At the time of this post (March 2025), the markets are in a free-fall. The S&P has dipped below its 200-day moving average, and things seem to be degrading fast. With the financial landscape feeling uncertain, it's the perfect moment to share an idea that completely transformed how I think about savings, investment, and wealth. And I hope it does the same for you.
Sometime in early 2021 I read the book "Prosper!", by Adam Taggart and Chris Martinson and I learned that wealth isn't what I thought it was. In this post, we are going to explore the idea that there are eight forms of capital, list them out, and then put this idea into practice. By the end, you'll see that building wealth is about much more than the accumulation of numbers on a balance statement—it's about expanding your resources and opportunities through strategic moves across eight different focus areas to create opportunities and maximize potential.
Buckle up....
My Paradigm Shift - A Better Diversification Strategy
Prosper! is one of the books that has most influenced my thinking about finance, resilience, and investing for the future.
Here is the key idea: When we typically think of wealth, we often focus solely on the money—bank accounts, investments, and balances.... The numbers. Don't get me wrong, balances and numbers are important, but looking at these in isolation ignore the reality that true wealth and prosperity extends beyond financial resources.
Back to the state of the markets this month, if your entire financial world is caught up in a digital score card, you might have a single point of failure. The idea that the authors present is bigger than traditional allocation across asset classes.. it's about life diversification.
Ebenezer Scrooge, Gordon Gekko, Logon Roy, Scrooge McDuck... These are all characters that take a one dimensional view of wealth building. But you don't have to be filthy rich to suffer from the same fate. What can we do? We diversify... What I really like about this idea is that Martinson and Taggart were actually able to articulate a framework around diversification for quality of life.
In their framework, there are eight forms of capital that play crucial roles in our lives and well-being. Each form of capital offers a unique set of resources and opportunities that can enhance our ability to thrive. And here is the game changing idea: you can combine movement between these forms of capital to create an infinite set of opportunities.
By broadening our understanding of wealth to include more than just financial assets, and leveraging a logical framework, we can unlock new strategies for building security, resilience, and fulfillment in ways that go well beyond the limitations of money alone.
The 8 types of capital
There are 8 forms of capital, each has it's own role in our lives and well being:
- Financial Capital:
This is your money and traditional investments. These are both important and essential but should not be the sole focus. In the same way you should diversify your 401k and savings, you should invest and move your financial capital into the other seven areas to be truly resilient and build quality of life. - Material Capital:
This is your stuff... Materials can be commodities or even your home in the sense of traditional diversification. But material capital also includes your physical possessions, tools, and things that support the infrastructure of living or creating/building new things. It can be a computer, a shovel, a book or anything that you can use to create other opportunities. - Time Capital:
Modern humans are overwhelmed with information, social media, meetings, and the mechanisms to connect at all hours. But, when you think about seizing control of your time as a metaphor for robbing a bank to get your own money back it puts the idea of "Time Capital" into the proper context. Your time is not an infinite resource and routine investing into the other 7 capital buckets rather than giving it away is wise use of a scarce commodity. - Knowledge Capital:
What do you know? Knowledge capital is the skills, education, and intellectual adaptability create future opportunities. Anything you want to learn has a free or low cost course on the internet. Never in human history has knowledge capital been so easily accessible. - Living Capital:
Living capital involves your health. Do you have access to healthy food, clean water, and self-sustaining resources? Do you trade your financial and time capital for living capital? Should you? Investing in living capital can involve your workout routine, a gym membership, the plants in your window garden or even the decision to avoid junk food. The framing of decisions about living capital is different when you realize your are making investment decisions into your future. - Social Capital:
Back to Ebenezer Scrooge... Investing in social capital involves building strong relationships and networks. These investments could be monetary (taking a friend to dinner), networking, or simply an investment of time with a neighbor. Rather than working that extra hour, shifting your focus to the people in your circle is an investment into quality of life and resilience during crises. - Spiritual Capital:
For me, this involves investing time and resources into our local church and a weekly men's bible study. I used to work late into the evening and for years missed this opportunity and this is a personal shift I regret not doing sooner. When you invest your time and resources into spiritual capital you build mental resilience and a balanced mindset that will help navigate uncertainty and setbacks. - Cultural Capital:
This is your investment into your community. Cultural capital involves people you know that share values, traditions, and belief systems. This can range from something as simple as a walking partner to a commitment to serve on a board for a nonprofit or local government. The point is that investment into cultural capital provides a sense of identity and belonging.
For most of my life my focus was on working in a formal corporate setting to fill bucket #1 at the expense of the other buckets. And while work is important and necessary, strategic investments into the other buckets have changed my perspective completely over a few short years.
Application:
Ok, I gave a few examples above but let's talk application...
Back to the market situation... As I am watching the markets make their corrections this week the anxiety I used to have in double digit drops is much less than it used to be because I have been making a conscious decision to systematically invest in each of these buckets. I am much more resilient now compared to when I thought of finance in one dimension. The best part is that when I see a shift, rather than experiencing dread because I have all of my eggs in one basket I tend to respond with curiosity in terms of what opportunities will emerge when a change happens. In my opinion, this is where this idea gets really interesting: looking for real world strategies to move capital from one area to another in creative ways as situations change.
Here are a couple of examples:
Convert Financial Capital into Material Capital: This strategy is pretty straightforward and the authors spend a fair amount of time on this. You can think of this as purchasing hard assets (land, precious metals) or investing into your home and infrastructure as markets shift. What materials would you need to make your hobby a side hustle? I have invested financial capital into business assets, which have enabled investment into all of the buckets. I likely would not have done that before I learned this framework.
Convert Time into Social and Cultural Capital: Support your favorite non-profit. As changes in government spending shift and budgets tighten, opportunities to volunteer in your local community will emerge. Volunteering time is a great strategy to build knowledge and cultural capital.
Convert Time into Financial Capital: There are seasons in life when you have more time than others. These are opportunities to write, teach, build a side hustle or create a business. Time capital can be reinvested all of the other buckets, including financial capital.
Convert Time into Knowledge Capital by Blogging
You can actually build Knowledge Capital by documenting and sharing expertise through blogging. I have been doing it for a few years now and it forces me to distill my thoughts into learning and application. Writing online allows individuals to refine their understanding, connect with like-minded people (Social Capital), and create opportunities that can translate into Financial Capital.
Final Thoughts on Prosper:
As I said, there are an infinite number of ways to combine these eight forms of capital. I have been actively working on applying this concept for three or four years now and it has completely changed how I see the market and investing. It's a big idea that I hope to teach my children when they are ready.
I love books and ideas that change my thinking in a positive way. This book caused me to overhaul how I look at my personal finances and I'm glad it did. Prosper is a great read for those who want to future-proof their lives by diversifying their wealth beyond just money. It provides a practical roadmap for resilience, advocating for an integrated approach that blends financial security with sustainable living, strong relationships, and continuous learning.
