What are high-risk investments? It`s common knowledge that any investment vehicle that offers a high rate of return within a short period of time, means that the investment is risky.
There is no doubt, given enough time, most investments have the potential to double the initial principal amount, however, most investors are rather attracted to the lure of high yields in a short time despite the possibility of unattractive losses.
Don`t be deceived, the guarantee to double your money with any investment is absolutely absent. However, there are a lot of examples of investments that double within a short time. For each of these, there are hundreds that have failed. Therefore the onus is on the one who wants to buy to beware.
8 High-Risk Investments Good to Know
Here are highly-risk investments with high potential of return
High-Risk Investments Through Options
Options offer investors high rewards, for trying to time the market. An investor who buys options could purchase a stock or commodity equity at a defined price within a future date range.
If the price of security later turns out to be not as expected during the future dates as the investor initially predicted, the investor doesn`t have to buy or sell the option security.
This kind of investment is especially risky due to the fact that it places time requirements on the purchase or sale of securities. Professional investors usually discourage the habit of timing the market and this is why options can be very rewarding or dangerous.
The Rule of 72
Surely this is not a short term strategy; it’s tried and true. The Rule of 72 is basically a simple way to determine how long an investment will take to double, given a fixed annual rate of interest.
The Rule of 72 simply means dividing 72 by the annual rate of return to arrive at the estimated period an investment will take to duplicate itself. Therefore by dividing 72 by the yearly rate of return, investors get a rough estimate of how long it will take for the initial investment to duplicate itself.
For instance, the Rule of 72 stipulates that $1 invested at an annual fixed interest rate of 10% would take 7.2 years (72/10) =7.2) to grow to $2. In the real sense, a 10% investment will take 7.3 years to double (1.10^7.3 = 2). If you can endure the period, the magic of the Rule of 72 and compound interest is the surest way to double your money.
Initial Public Offerings
A number of initial public offerings (IPOs) like Snapchat`s in mid-2017, attract so much attention that can skew valuations and the judgments experts offer on short-term returns.
Other IPOs are a bit less high-profile and can offer investors an opportunity to purchase shares while a company is severally undervalued, resulting in high short-term returns once a correction in the valuation of the company happens.
Majority of IPOs end up generating little returns, or not return at all. Snapcha, for instance, have in recent years been struggling to generate reasonable returns.
On the other hand, Twilio Inc., a US-based cloud Communications Company that went public on June 2016, and was able to raise $150 million at an IPO offer price of $15 per share. After 3 days of trading, Twilio was up 90% and by mid-December was up 101%.
IPOs are risky because in spite of the efforts make by the company to disclose information to the public to get the green light on the IPO by the SEC, there is still a very high degree of uncertainty as to whether or not a company`s management will perform the necessary duties to move the company forward.
Venture Capital as High-Risk Investments
The future of beginners seeking investment from Venture capitalists is particularly unstable and unsure. Most startups fail, however, a few gems are able to offer high-demand products and services that the public wants.
Even if a startup`s product is needed, poor management and market efforts, including a bad location can deter the success of a new company.
Risk also associated with venture capital is the low transparency in management`s perceived ability to perform the necessary functions to aid the business.
Most startups are fueled by great ideas by individuals who are not business-minded. Venture capital investors require doing additional research to securely assess the chances of a brand new company succeeding.
Venture capital investments normally have high minimums, which are a challenge for some investors. If you are thinking of putting your money into a venture capital investment, ensure you do your due diligence.
High-Risk Investments in REITs
Real estate investment trusts (REITs) offer investors reasonably high dividends in exchange for tax holidays from the government. The trusts invest in pools of residential real estate or commercial.
Because of the underlying interest in real estate ventures, REITs are venerable to swings based on developments in an overall economy, the current state of the real estate market and level of interest rates, which is well-known to flourish or experience depression. The fluctuating nature of the real estate market makes REITs to be high-risk investments.
Even as much as the potential dividends from REITs can be high, there is also pronounced risk on the initial principal investment. And though REITs offer the highest dividends of 10% to 15% are also sometimes the riskiest.
Foreign Emerging Markets
This form of investment is actually an ideal investment opportunity for countries experiencing a growing economy. Investors can buy stocks, government bonds or sectors with that country experiencing hyper-growth or ETFs that represent a rapidly growing sector of stocks.
Spurts in economic growth in countries, even though risky, have the ability to provide investors with a slew of brand new companies to invest in to bolster personal portfolios.
The biggest risk of emerging markets is that the time frame for extreme growth could last for a shorter amount of time than investors estimate, resulting in discouraging performance.
The political atmosphere in countries experiencing economic booms can change unexpectedly and modify the economy that in the past supported growth and innovation.
High Yield Bonds
Whether these bonds are issued by a foreign government or high-debt company, they offer investors outrageous returns in exchange for the potential loss of principal. These instruments can be attractive when compared to the current bonds offered by a government in a low-interest-rate environment.
Investors should note that a high yield bond offering 15 to 20% could be junk and initial consideration that multiple cases of reinvestment will double a principal should be tested against the anticipation for a total loss of investment amount, But, not all high yield bonds fail, and this is why bonds are potentially lucrative.
High-Risk Investments by Trading Currency
Currency trading and investing could be best left to the professionals, as fast-paced changes in exchange rates provide a high-risk environment to sentimental traders and investors.
Those investors with the ability to handle the added pressures of currency trading should seek out the patterns of specific currencies before venture into curtail added risks. Currency markets inter-woven with one another and it`s a common practice to short one currency while going long on another to stop investments from additional losses.
Currency, or forex trading, as it`s commonly called, is not for beginners. This is because it’s somehow complicated, and requires experience investors to navigate through. It doesn`t have the same margin requirements as the traditional stock market, which can be more risky for investors looking to increase again.