It’s not a hidden fact that investing involves risks. In fact, if you’re not willing to take risks, you shouldn’t be involved in the investment world. Some forms of investment involve much more risk than others, and it’s a good idea to avoid these entirely or at least know one or two ways to avoid the risks.
If your goal is to preserve capital so that you can ensure a steady income from your investments, you should avoid high risk investments. But if you can handle the risks involved, you could exponentially grow your capital within a short period.
What are high risk investments anyway?
High risk investments are usually investments that carry a great deal of risk but have the potential for a much larger reward. In most cases, these investments carry with them a very high chance of failure, and it’s not uncommon to lose all of your initial investment completely.
Generally speaking, many of the high risk investments you can make are also speculative ventures. Although there’s nothing wrong with speculating, it’s important to take precautions before investing in these types of opportunities because the potential losses may be very high. In some cases, it might not be possible for you to recover your investment once lost.
However, if you can survive the risks, high risk investments can lead to massive rewards.
There are examples of some high-risk investments that have done exceptionally well and yielded a significant return on the initial investment. However, the fact remains that most high-risk investments will not be worth your time or money, and you should avoid them at all costs.
What are some of the most common high-risk investments?
The following are just a few of the most common high-risk investments that could double your investment in a short time. But you should be aware of the risks involved because you could also lose your entire capital.
1. Penny Stocks:
Penny stocks are generally traded on the OTC Bulletin Board or Over-The-Counter. These investments usually carry a very high degree of risk and attract investors who want to capitalize on quick and easy gains. For this reason, penny stocks hold an allure for many people, but they aren’t worth the effort.
2. Startup business:
When someone has a brilliant idea and wants to start a business, they’ll likely seek funding from interested investors. Unfortunately, this is an extremely high-risk venture because the chances of failure are excessively high.
Many businesses simply never get off the ground as expected. But in case your business idea is successful, you may be able to double your initial investment in just a few short years.
3. Hedge Funds:
Hedge funds are generally very aggressive and complex financial tools that offer some of the best means to yield significant returns on investment. However, hedge funds are also known to be extremely risky, and many of them simply do not perform as expected.
Cryptocurrencies are digital currencies that are exchanged worldwide for goods, services, and even physical money (FIAT). These currencies are not regulated by any centralized organization, bank, or government.
Cryptocurrencies can be extremely volatile, which means that they carry a very high degree of risk with them but can be rewarding for investors who make the right choices.
5. Foreign exchange:
Foreign exchange is a very complex investment arena that can carry a high degree of risk for people who don’t understand the ins and outs of the process. For this reason, the foreign exchange should only be considered by investors who have a significant amount of experience in this area because it can yield large returns but also has an extremely high risk for loss.
6. Venture capital:
Venture capital is an investment that generally scores high on the risk factor. Venture capital investments require a large amount of startup money. They can take years before they show any significant profit for investors. Some venture capitalist investments yield returns in just a few months. Still, it may be necessary to wait several years before seeing your initial return.
7. Leveraged ETFs:
Leveraged ETFs are funds that offer investors the chance to double their investment in one year. These investments carry a high degree of risk, but they can also yield some very significant results if you play your cards right.
Related Article: Top 10 Investments With The Highest Returns.
What type of risks do high risk investments pose?
Typically, a high-risk investment poses a very significant risk for the investor. Some of these risks are:
1. Fraud: Not all investments that offer high yields are legitimate. In fact, many of these investment opportunities have been discovered to be nothing more than fraud and an attempt to steal money from unsuspecting investors. Never invest in a business opportunity before knowing the facts and only after careful consideration.
2. Bankruptcy: When choosing an investment, you should understand that some companies simply do not have the assets to back up their business practices. If a company is bankrupt or in financial trouble, it is best to steer clear of investing in these types of ventures because there is no telling when they will fail.
3. Lack of regulation: Some investments are extremely risky because they lack oversight and regulation. Investments that do not have the backing of a government or bank are generally considered high-risk investments. This is because there is no one to help you recover your investment if something goes wrong.
4. Illegal: Another common reason why investments are risky is that they may be against the law, which means there is a very strong likelihood that you will not get your investment back if the business venture fails.
When considering an investment, always do your research and make sure that it is legal for you to invest in this type of activity before weighing the risks and benefits.
5. Unpredictable: Many investments lack predictability, and this is what makes them high-risk. There are so many unknown variables in these types of businesses. This makes it difficult to know where your investment will go and what the profits you may see in the future will look like.
How do you reduce the risks of high-risk investments?
The following are a few tips that can help you reduce the risks of high-risk investments:
1. Only spend a fraction of your savings on high risk investments: It’s hard to ignore the massive returns that high risk investments can produce, but it’s also important to consider that these ventures are extremely risky. Because of this, you should only use a fraction of your savings for high-risk investments and keep the rest of your savings in lower-risk ventures.
2. Don’t invest if you don’t understand what you’re doing: If you don’t know how a high risk investments works, the best thing to do is simply stay away from it. The more you understand about an investment, the more confident you may feel about putting your money into that venture.
3. Review performance history: The performance history of a high-risk investment can help investors gauge how well the asset has performed in the past. If it has performed well over a good period of time, that may mean that the asset shows promise for future performance.
4. Get investment advice: Investing can be a very confusing process but investing in high-risk ventures is even more complex than other forms of investments. Because of this, you should consider getting professional investment advice from a business that specializes in this area.
5. Diversify your investment portfolio: You should diversify your investment portfolio to reduce the risk of losing all of your money in one investment. If you have a diverse portfolio, any significant loss within one or two of your investments is likely to be offset by the profits earned from other ventures.
6. Only use what you can afford to lose: If you’re investing in a risky investment, don’t put money into it that you can’t afford to lose. This may be tough, but it has the benefit of ensuring that you won’t experience any significant financial loss if things go wrong with your investment.
7. Research, research, and research: Investing in high risk investments is challenging even for experienced investors because of the complexity involved. Because of this, you should always spend a significant amount of time researching each investment opportunity before deciding to invest your money.
Investing can produce a very high return, but it is also a high-risk venture because your investment may not be recovered if something goes wrong with the business. You should only invest what you can afford to lose. You should spend a significant amount of time researching each investment opportunity before investing to reduce the risks as far as possible.
You should check out these safe investments with high returns if you are new to investing.