Every building project begins with a plan and a foundation. Building wealth is no exception. The base of your investment portfolio will be the broadest component providing safety and stability. As you build your portfolio, the higher up, the greater the risk - and potential reward.
Let's take a quick look at what is commonly called "the investment pyramid":
Futures, options, commodities
Real estate
Small-cap stocks, junk bonds
Mid-cap stocks, lesser rated bonds
Blue chip, dividend paying stocks, municipal and AAA corporate bonds.
The broad base holds safe money - cash, savings accounts, CD's, U.S. Treasury bills, notes and bonds.
It would not be wise to jump into a "hot stock" in the small-cap area if you had not built the foundation layers of your investment pyramid. You might be taking on more risk than you can handle.
Real estate is high on the risk ladder because it is illiquid (you never can tell how long it might take to sell and realize cash in your hand).
Junk bonds are usually backed by "a promise" to pay back the money - not by colateral.
Start at the bottom. Build steadily. Be $ smart!
