High Risk             

Gold/Precious Metals
Diamonds/Precious Stones
Uncovered Options/Currency
General Partnerships, Penny Stock
Limited Partnerships- Real Estate, Oil,
Equipment Leasing
Non Diversified/Non Monitored Portfolios
of Sector & Junk Bond Mutual Funds
Rental Commercial/Residential Real Estate
Non Diversified Portfolios of Individual Issue-
Stocks and Bonds, Closed End Funds & REIT's
Covered Option Writing
Variable Annuities and Variable Life Insurance
Diversified & Monitored Stock & Bond Portfolios
Conservative & Monitored Portfolio of Mutual Funds
Money Market Savings Accounts and CD's
Home, Fixed Annuities, Whole & Universal Life Insurance
U.S. Government securities
Low Risk


Investment Pyramid


The above is a simple chart of Investment categories by risk and reward. It is in the shape of a pyramid. With Investments at the top of the pyramid an individual can expect the greatest returns but because of the risk associated with these investments an individual can also experience the greatest risk of loss. Volatility is the key. If you knew exactly when to invest in high risk areas and exactly when to sell, then you should experience the highest returns. Consequently, with the investments at the bottom of the pyramid you would expect low returns with little risk of loss of investment. The placement of investment vehicles on the pyramid is subjective and opinions as to their placement could vary.


More aggressive portfolios (more stock) are usually recommended for those younger and/or single while more conservative (more bond) investments are generally recommended for retirees. This is not cast in stone and depends on many variables. Before you invest at any level you should first address a budget and your current and future needs.

The essence of this exercise is to emphasize the basic risk/reward parameters. You should not invest in the more risky ventures until/unless you have covered the less risky areas first. It should be clear, therefore, that one does not utilize gold, precious metals, uncovered option writing or the use of single issue securities until the more conservative issues have been addressed- such as having enough insurance for your family.

Fixed Annuities, Whole or Universal life insurance

These policies earn income on a tax deferred basis (possibly tax free with insurance policy loans) and are essentially risk free as regards to the guarantee which is based on claims paying ability of Insurer.

Mutual Funds

By definition, mutual funds are diversified (at least 13 stocks). It is an open-ended fund operated by an investment company which raises money from shareholders and invests in a group of assets, in accordance with a stated set of objectives. Mutual funds raise money by selling shares of the fund to the public, much like any other type of company can sell stock in itself to the public. Mutual funds then take the money they receive from the sale of their shares (along with any money made from previous investments) and use it to purchase various investment vehicles, such as stocks, bonds and money market instruments.

Variable Annuities

Variable annuities are annuity contracts that shift investment risk to the the contract holder. The contract owner can select from among a number of separate investment accounts. Variable products are subject to mortality and expense charges and administrative fees not typically found with other investments.

Variable Life Insurance

Variable life insurance is a life insurance policy that has fixed premiums and a minimum guaranteed death benefit. Investment risk is shifted to the policyowner. The policyowner is able to direct funds backing the policy into one or more of a group of segregated investment accounts made available by the life insurance company. Variable products are subject to mortality and expense charges and administrative fees not typically found with other investments.

Rental real estate

Singular ownership of real estate has provided many past investors substantial returns. However, investors must recognize the personal management involved in running such operations. Real estate is a non liquid asset and with inflation probably staying low for many years, investors cannot depend on the high appreciation of the 80's and must calculate their potential return with a much longer holding periods.

Closed End funds

These are similar to open ended managed mutual funds but are issued with a fixed capitalization. They are bought in the same method as stock. They tend to be sold at a discount to Net Asset Value. Unless their track history is considered, many investors may purchase these with incomplete knowledge.

Sector mutual funds

These must have at least 25% of their portfolios invested in a particular area- health, communications, etc. And when too much is placed in a risk area, it usually is not ultimately beneficial to the investor who does not understand the risk.

General partnerships, precious metals, etc.

These require a sophistication farin excess of the normal middle income wage earner. Far too much risk and far too much to go wrong. Individuals using such investments must have considerable wealth and a thorough understanding of risk, or be advised by a knowledgeable adviser.