Referring to the investment pyramid above, explain what investments would be a wise starting point for the new investor.

Answer:

Investors should first invest in the investments shown at the bottom of the pyramid. These investments offer lower rewards, but there is a limited amount of risk involved. Investors should not move up the pyramid until they have built a solid foundation because, although the investments at the top provide greater potential returns, there is a greater degree of risk involved. The possibility of high rates of return are tempting to investors, but there are no guarantees that high risk investments will actually give higher rewards.