Financial pyramid


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Financial pyramid

A risk structure that spreads investor's risks across low-, medium-, and high-risk vehicles. The bulk of the assets are in safe, low-risk investments that provide a predictable return (base of the pyramid). At the top of the pyramid are a few high-risk ventures that have a modest chance of success.

Financial Pyramid

An investment strategy that structures portfolios according to the risk associated with each investment. The majority of investments are low-risk and non-speculative; these form the "base" of the pyramid. A smaller number are medium-risk, forming the "middle" of the pyramid. A few are high-risk, high-return investments that may be highly speculative. The idea behind a financial pyramid is to allow for the possibility of high return for the investors without acquiring too much risk in the portfolio.

Financial pyramid.

Many investors structure their portfolios in the form of a financial pyramid. The base of the pyramid is made up of nonvolatile, liquid assets.

The next level includes securities that provide both income and long-term capital growth. At the third level, a smaller portion of the portfolio is allocated to more volatile investments with higher potential returns and greater risk.

And at the top level, the smallest percentage of the overall portfolio is invested in ventures that have the highest potential return but also pose the greatest investment risk.

This strategic approach gives you the potential to realize significant returns if some of your speculative investments succeed without risking more than you can afford to lose.

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