The Pyramid of Risk and Rewards

When you look at your investment portfolio you need to be aware of the risks and rewards involved. This actually should be stated as the potential risks and potential rewards. This article addresses that fact that rewards are not guaranteed. So for the most part a buyer or investor should be educated and aware. There are additional resource links at the end of this article.

Higher Risk Doesn't ALWAYS Equal Higher Rewards

Higher Risk Doesn’t ALWAYS Equal Higher Rewards


The pyramid shows the risks and rewards of different types of investments.
Investments with lower risks and lower returns are at the bottom of the pyramid. The large base of the pyramid makes it stable, like your investments this show make up the larger portion of an investment portfolio over time. As you travel up the pyramid, the potential returns become greater, but so do the potential losses as do the risks.
As an investor, you should travel up the pyramid only after you built a strong foundation. This should also only be done if you are comfortable with the corresponding risks. Look not only at the best years of those asset classes. What if the worst five years happened all in a row. Remember there are no guarantees that higher risks equal higher returns.


Resources: What is an Investment Portfolio

Wikipedia: Portfolio Inverstment