to our financial needs, pinning down the steps to creating a strong financial foundation.

The Essentials

What are the five levels in the hierarchy of financial needs?

  1. Cash flow and basic needs:
    Covering food, housing and daily expenses. Ensuring the fundamentals, including our physiological needs, are covered financially.
  2. Financial safety:
    This covers insurance and an emergency fund to help prepare for unforeseen events and risks. As a safety cushion, an emergency fund should cover three months of living expenses in case of an accident, an unexpected health or family issue, or losing a job.
  3. Accumulating wealth:
    This includes growing investments, paying down debt, and saving for retirement. At this level, the focus shifts to growing assets for long-term success and longevity.
  4. Financial freedom:
    Long-term care and children’s education are found within this category, along with retirement savings and vacations. These financial needs are linked with esteem needs, such as self-respect and personal accomplishment.
  5. Legacy:
    Estate planning, tax planning, and business succession planning all fall within this category, connecting with self-actualization in Maslow’s pyramid.

Naturally, financial needs can shift based on a given situation. But as a general rule of thumb, moving along this path can help create an enduring roadmap for financial heath.

Financial Needs Under the Microscope

While it’s easy enough to describe the theory in concept, how does the hierarchy of financial needs impact our day-to-day lives in practice?

To start, as individuals live longer, many are concerned with having enough savings for retirement—across all income levels. For Americans in the lower income bracket, 50% worry about their retirement savings, while 26% worry in upper income levels.

Worry about each of the following oftenLower IncomeMiddle IncomeUpper Income
Being able to save enough for retirement50%37%26%
Paying their bills59%35%15%
The amount of debt they have51%35%21%
The cost of health care for them and their family47%35%18%
Take a pay cut due to reduced hours or demand for their work51%25%18%
Losing their job40%21%11%

Source: Pew Research Center, survey of U.S. adults conducted April 7-12, 2020

Debt is also a primary concern among many Americans, as the cost of both healthcare and education have continued to rise. Average annual college costs, for example, have risen 25% over the last decade, while U.S. household debt has roughly doubled to $14 trillion since 2004.

It’s only once these above needs are taken care of that individuals can focus on the top of the financial needs hierarchy, taking care of legacy-focused items such as estate and tax planning, or business succession planning.

The Importance of Wealth Management

To navigate the hierarchy of financial needs, the importance of having a robust financial plan comes into focus.

Especially during times of uncertainty, individuals need a framework that accounts for changing life circumstances, such as a new job or purchasing a house. And when individuals move up each rung of the financial needs pyramid, they must also recognize how their tactics might need to change to best pursue their financial goals.

Cultivating a stronger awareness of financial needs can help individuals make more informed choices, on both a micro and macro level—from day-to-day purchases to long-term investment decisions.

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Markets in a Minute

How Small Investments Make a Big Impact Over Time

Compound interest is a powerful force in building wealth. Here’s how it impacts even the most modest portfolio over the long-term.

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This bar chart shows the power of compound interest and regular contributions over time.

How Small Investments Make a Big Impact Over Time

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

Time is an investor’s biggest ally, even if they start with just a modest portfolio.

The reason behind this is compounding interest, of course, thanks to its ability to magnify returns as interest earns interest on itself. With a fortune of $159 billion, Warren Buffett largely credits compound interest as a vital ingredient to his success—describing it like a snowball collecting snow as it rolls down a very long hill.

This graphic shows how compound interest can dramatically impact the value of an investor’s portfolio over longer periods of time, based on data from Investor.gov.

Why Compound Interest is a Powerful Force

Below, we show how investing $100 each month, with a 10% annual return starting at the age of 25 can generate outsized returns by simply staying the course:

AgeTotal ContributionsInterestPortfolio Value
25$1,300$10$1,310
30$7,300$2,136$9,436
35$13,300$9,223$22,523
40$19,300$24,299$43,599
45$25,300$52,243$77,543
50$31,300$100,910$132,210
55$37,300$182,952$220,252
60$43,300$318,743$362,043
65$49,300$541,101$590,401
70$55,300$902,872$958,172
75$61,300$1,489,172$1,550,472

Portfolio value is at end of each time period. All time periods are five years except for the first year (Age 25) which includes a $100 initial contribution. Interest is computed annually.

As we can see, the portfolio grows at a relatively slow pace over the first five years.

But as the portfolio continues to grow, the interest earned begins to exceed the contributions in under 15 years. That’s because interest is earned not only on the total contributions but on the accumulated interest itself. So by the age of 40, the total contributions are valued at $19,300 while the interest earned soars to $24,299.

Not only that, the interest earned soars to double the value of the investor’s contributions over the next five years—reaching $52,243 compared to the $25,300 in principal.

By the time the investor is 75, the power of compound interest becomes even more eye-opening. While the investor’s lifetime contributions totaled $61,300, the interest earned ballooned to 25 times that value, reaching $1,489,172.

