Once you choose your asset mix, you’re ready to pick specific investments. The investment pyramid shows you have many choices within each asset class.

Using the investment pyramid

• The chart arranges various investment choices according to the risk-reward relationship.
• The higher the investment is located in the pyramid, the higher the potential return, and the higher the risk.
• Since cash and cash equivalents offer the lowest risk and return, you will find them at the bottom of the pyramid.
• Mutual funds are included in all categories because there are many different kinds of mutual funds. Each fund has its own level of return and risk.
• The classification of a stock as low, moderate or high risk depends on your point of view. What seems risky to you may not seem risky to the next person.

Note: The types of investments listed under each section of the pyramid are only a framework. The risk of each investment varies with economic conditions.

What should I ask before I buy any investment?

• Do I understand how this investment works?
• Do I have good information about how this investment has done in the past?
• Do I understand the costs of this investment and the risks?
• Am I looking for safety, income, or growth from this investment?
• Do I have good information about how this investment is likely to do in the future?
• How much can I hope or expect to make?
• What other investments do I have already? Do I want to invest in more of the same or do something new?
• How long do I plan to invest (my time horizon)?

The longer you have to reach a goal, the more aggressive you can be when you invest.  Learn more now