Many people may not be familiar with what a high-risk investment is, and some may even think that they are reckless or doomed to fail. This couldn't be further from the truth. Investing in a high-risk investment has the potential to double one's money in no time! In fact, there are many instances where a successful venture can make anyone wealthy overnight.
In this blog post, we will discuss all aspects of high-risk investments, including their definition, how they work, and why you should take the leap and start investing now.
Definition
High-risk investments are any kinds of investments that are regarded as risky by most people because they lack backing and also have very minimal potential to turn out good. As a result, there is a high chance that they will fail when compared to other investments.
How to choose?
When choosing a high-risk investment, you should do your homework and make sure it's worth investing in. Many of these high-risk investments are stock market investments that have little or no history. Thus, research and education are essential before making a high-risk investment in a company. The following list is a compilation of the top 10 high-risk investments for an investor looking for success.
1) Gold
Gold has always remained one of the most sought-after items in the world. In fact, ancient people knew that gold had the ability to protect them and their belongings from the elements. It was also a good way to store value as an investment for future use. Furthermore, it is a very effective form of advertisement, which is why it has been used throughout history as jewelry and currency to show wealth and success.
Gold has always held a certain value due to its potential usage as jewelry but once you buy the gold, you have no control over it. Thus, if you invest in gold stocks (which are the basic gold investments), you don't own any gold nor control what happens in the market.
2) Stocks
Stocks are pieces of paper representing part ownership of a company or corporation. They can be bought and sold in the stock market, or via a stockbroker. Snapshot: Stocks have historically provided returns of 8.5% p.a (over the last 135 years) after inflation or 257% p.a nominal return on investment (ROI). Note: The above-mentioned investment's returns have been calculated using the dividend reinvestment strategy, which assumes that the dividends are reinvested into buying more stocks.
3) Mutual Funds
Mutual funds are just like stocks except they represent multiple stocks of several different companies, as opposed to one company. Mutual funds also provide a diversified portfolio for your money. The way mutual funds are created is by "pooling" together individual stocks to create one fund.
4) Real Estate Investment Trusts (REITs)
Real estate investment trusts (REITs) are a form of security that carries large amounts of property and leases the property out to other companies or individuals. These investments are backed by that real estate and the income generated, along with the real estate itself. The major benefit of using mutual funds, which can be bought in the stock market instead, is that they're tax-advantaged, which means they don't incur any capital gains tax.
5) Private Equity
Private equity is a form of investment in which an investor purchases shares of a company that is not publicly traded on the open stock exchange. Private equity is a high-risk investment but also has the potential to bring you very large returns. It's also important to note that private equity is not a stock market investment because it cannot be purchased or sold on most stock exchanges.
Private equity can be highly profitable but it's usually not liquid and it requires lots of equity capital, working capital, and debt financing in order to make the deal happen.
6) Venture Capital
Venture capitalists are normally only available for high-net-worth individuals or businesses seeking venture capital funding. Venture capitalists help get a new business started by providing a large amount of start-up capital for the business. This type of funding is a little riskier than other types of investment due to the fact that the venture capitalists are not buying the business directly; they are merely investing in it.
7) Hedge Funds
Hedge Funds have actually become extremely popular during this past year with over $1 trillion being invested in them. Hedge Funds are high-risk investments that use mathematical models and quantitative analysis to make lower returns than most investments, but they also offer faster returns and greater opportunities for higher profits.
8 ) Commodities
Commodities are raw or unfinished products that can be used as raw materials. Almost all the commodities you invest in (e.g., corn, wheat, gold, oil) hold a certain value due to the ability to create products out of them.
9) Pensions
A pension is an income-generating plan that gives you an annual monetary benefit as long as you work. You do not have to pay for the pension but you still own part of it and only earn money if you continue to work for a certain period of time or until retirement. Because of this, pensions are considered very high-risk investments because they can go bankrupt at any moment.
10) Venture Debt
This type of investment is very similar to venture capital except it is more like debt than equity. You basically give money to a company instead of buying stock in it, with an agreement that the company will pay you back with interest.
Conclusion
High-risk investments can be quite useful when used correctly and paired with the right amount of caution. They can help you make some serious money and reduce your overall risks associated with investing. If you're ready to take the leap and start investing in high-risk investments today, you can check out some of our preferred brokers to see which ones can offer you the best rates.
