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
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The chart arranges various investment choices according to the
risk-reward relationship.
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The higher the investment is located in the pyramid, the higher the potential
return, and the higher the
risk.
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Since cash and
cash equivalents offer the lowest risk and return, you will find them at the bottom of the pyramid.
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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.
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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?
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Do I understand how this investment works?
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Do I have good information about how this investment has done in the past?
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Do I understand the costs of this investment and the risks?
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Am I looking for safety, income, or growth from this investment?
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Do I have good information about how this investment is likely to do in the future?
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How much can I hope or expect to make?
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What other investments do I have already? Do I want to invest in more of the same or do something new?
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The longer you have to reach a goal, the more aggressive you can be when you invest. Learn more now
Watch this video of Warren MacKenzie, president and CEO of Weigh House Investor Services, with Rob Carrick from the Globe and Mail discussing investing products that can be a problem in your portfolio.
Watch this video of Moshe Milesvsky, a professor of finance at Toronto's Schulich School of Business, with Rob Carrick from the Globe and Mail discussing retirement savings strategies.