Building Your Financial Bulge

Fruits, veggies, low-fat, low-sodium…We all know what we're supposed to eat to stay healthy, but that doesn't make a triple fudge brownie sundae any less enticing. Managing your calories is very similar to managing your investments; the options that are the best for you are often the least exciting. So as you work on your health and finance resolutions for the new year, take a look at your investments and see what you can do to increase your financial bulge.

Your investment portfolio has four key levels of investments: the foundation, conservative, growth and speculative.


Foundation: Just like every diet needs a solid plan to keep you on track, every investment strategy should start with a strong foundation of low risk investments, like insured certificates of deposit (CDs), traditional savings accounts and treasury bills.

Conservative: A level up from the foundation sits your conservative investments. These investments offer a greater potential reward with a slightly higher risk, such as balanced funds, high grade corporate and municipal bonds and U.S. government notes and bonds.

Growth: Growth investments tend to be some of the more popular portfolio additions, due to their increased potential reward. However, before you fill your portfolio with stock, stock mutual funds (blue chip and growth) and investment real estate, make sure you are aware of the risk of each, and make sure it is a risk that you are willing to take should the investment fall through. The amount of growth investments you include should reflect your risks, your goals and the amount of time until you need the money. Since you are trying to build your financial bulge, it may require carefully increasing this level of investment.

Speculative: At the top of the investment structure are speculative investments. Speculative investments are the most risky, but draw people in with their high potential reward. Art, coins, precious metals, options, penny stocks, commodities and venture capital are all common varieties of speculative investments.

Think of your portfolio like the food pyramid, the majority of your calories (investments) should come from the largest, bottom section since they have the lowest risk, and, consequently, the lowest return. While on the other hand, you want to have a limited quantity of speculative investments (fats and oils), since they pose the biggest risk, even though they offer the tastiest potential reward. Check out a visual investment pyramid here.

For more information on creating an investment portfolio, click here.

Visit www.feedthepig.org for more money-saving tips.