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High Return, High Risk Investment Strategies
15th January 2016
Get ready to dial up the intensity by creating a portfolio of high return, high risk investments that can deliver a serious upside for the savvy investor.
Creating an investment portfolio is a delicate and intricate balancing act that takes several factors into consideration. Firstly, you must determine your own risk tolerance and your ability to absorb losses. You’ll want to consider the level of personal involvement you want to have with your portfolio. Furthermore, it is important to consider your long-term financial goals and what would occur if you were to take a significant loss.
On the other hand, it pays to think about how much working capital you can allocate towards your high risk investments – namely which funds can be leveraged to drive high returns - without sacrificing good decision-making or the overall stability of your portfolio. In this article we will consider several high return, high risk investment options that can amplify the potential of your own portfolio. Sit down, buckle up, and prepare for some excitement!
IPOs: IPOs, or initial public offerings, are an exciting and dynamic investment option for those who like to be a part of something big. An IPO refers to the first official sale of a company’s stock on the public market. Here’s where the risk comes into play: without any proven track record of the company’s valuation in the market, an investment in an IPO is quite speculative. That said, explosive growth can occur once a company’s stock is released on the open market.
Penny Stocks: Referred to as “penny stocks” because they trade for less than $1 per share (though that definition has largely been expanded recently to include stocks that trade for less than $5), these stocks can deliver rapid and volatile valuation swings that can exponentially grow a portfolio. They can also nosedive quickly, leaving the investor with little money leftover. If you are considering investing in penny stocks, be cautious and understand the risk involved when investing in a company that has little “on-paper” value. The nice thing about penny stocks, however, is that you don’t have to invest much to earn sizeable returns.
Venture Capital: In this investment option, private individuals or investment firms will fund the early stages of a company in exchange for an equity position or royalty arrangement with the business. There is an inherent uncertainty with any new business, but there is also a big upside potential if you’re able to get in at the ground floor. Remember the early investors in Apple? Not too many of them are likely to be punching a timeclock today. Keep in mind that you’ll have to invest significant time and energy into researching the specific market and industry to make a sound investment.
Rental Property: While investing in real estate is generally considered to be a sound and time-honoured option, there are serious risks involved when playing the real estate market. In terms of high risk, high reward, real estate generally requires a significant cash outlay upfront, while high returns are only going to come when the property is located in a highly desirable area. Many landlords make 10-20% annually, so high risk, moderate reward may be more applicable to the vast majority of property owners.
Futures: Futures are similar to options purchases, except generally tied to a commodity such as beef, dairy, produce, etc. When investing in the futures market, you’re essentially speculating as to the future price of a variety of tangible products. If the future price is higher than the price you’re locked in at, you make money. If the price didn’t go up as planned, you can lose money. Although the high return factor is certainly in play here, there is still a definite chance of losses. The more knowledge you have of the market in question, the better positioned you’ll be to make money.
Precious Metals: Funnily enough, gold and other precious metals are actually quite high risk – their reputation notwithstanding. Think about it this way: metal prices are set by the market. Supply, demand, and the performance of the economy as a whole drives the valuation of precious metals. An investment in these metals returns a profit only if the value goes up, while an investment in a business can deliver dividends and profits back to the investor, as well as valuation swings that deliver profitable movement. The pricing of gold and other precious metals can be quite volatile.
Currency Exchange (Forex): One high risk, high return investment that has proven to deliver serious profits when approached intelligently is Forex. The Forex marketplace is unique in that it operates around the clock during the business week, providing plenty of time for the investor to react quickly to market influencers and news events. Leverage ratios that far exceed what is available with virtually any other investment option can contribute to a higher sense of risk, but those who spend time learning the Forex marketplace and who, just as importantly, partner with the right trading partner can earn massive profits in a short amount of time.
When determining which investment option is right for you, keep in mind that there is no one-size-fits-all solution. Rather, by creating a diverse and balanced portfolio of investment vehicles, you’ll stand a better chance at minimising risk, while simultaneously boosting profits.
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