 It means don't risk everything all at once. If you had a certain number of "eggs", it would be safest to put those eggs in different "baskets" and not "put them all in one basket". To "put all your eggs in one basket" would be to risk losing all of your "eggs" in case you drop that one "basket". | | Even if you are new to investing, this old adage explain you the most fundamental principles of sound investing. If that makes sense, you've got a great start on understanding asset allocation and diversification. Studies have shown that proper asset allocation is more important to long-term returns than specific investment choices or market timing.Asset allocation means diversifying your money among different types of investment categories, such as stocks, bonds and cash. The goal is to help reduce risk and enhance returns. The process of determining which mix of assets to hold in your portfolio is a very personal one. The asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk. | | | Time Horizon Your time horizon is the expected number of months, years, or decades you will be investing to achieve a particular financial goal. An investor with a longer time horizon may feel more comfortable taking on a riskier, or more volatile, investment because he or she can wait out slow economic cycles and the inevitable ups and downs of our markets. By contrast, an investor saving up for a teenager's college education would likely take on less risk because he or she has a shorter time horizon. | | | Risk Tolerance Risk tolerance is your ability and willingness to lose some or all of your original investment in exchange for greater potential returns. An aggressive investor, or one with a high-risk tolerance, is more likely to risk losing money in order to get better results. A conservative investor, or one with a low-risk tolerance, tends to favour investments that will preserve his or her original investment. | | | Check your Risk Tolerance | Understand the Asset Pyramid | Financial Asset Allocation Pyramid
Tier I: These are the asset which even after the worst of financial crisis like 2008 or in the recession does nothing. Their value remains intact. It acts as solid foundation of your investment portfolio. Tier II: These are Debt instruments which generate periodic income to you. These are relatively safe but one need to check the financials and ratings before investing in corporate papers. On the other hand Government Securities funds are more volatile but carry no default risk. Tier III: Blue chip stocks are the large, well-capitalised companies. That even in a severe economic recession or downturn, these companies has large probability to survive. The stock price may dip aswe have seen in year 2008 but not a single blue chip company fail or lose its market share substantially. If you panic and sold, you may lose money but if you hold on, these stocks eventually recoup their losses. Tier IV:The Mid cap companies fairly large companies aspiring to become a Blue Chip companies. Since not all of them will be future Blue Chip hence the risk. Thematic stocks rally in a certain business environment as we see in Tech rally in late nineties and infrastructure and real estate in 2004-2008. These become riskier when the rally become bubble and post bubble burst, they lose substantial value, which is difficult to recoup. Tier V: This is for someone with good financial knowledge but even then the percentage of investment in commodities, derivatives and small cap stocks should be minimal. × Allocate with Investment Clock | The Investment Clock
Investment experts have often looked to a well-respected technique called The Investment Clock to work out what they should do with their money next and in order to determine where we are in the current investment cycle. The economy runs in identifiable cycles,whilst a clock is an instrument of precision, economics is not. The Investment Clock has been around since it was first published in London's Evening Standard in 1937.While not flawless, the Clock often provides a useful guide for making investment decisions and can be very accurate at predicting what might lie ahead in the economic cycle. The real difficulty is determining exactly where the hand on the Clock should be placed at any given time. × |
FAQs
Each investor profile — Conservative, Moderately Conservative, Moderate, Moderately Aggressive and Aggressive — has an associated asset allocation based on your overall risk tolerance.
What are the 4 levels of the investment pyramid? ›
It employs a pyramid structure to categorize investment options into four levels: Foundation, Secure, Growth, and Speculative. The pyramid visually depicts the relationship between risk and reward, with higher-risk investments offering the potential for greater returns but also carrying a higher probability of loss.
What is the risk hierarchy of investments? ›
The pyramid, representing the investor's portfolio, has three distinct tiers: low-risk assets at the bottom such as cash and money markets; moderately risky assets like stocks and bonds in the middle; and high-risk speculative assets like derivatives at the top.
What is the 5 portfolio rule? ›
This rule suggests that investors should not allocate more than 5% of their portfolio in any one stock or investment. The idea behind this rule is to limit the potential risk to the overall portfolio if one investment does not perform as expected.
What are the four major investment profiles? ›
There are four main asset classes – cash, fixed income, equities, and property – and it's likely your portfolio covers all four areas even if you're not familiar with the term.
What are the 4 quadrants of financial planning? ›
Everyone can be categorized according to how they get their money: Employee, Self-employed, Business owner, or Investor. Each of these four categories, or quadrants, has its strengths, weaknesses, and characteristics.
What are the 4 quadrants of stock market? ›
We call it The Alpha Quadrant. As the name suggests, there are four quadrants to The Alpha Quadrant – Business, Management, Financials and Valuation.
What are Level 1 Level 2 and Level 3 investments? ›
Level 1 assets are those that are liquid and easy to value based on publicly quoted market prices. Level 2 assets are harder to value and can only partially be taken from quoted market prices but they can be reasonably extrapolated based on quoted market prices. Level 3 assets are difficult to value.
What is the risk tolerance profile? ›
Risk tolerance refers to the amount of loss an investor is prepared to handle while making an investment decision. Investors are usually classified into three main categories based on how much risk they can tolerate. They include aggressive, moderate, and conservative.
How do I define my risk tolerance? ›
Simply put, risk tolerance is the level of risk an investor is willing to take. But being able to accurately gauge your appetite for risk can be tricky. Risk can mean opportunity, excitement or a shot at big gains—a "you have to be in it to win it" mindset.
How to Determine Your Risk Tolerance
- How many years do you have until retirement? You may be comfortable taking on more risk if you have a longer time horizon.
- What are you investing for? Aside from retirement, do you have any other specific investment goals? ...
- How do you feel about risk?
Key takeaways: The hierarchy of controls is used to keep employees safe from injury and illness in the workplace. The five steps in the hierarchy of controls, from most effective to least effective, are elimination, substitution, engineering controls, administrative controls and personal protective equipment.
Which investment has the highest risk according to the investment pyramid? ›
The top of our pyramid represents the most risky of all investments-options and futures. These investments are for the savviest investor. Many fortunes can be made and lost in this category.
What is the asset class risk pyramid? ›
The pyramid is an asset allocation tool that investors can use to diversify their portfolios according to the risk profile of each security type. Located on the upper portion of this chart are investments that have higher risks but might offer investors a higher potential for above-average returns.
What are the five types of portfolios? ›
Types of Portfolios
- Aggressive Portfolio: An aggressive portfolio aims to maximise returns while taking a relatively high degree of risk. ...
- Conservative Portfolio: This portfolio is designed for low-risk tolerance investors, such as those with short-term goals. ...
- Income Portfolio: ...
- Speculative Portfolio: ...
- Hybrid Portfolio:
- Invest early. Starting early is one of the best ways to build wealth. ...
- Invest regularly. Investing often is just as important as starting early. ...
- Invest enough. Achieving your long-term financial goals begins with saving enough today. ...
- Have a plan. ...
- Diversify your portfolio.
An Investor Profile is a summary of an investor's financial goals, financial situation, time horizon, and risk tolerance. It can help investors, like you, select appropriate investments. In general terms, your profile defines the level of risk you are willing to take.
What is the investor profile? ›
Your investor profile helps you identify which investment is right for you. It's based on your risk tolerance, objectives and investment horizon.
It means don't risk everything all at once. If you had a certain number of "eggs", it would be safest to put those eggs in different "baskets" and not "put them all in one basket". To "put all your eggs in one basket" would be to risk losing all of your "eggs" in case you drop that one "basket". 
Time Horizon
Risk Tolerance
