Investment Pyramid
Categories: Ethics/Morals, Investing
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.
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Finance: What is fund diversification, a...38 Views
finance a la shmoop. what is fund diversification and why is it important?
well ever hear the phrase don't put all your eggs in one basket ? yeah if you do
and there's a pothole, well, this can happen. had she put a few eggs here [woman drives car]
than another few there and then another few there well breakfast might have been
saved. well the same thing works for stocks. sorta ,put all your eggs and
shares of the newly IPO to whatever dot-com and it could be a moonshot. [chart on screen]
SpaceX IPOs at fifty bucks a share and soars to a thousand dollars a share, but
well then the Martians kill the visitors and eat their brains and the spacecraft.
oh well you were rich for at least an hour. that's something right most people [alien on flaming planet]
don't want to live such a volatile life, especially when it comes to thinking
about long-term investing and maybe even retirement. when your entire investment
portfolio is in one stock it can be a wild ride and if you're not a
professional investor it's likely that you'll get weak and sell at just the [woman types at computer]
wrong time .so instead of having to worry about timing and picking just the right
stock most investors buy a basket of stocks which are diverse. like two-thirds
US stocks one-third non-us stocks. maybe twenty percent of your portfolio is
invested in high-growth technology. ten percent is in transportation with a lot [pie chart shown]
of dividend yield. and of course there's always the one percent riboflavin. I
don't forget that. so yeah when you diversify and two or three of your
stocks take a dive, well then not all of your eggs are ruined. there are just one
or two rotten ones in the bunch while the rest are going to be used to cook [smiling man eats eggs]
one heck of an omelette.