Some of the main characteristics of these investments include a high rate of return, as well as a high chance of losing all of your money.
High-risk investments are an attractive option for investors who are interested in potentially large payouts. However, they also come at greater risk. We have seen plenty of high-risk investment schemes that came under scrutiny from regulators – one of the reasons for that was the fact that fraudsters have invented schemes to affect the value of numerous investments like these.
Investing in products that involve higher-risk strategies put investors to do their due diligence and accept that they may lose all of the money they have put into the investment. It seems like the pandemic has also accelerated many contributing trends, and even more, adults increased their holdings of high-risk investments. But how many of them understand the financial risk these investments bear?
More on high-risk investments
Thanks to advances in technology, higher-risk investments are more accessible than ever before. According to the FCA, even 45% of self-directed investors said that they did not view “losing some money” as a potential risk of investment. The general discovery is that they are more likely to use online investment platforms and rely on social media as their sources of investment information.
Some of the most common examples of higher-risk investments include:
- Mini-bonds (also known as high-interest return bonds)
- Structured products
- Land banking
- Contracts for difference (CFDs)
Some of the main characteristics of these investments include a high rate of return, as well as a high chance of losing all of your money. In some of them, there are lower levels of liquidity (accessing your money if you need to can be difficult), and some are volatile. Typically, what most higher-risk investments share is the lack of regulatory protection, which aims to make sure that consumers are treated fairly when they invest.
If you are considering investing, it’s better to seek guidance or advice. That is the only way you can be aware of the difference and how this can impact your decision-making. With the proper guidance, you’ll have the information you need about the options that are available to you, If you are in doubt, you should always speak to an authorized representative or an advisor before making any decision.
How do you deal with higher-risk investments?
If you are considering making a higher-risk investment, you should ask yourself what are you expecting from it, how much “spare” money you have to invest in it, and what’s the amount of risk you are prepared to take with that money. Some of the additional things you should consider include the following:
- Know the fees: One of the first things you should prepare for is the charges – whether the investment is cryptocurrencies, shares, or investment funds, there are likely to be fees, and you need to understand them before making any investment.
- An investment plan: Creating an investment plan can help you consolidate your investment into an actual plan, along with all the important questions and objectives.
- Diversification: To improve your chance of a better return, expert advisors recommend diversifying investments and balancing between risk and return by spreading the money across different options.
- Legal advice: Seeking legal advice from a financial expert can also help you (try to narrow down your search to these experts only, and disregard people specializing in family law, criminal law, etc.)
If you are tempted by high-risk investments and they seem to you as a more innovative and exciting option compared to mainstream investments, know that high returns are by no means guaranteed. In fact, high-risk investments are unsuitable for everyone but experienced investors that know what they are getting themselves into and understand all the risks and opportunities associated with them.
In the end, most financial experts advise to not put more than 10% of your total net assets into any form of a high-risk investment. If you are planning to do so, make sure that the remainder is diversified across a range of mainstream investments. And if you decide to invest in a high-risk option, be prepared to lose all of your investment and be wary of scams. The promise or suggestion of unrealistically high returns can be a sign of a scam, which is why it’s recommended to do some research and consult an expert.