Think of your investment strategy as a pyramid. The pyramid’s base is your foundation, the area where you store the largest portion of your resources. The base includes the money you want to keep safe (low risk with predictable return), and liquid, such as your emergency fund. It also includes the assets you hold for your security such as insurance policies or your home.
If you accumulate assets and feel confident about taking a risk with some of them, you can consider adding investments to the midsection of the pyramid. They can offer a higher return, and more potential for growth and income. You might add mutual funds or high quality stocks. The peak of the pyramid is reserved exclusively for money that you can afford to lose. There are higher risk investments that offer higher potential for return, such as aggressive growth mutual funds, stocks in start-up companies, and commodities.
The Pyramid Approach to Investing
Think of your investment strategy as a pyramid…
The pyramid’s base is your foundation, the area where you store the largest portion of your resources. The base includes:
- money you want to keep safe (low risk with predictable return) and liquid, such as your emergency fund
- assets you hold for your security such as insurance policies or your home.
If you accumulate assets and feel confident about taking a risk with part of them, you can consider adding investments to the midsection of the pyramid. They can offer a higher return, and more potential for growth and income. You might add mutual funds or high quality stocks.
The peak of the pyramid is reserved exclusively for money that you can afford to lose. These are higher risk investments that offer higher potential for return, such as:
- aggressive growth mutual funds,
- stocks in start-up companies, and
- commodities.