When an investment offers a high return within a short period, that’s the first indication that it is a high-risk venture. If you’re a new investor, this can either make you hesitant or thrilled, but seasoned investors may advise that you carefully consider your decision first, whatever it is.
An investment without risks is meaningless, while those with high risks can either yield a fortune or bear tremendous losses. There is really no in-between, but you can’t be risk-averse forever if your goal is to make millions out of returns alone.
That said, we’ve prepared a simple guide on the riskiest investments to help you consider whether this is the right time for you to make the leap.
Low-risk vs. High-risk Investments
As a new investor, it can be tricky to figure out where exactly are the risks in investments. It’s also quite mind-boggling to differentiate between low-risk and high-risk investments. And true enough, there is really no official agreement on how to measure investment risks.
The simplest way to define a low-risk investment is that it is one that offers more stability and security. As such, it is suitable for investors who are unwilling to make a gamble in hopes for high returns. But just because low-risk investments are more secure doesn’t mean that they yield fewer returns, either. They can also provide a steady income, and preserve capital.
On the other hand, a high-risk investment can be simply defined as one that has higher chances of loss or performing below expectations. It is suited for experienced investors who can afford to take higher risks, since they’re aiming for the best returns possible. Brokers are usually employed to assist high-risk investors, because they’re experts in trading and selling investment products, like stocks.
Top High-Risk Investments
1. Currency Trading
Also known as forex (foreign exchange) trading, this investment has at least five types of risks, namely leverage risks, interest rate risks, transaction risks, counterparty risks, and county risks. Overall, these risks involve substantial losses due to flactualing currency values. As such, it should not be ventured by new investors, and experienced ones should acquire the assistance of a professional foreign exchange broker.
But the advantage in forex is that investors can choose a handful of currencies over stock traders, who must deal with heaps of corporations and sectors. Moreover, forex assets are highly liquid.
2. High-yield Bonds
High-yield bonds can offer immense returns in exchange of potential loss of principal. In addition, they offer higher long-term returns than investment-grade bonds, though they also face higher default rates and more volatility. And compared to stocks, high-yield bonds also have more interest rate risks.
3. Real Estate Investment Trusts
Real Estate Investment Trusts (REITs) is where investors can buy shares in commercial real estate portfolios. In turn, they can earn high dividends in exchange for tax breaks from the government. The risk is pronounced on the initial principal investment; if the rate of dividends 10% to 15%, it is typically the riskiest.
4. Foreign Emerging Markets
Developing countries can offer promising investment opportunities. Foreigners may purchase that country’s government bonds or stocks, and enjoy high returns. However, the extreme growth of a certain country’s economy may be overestimated by investors, resulting in their investments performing below their expectations.
5. Venture Capital
If someone you know is about to start a business, you may help fund their company by being one of their venture capitalists. But if you didn’t study the viability of their startup thoroughly enough, it may too late for you to realize that it is bound to fail, costing you thousands of dollars.
High-risk investments are indeed daunting, as they are highly unpredictable. Hence, take your time before deciding to venture in it, even if you’re already experienced in low-risk investments. Research extensively and consult experts before taking a new risk.