Before you make an investment, it is very important to assess the level of risk you can realistically take on. When you have carried out an assessment of the risk involved you can then calculate the amount you want to put into your various investments.
Investments have varying risk profiles and reward potential therefore a balanced investment portfolio should resemble a pyramid in its shape.
The Investment Base:
This is the represented by the base of the pyramid and consists of the largest portion of your investment capital. Asset found in this class include government bonds, annuities, cash and savings accounts.
These assets are low risk and provide reliable returns but provide lower returns compared to riskier asset classes.
This class of investments is the middle of the pyramid and may consist of assets such as property, unit trusts, shares and investment grade bond. These investments are medium risk but providing higher returns than the safer assets in the Investment Pyramid Base.
The Pyramid Summit:
This is the top of the investment pyramid and represents the highest levels of risk in investment. The greater levels of risk come with the potential for high reward or return on investment capital. This summit of the pyramid involves trading in financial instruments such as options, futures, CFDs and spread trading.
The pyramid is a general guide on the risk profiles of certain asset classes. However investors have different levels of risks tolerance and variable investment objectives which will influence their preferences when it comes to asset selection & investment capital allocation.
Disclaimer – Futures, CFD, Margined Foreign Exchange trading, Warrants, Options and Spread Betting all carry a high level of risk to your capital. Only speculate with money you can afford to lose. Futures, CFD, Margined Foreign Exchange trading and Spread Betting may not be suitable for all customers, therefore ensure you fully understand the risks involved and seek independent financial advice if necessary.
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