What is an investment pyramid?
Investment pyramid is a visual depiction of the principle that investors should amaze their investment portfolio so that different amounts of money have different levels of risk. Specifically, the largest amounts of money should be in investment in low or without risk, while increasingly smaller amounts of money are in more and more risky investments. This principle generally protects the total financial security of the investor from market shocks and decreases.
The investment pyramid base consists of safe, highly liquid, investments such as savings account balances or short -term deposit certificates (CDS). The safety and easy approach that investors have for this money usually means that it will have the potential to raise them more money, such as a higher risk and less liquid investment. However, having this large base of easily available money means that the investor will have a cash offer for unexpected expenses. This prevents the need to pay the fees asovaTeed with the dragging of money from less liquid investmentOr long -term losses that would come from the sale of highly affordable shares that the investor bought at a low price.
The next step in the investment pyramid is items such as long -term CDs, governmental government bonds and bonds from financially stable companies. These investments are considered to be income because they pay fixed interest on money. The risk of losing money that investors causes to this level of investment is very low, but CDs and bonds have something called due date. This is the day when these investments have paid off all their interest and investors have gained the money they put in the CD or bond. Since there are losses that investors cause when they earn a CD or bond before the maturity date, individuals should plan to have access to these investments before the due date.
shares and mutual funds have the potential to appreciate itDnota A allow investors to sell shares that have purchased at lower stock prices for significant profits. However, a decline on the stock market can cause stock prices to drop and investors will lose money. Shares and potential of mutual funds for profit and the risk of loss put shares and mutual funds on the top of the investment pyramid. This highest level continues to monitor the pyramidal structure with regard to the risk. Most of the money goes into stocks and mutual funds rated as a safe investment, and less in slightly risk shares and the smallest amount of money that gets into high risk investments.