Investment Pyramid

Not a pyramid scheme. If someone ever says to you, "Hey, want to invest in my pyramid?" you can give a knee-jerk rejection. Or just kick the jerk in the knee. But if someone says, "Hey, check out my investment pyramid," you might want to take a look.

The idea works similarly to the old food pyramid. It was a graphic representation of how you were supposed to structure a healthy diet. The items on the bottom of the food pyramid were stuff you were supposed to eat all the time (fruits and vegetables, etc.). Meanwhile, the narrow point of the pyramid consisted of the foods you were only supposed to eat occasionally (sugar, salt, fat...pretty much anything that tastes good).

That basic setup describes the investment pyramid as well. The bottom has stuff you're supposed to put lots of your money into. The top has stuff you're only supposed to dabble in, with money you can afford to lose.

The bottom of the investment pyramid has low-risk investments. Treasury bonds, CDs, money markets...that sort of thing. You should have lots of these in your portfolio (according to the investment pyramid). They form your base.

Above that, you have your growth investments...things like mutual funds or equity investments. These will hopefully grow in value over time, but they aren't crazy-risky...there isn't a significant chance that the bottom will suddenly drop out.

At the top, the pyramid puts speculative investments. These represent the whipped cream and bacon grease of the financial world, the kind of things you might take a wild flier on, hoping to get rich quick. Exotic option strategies, risky biotech stocks, lotto tickets, going to Vegas and putting a bunch of money on the pass line...that sort of thing.

Being at the tip of the pyramid, you don't put much of your money in these things. Most of your cash is safely stored away at the stodgy and sensible base.