In this way, it shows that investing consistently over time can benefit investors who stick it through stock market ups and downs.

The Two Key Ingredients to Growing Money

Generally speaking, building wealth involves two key pillars: time and rate of return.

Below, we show how these key factors can impact portfolios based on varying time horizons using a hypothetical example. Importantly, just a small difference in returns can make a huge impact on a portfolio’s end value:

Annual ReturnPortfolio Value
25 Year Investment Horizon
Portfolio Value
75 Year Investment Horizon
5%$57,611$911,868
8%$88,412$4,835,188
12%$161,701$49,611,684

With this in mind, it’s important to take into account investment fees which can erode the value of your investments.

Even the difference of 1% in investment fees adds up over time, especially over the long run. Say an investor paid 1% in fees, and had an after-fee return of 9%. If they had a $100 starting investment, contributed monthly over a 25-year time span, their portfolio would be worth over $102,000 at the end of the period.

By comparison, a 10% return would have made over $119,000. In other words, they lost roughly $17,000 on their investment because of fees.

Another important factor to keep in mind is inflation. In order to preserve the value of your portfolio, its important to choose investments that beat inflation, which has historically averaged around 3.3%.

For perspective, since 1974 the S&P 500 has returned 12.5% on average annually (including reinvested dividends), 10-Year U.S. Treasury bonds have returned 6.6%, while real estate has averaged 5.6%. As we can see, each of these have outperformed inflation over longer horizons, with varying degrees of risk and return.

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Markets in a Minute

What Were the Top Performing Investment Themes of 2023?

In 2023, several investment themes outperformed the S&P 500 by a wide margin. Here are the top performers—from blockchain to AI.

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The Top Performing Investment Themes in 2023

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

While the S&P 500 rebounded over 24% in 2023, many investment themes soared even higher.

In many ways, the year was defined by breakthrough announcements in AI and the resurgence of Bitcoin. At the same time, investors looked to nuclear energy ETFs thanks to nuclear’s growing role as a low carbon energy source and the war in Ukraine.

This graphic shows the best performing investment themes last year, based on data from Trackinsight.

Blockchain ETFs Lead the Pack

With 82% returns, blockchain ETFs outperformed all other themes in the U.S. due to the sharp rise in the bitcoin price over the year.

These ETFs hold mainly bitcoin mining firms, since ETFs investing directly in bitcoin were not yet approved by regulators in 2023. However, as of January 2024, U.S. regulators have approved 11 spot bitcoin ETFs for trading, which drew in $10 billion in assets in their first 20 days alone.

Below, we show the top performing themes across U.S. ETFs in 2023:

Theme2023 Performance
Blockchain82%
Next Generation Internet80%
Metaverse59%
FinTech54%
Nuclear Energy50%
Cloud Computing49%
AI/Big Data49%
Gig Economy48%
Digital Infrastructure & Connectivity43%

As we can see, next generation internet ETFs—which include companies focused on the internet of things and new payment methods—also boomed.

Meanwhile, nuclear energy ETFs had a banner year as uranium prices hit 15-year highs. Investor optimism for nuclear power is part of a wider trend of reactivating nuclear power plants globally in the push towards decarbonizing the energy supply. In fact, 63 new reactors across countries including Japan, Türkiye, and China are planned for construction amid higher global demand.

With 49% returns, AI and big data ETFs were another top performing investment theme. Driving these returns were companies like chipmaker Nvidia, whose share price jumped by 239% in 2023 thanks to its technology being fundamental to powering AI models.

Top Investment Themes, by Net Flows

Here are the the investment themes that saw the highest net flows over the year:

Theme2023 Net Flows
Robotics & Automation$1,303M
Nuclear Energy$997M
AI/Big Data$987M
Global Infrastructure$734M
Net Zero 2050$716M
Blockchain$357M
Cannabis & Psychedelics$270M
Emerging Markets Consumer Growth$203M

Overall, ETFs focused on robotics and automation saw the greatest net flows amid wider deployment of these technologies across factories, healthcare, and transportation actvities.

The success of AI large language models over the year is another key factor in powering robotics capabilities. For instance, Microsoft is planning to build a robot powered by ChatGPT that provides it with higher context awareness of certain tasks.

Like robotics and automation, AI and big data, along with blockchain ETFs attracted high inflows.

Interestingly, ETFs surrounding emerging markets consumer growth saw strong inflows thanks to an expanding middle class across countries like India and China spurring potential growth opportunities. In 2024, 113 million people are projected to join the global middle class, seen mainly across countries in Asia.

Will Current Trends Continue in 2024?

So far, many of these investment themes have continued to see positive momentum including blockchain and next generation internet ETFs.

In many cases, these investment themes cover broad, underlying trends that have the potential to reshape sectors and industries. Going further, select investment themes have often defined each decade thanks to factors like technological disruption, geopolitics, and the economic environment.

While several factors could impact their performance—such as a global downturn or a second wave of inflation—it remains to be seen if investor demand will carry through the year and beyond.

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