Many investors structure their portfolios in the form of a financial pyramid. The base of the pyramid is made up of nonvolatile, liquid assets.
The next level includes securities that provide both income and long-term capital growth. At the third level, a smaller portion of the portfolio is allocated to more volatile investments with higher potential returns and greater risk.
And at the top level, the smallest percentage of the overall portfolio is invested in ventures that have the highest potential return but also pose the greatest investment risk.
This strategic approach gives you the potential to realize significant returns if some of your speculative investments succeed without risking more than you can afford to lose.
It's entirely different from a pyramid scheme, a scam that uses new investor money to pay large returns to earlier investors.
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