My "Pyramid of Risk" investment strategy

By Jelly Fish | cryptofun | 25 Oct 2019


When you start messing with money investments, sooner or later you run into a "risk/reward, fear/greed" dilemma.

We all want the highest possible profits in the shortest period (that's what I call "reward" here), but many such high-profit projects tend to go bust taking your pennies along (that's what I call "risk"). On the other hand, if we always stay on riskless side -- our rewards will be miserable. But if we always go for high rewards -- we're at risk of losing everything. So, this "risk/reward" equilibrium must be balanced so as to have a decent reward with acceptable risk. (BTW, the term "risk" and the sayings like "high reward requires high risk" are per se full of details and are often misunderstood, but I don't go into that here)

There're numerous approaches to this ages old dilemma, but I don't want to discuss them here. What I want today is to present a very simple practical strategy, that might allow you to get some above-average reward without much risk of running away completely naked.

I call this strategy The Pyramid of Risk!

Well, actually this name has no special meaning, I just wanted to name it in some poetical way. And of course, it's not me who invented this strategy. If you know about, say, structured notes -- you will understand where I borrowed the ideas from. However, regardless of all it's simplicity and triviality, I don't remember if I've seen a concise explanation of it anywhere. Maybe because I haven't read a lot of get-rich books, who knows.

Ok, here it is:

Let's pretend we have levels or tiers of investment vehicles, from the most riskless ones (like, say, FDIC-insured interest-bearing accounts or US Treasury bills) at Tier 0 to the riskiest ones (like online HYIPs with 25% weekly and compounding) at Tier N. The riskless ones pay the least, the riskiest -- the most.

First, we put everything we have into Tier 0, let's call it a "principal". From now on we never ever take anything out of the principal. Second, we invest the profits from Tier 0 into Tier 1 vehicles. Third, we put the profits from Tier 1 into Tear 2. And so on, until we invest profits from the Tier N back into Tier 0.

And that's all the strategy, actually... Simple and stupid, with diversification and compound interest, tweak and twist it to your liking.

Of course, in crypto world there's currently nothing like "FDIC-insured accounts", but common sense can well point out that some things are definitely less risky than others. Besides, now the crypto world has a very low entry price -- in real life you can't build a good pyramid with 25 bucks, but you can do it in crypto.

Disclaimer: it's definitely not a single piece of financial advice.

 

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Jelly Fish
Jelly Fish

Cryptofreak


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