Risky climb.Using the investment pyramid Investment Pyramid A portfolio strategy that allocates assets according to the relative safety and soundness of investments. The bottom of the pyramid is comprised of low-risk investments, the mid-portion is composed of growth investments and the top is speculative investments. to minimize risks and maximize returns Every investment has some degree of risk. You may not want to single out any one type of investment. One technique used to spread your investment risk is the pyramid model, which is based on the principle that a portfolio should have the right balance: safety of principal (preservation of initial investment), income (dividends and interest), and growth (capital appreciation). The higher up the pyramid, the more risky investments become; but the riskier the investment, the greater the return, especially if you educate yourself and are able to weather the ups and downs ups and downs pl.n. Alternating periods of good and bad fortune or spirits. ups and downs Noun, pl alternating periods of good and bad luck or high and low spirits of the market. The pyramid has six basic tiers. First Tier: This is the base of the pyramid, which is the foundation of your portfolio and is designed to preserve capital. This level consists of the lowest risk and lowest return vehicles, such as Treasury securities (bills, notes, and bonds), checking and savings accounts, and U.S. Savings Bonds. Second Tier: This level offers low risk and low return, and includes such investments as money market accounts, bond mutual funds Bond mutual fund A mutual fund which primarily or exclusively holds bonds. , and high-grade corporate bonds. Third Tier: This level includes relatively low-risk investments, such as balanced mutual funds (ones that invest in both stocks and bonds), and preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. (fixed-income securities Fixed-income securities Investments that have specific interest rates, such as bonds. much like bonds). Fourth Tier: This level offers intermediate risk and includes quality growth stocks or mutual funds and large-cap stocks (blue chips). Fifth Tier: The investments in this category include midcap mutual funds, small-cap mutual funds or stocks, real estate properties, puts and calls, and junk bonds. Another fifth-tier item is collectibles, such as autographed baseball cards, X-men comic books, or artwork tucked away in the attic In the Attic can refer to:
Sixth Tier: This level is geared more for the sophisticated investor who wants to speculate and take on huge risks. These investments include gold, silver, or other precious metals Precious Metals Valuable metals such as gold, iridium, palladium, platinum, and silver. Notes: Investing in precious metals can be done either by purchasing the physical asset, or by purchasing futures contracts for the particular metal. . Whether you invest in low-, intermediate-, or high-risk investments depends on how much risk you can tolerate. This will determine your investment style, which will almost certainly change over time. [ILLUSTRATION OMITTED] |
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