One approach to make your money work harder for you is by investing. The objective is to generate long-term profits, and the risk and reward of an investment are correlated. Investments with a higher potential return typically entail a higher risk, and vice versa. When individuals discuss high returns, they typically mean investments that produce greater financial gains than the norm.
Long-term financial wellbeing requires diversifying your investment portfolio, and high-return investments like stocks may be more likely to boost your wealth year after year. A list of high-risk investments that potentially result in high returns is provided below.
5 High-Risk, High-Return Investments
High-risk investments have produced impressive returns for certain investors, but it’s vital to keep in mind that previous success is never a guarantee of future results. They are all unpredictable to some extent, making them by their very nature volatile. Here are five examples of investments with high risk and high return:
Despite the possibility of substantial rewards, cryptoassets are thought to be very risky. For instance, the price of Bitcoin, the most well-known cryptocurrency, increased by 127% in just four months, from $29,864 in July 2021 to $67,802 in November. Value, however, frequently changes drastically with no warning. The cost had fallen back to a low of about $35,000 as of January 2022.
When compared to other securities, this relatively new investment instrument is uncertain and highly unregulated. The hazards of investing in cryptocurrencies also include cybersecurity risks.
The distinction of cryptocurrency lies in the fact that it operates entirely online and that coin value appears to fluctuate constantly. Cryptocurrency is still viewed as a riskier investment than stocks because it still represents uncharted territory for investors.
2. Individual Stocks
Growing your investment portfolio often involves hazardous but required stock investing. According to J.P. Morgan, the S&P 500’s annualized return was 7.5% on average from 2001 to 2020. Bonds were only 4.8%, in contrast. Individual stocks, however, are viewed as volatile because it is essentially impossible to predict winning stocks and time the market perfectly, in contrast to bonds.
The majority of experts concur that one of the best strategies to reduce stock market risk is to invest early, which extends your time horizon. Another tactic is to investigate mutual funds and exchange-traded funds (ETFs). They are made up of tiny shares of various securities, such as stocks, bonds, and other assets. This offers some inherent diversification and lowers risk.
3. Public Initial Offerings (IPOs)
When a private firm first begins selling stock to the public, this is known as an initial public offering (IPO). This enables them to raise money. An investor’s judgment may be impaired by the hoopla and media coverage that an IPO may bring about. You consent to purchase stock shares at the initial offering price if you choose to invest in an IPO.
It’s not always simple to participate in an IPO because some brokerage firms need investors to have a particular amount of assets or to trade frequently. IPOs are dangerous either way. There are businesses that fail after an IPO for every one that succeeds, which might result in significant losses for stockholders. On the other hand, if investors purchase shares of a company that succeeds, they may profit handsomely. In 2010, when Tesla announced its IPO, the share price was only $17. It was above $950 by the end of January 2022.
4. Angel or venture capital investing
An early-stage firm can be financed in a variety of ways. You might look into venture capital if you’re an accredited investor (meaning you have sufficient income and assets). The majority of the time, venture capitalists are employed by a business or fund that makes significant financial investments in start-ups and other promising businesses.
Angel investors typically contribute finance and mentorship in exchange for an ownership stake in businesses they invest in directly or through a private group.
Compared to venture capitalists, angel investors often make smaller investments, although both are seasoned investors with extensive knowledge of building and making money from younger businesses with promising futures.
Even if there is no way to predict which startups will succeed and which will fail, there is always a chance of high profits. According to financial data provider Pitchbook, venture capital funds had an internal rate of return of 19.8% in the beginning of 2021.
Real estate investing can be done in a variety of ways. A residential property can be bought and rented out to generate income, or it can be “fixed and flipped” for a potential quicker return. Another choice is commercial real estate, which enables investors to purchase homes to lease to companies. Any of these scenarios might allow you to cash in on the equity you’ve accrued in the home and earn a respectable profit when you sell it, but nothing is ever certain. Future financial success is never guaranteed in the real estate industry as a whole.
When purchasing an investment property, there are additional upfront expenses. Your down payment, closing costs, taxes, and insurance are all included in this. Repairs and upkeep can add up rapidly as well. Without actually purchasing actual properties, real estate investment trusts (REITs) are thought of as a safer and more affordable option to get started in real estate investing. Most are publicly traded businesses with real estate holdings that include a variety of assets. Investors can buy stock in a REIT, and the funds it raises are used to purchase commercial or residential real estate that generates income. Additionally, they must pay dividends to their shareholders equaling 90% of their taxable income.
Low-Risk Investments to Take into Account
It’s not always simple to find secure investments with big returns. There are some lower-risk assets that are worthwhile investigating, even if returns are normally higher with riskier investments. They are typically regarded as safe because the likelihood of losing your investment is quite low. Many can also offer more reliable profits than high-risk investments.
The investments you select and the amount you invest will determine your returns. The following four low-risk investing categories can be worth your consideration:
1. High yield savings accounts
Since you can immediately access the money when you need it, a high-yield savings account is a great place to hold an emergency fund because it earns interest. The fact that high-yield savings accounts typically yield higher interest rates than conventional savings accounts is what makes them alluring. With no minimum deposit requirement, some provide interest rates called as annual percentage yields (APYs) as high as 0.5%; nevertheless, you should expect limits on monthly electronic withdrawals and transfers. You may earn a profit while protecting your emergency fund with high-yield savings accounts.
2. Money Market Accounts
Similar to a high-yield savings account, this kind of low-risk investment generates interest. But money market accounts stand out because they make it even simpler to access your money. A checkbook or debit card linked to your account is not unusual. These choices simplify withdrawals, offer more liquidity than savings accounts, and might even generate a little higher interest rate.
A high-yield savings account might offer a larger return, but a money market account’s flexibility may be more enticing. However, when you join up, make sure you understand the rules because your financial institution may have limits on how many electronic withdrawals and transfers you can make in a statement cycle.
3. Certificates of Deposit (CDs)
A certificate of deposit (CD) is a low-risk investment that may be beneficial if you don’t mind giving up access to your money for a lengthy period of time. Your money is essentially tied up with a CD for the specified period of time. You will receive your investment back along with interest after that time period is through. CDs don’t provide much in the way of liquidity; if you choose to withdraw your money early, you’ll be charged a penalty.
Although they earn less than many high-yield products, they generate more interest than conventional savings accounts. 1% or such is the yield on some five-year CDs. Their design, however, can protect your investment and stop you from making rash withdrawals.
4. Bonds l Series
A high-return investment that combines two separate interest rates is a Series I bond. One is constant, whereas the other varies with inflation. They are together known as the composite rate. The composite rate on Series I bonds issued between now and April 2022 will be 7.12%. TIPS, or U.S. Treasury Inflation-Protected Securities, are also inflation-indexed securities. That indicates that your investment’s primary value has been modified to ensure your financial security.