MANY people are unsure how to go about putting an investment portfolio together. For many investors, the best way to achieve safe investments and good returns is through a unit trust portfolio which offers professional investment management, diversification, and the opportunity to access some of the world's smaller and more excitingmarkets. The most important decision in establishing a portfolio is asset allocation: that is how much to invest in equities, bonds, currencies, gold and precious metals and the like. I like to use the idea of an investment pyramid as a guide to structuring a portfolio. The pyramid concept is simple and straightforward. Build your pyramid from the bottom up. Use four risk categories of investments: security; asset protection; growth; and speculation. How much weight you give each category depends on your age, circumstances and temperament - in short, risk tolerance. For example, if you are 65, retired and not earning money, you cannot afford to take big risks. However, if you are 30, unmarried and have a good job, you can afford to take some risks because you can replace lost capital. Here's an overview of each of the four main investment risk categories: Security. This base (five to 15 per cent of your assets depending on your risk tolerance) is made up of your permanent investments. This insurance will enable you to survive any type of unexpected crisis. The allocation is as follows: the majority in cash, kept highly liquid through multi-currency, money market accounts or high yielding, short-term bond funds. The remainder can be in gold or other precious metals. This is the ultimate insurance and holding gold can act as a hedge against other investments. Asset protection. The largest and most important part of your pyramid (40 to 60 per cent of your portfolio) should consist of investments that protect your assets. These should be both liquid and low risk, designed to preserve purchasing power under any likely economic scenario, from inflation to recession. To preserve assets, you must diversify broadly and think long term. To diversify, buy international funds that invest in a combination of stocks, bonds and cash equivalents. Concentrate on financially stable fund management companies with solid long term performance records. Long term is at least five years. Do not be concerned about market blips and intermediate price fluctuations. Remember that capital gain (which you may or may not enjoy) is not as important as capital preservation. Growth. Only after you have solid positions in the first two parts of the pyramid should you go for growth with 25 per cent to 30 per cent of your total assets. There may be some overlap between your growth holdings and those in the asset protection category. The difference is you will hold your growth assets for a shorter period and they will fluctuate more with market conditions. Investors should be cautious about some markets and should be selective on where they invest for growth. There are four categories of funds to consider: international growth funds; regional growth funds; smaller companies funds; and emerging market funds. You can expect exceptional returns because you are risking significant losses. You must be able to afford to lose the whole sum without it seriously affecting your standard of living. Speculative investments include highly leveraged funds, derivative funds, and warrant funds. If your speculative investments are successful, move the original sum into more stable segments of the pyramid. Your aim is to keep only profits working in the speculative sector. Remember that the perfect portfolio does not last. Not only do investment conditions change but every person's circumstances alter and a portfolio needs to be updated regularly. The need for security, for instance, becomes greater as you approach retirement. With age and increased wealth, protecting what you have got becomes more important than making more. Start by determining the percentage breakdown of your ideal pyramid at this stage in your life. Then, analyse the assets you already own and plug them into the pyramid. This will help to tell you what adjustments are in order. Remember, your investment portfolio is only one part of your personal finances. It is an integral part that should be co-ordinated with your overall tax, retirement and estate planning. Information supplied by asset management division, Matheson PFC.