Tips For High-Risk Investing

High-risk investments are risky because of their level of volatility and may offer high returns to compensate for the risk.

There are two kinds of investors in the world: Let’s call them Kojo and Ade. The two of them are investors who want to use their money to make more money and consequently build their wealth.

However, while Kojo is risk-averse, Ade wants to make the highest returns possible even if it means losing his capital. While we can arguable say that the average investor is more of a Kojo or a careful balance of the two, there is absolutely nothing wrong with being an Ade.

An investment goal that we can assume every investor has, is to increase his or her income and ultimately wealth. It could be by receiving dividends consistently or by ensuring growth of the security in question, but the goal is the make money.

However, the assumption that all investors want the smallest amount of risk is flawed. Some people are just Ade’s by nature and want things done ‘faster’. High-risk investments are risky because of their level of volatility and may offer high returns to compensate for the risk.

If you want to embark on some high risk investments, here are some tips to guide you.

Invest Money You Can Afford To Lose

This is definitely the first and most important tip for high-risk investing. Invest money you can afford to lose completely. The higher the risk on an investment, the higher the chances that you lose all your money.

If the risks get too high, your investments might be something synonymous to gambling. As such, invest only money that is left after you have covered your recurring expenses and even invested towards your future.

Simply put, invest money you can forget about. This isn’t important just because you are investing in high-risk assets that can be lost but because a lot of high-risk assets are illiquid. So, unlike the stock market where you can pull out your funds when you want, your money in a high-risk asset might be tied down for years.

Invest In What You Know

Investing is hard enough. Investing in a business that isn’t within your circle of competence can be frustrating. It is important that you are able to analyse your investments accurately so you are not too optimistic.

And for you to be able to do that, you must know what you’re investing in. the general rule of thumb is that if you cannot understand a business, then don’t invest in it. If it doesn’t sound like a good idea to you, its best you back off.

Think Worst Case Scenario Always

What is the worst case scenario on the investment? Know it and determine if it is something you can live with. In High-risk investing, returns are not guaranteed. No matter how grand your analysis are, anything can go wrong.

If the worst case scenario is that you lose all your money, if you don’t mind it, then go for it. The great part about assuming the worst is that if the best happens, you would have hit a jackpot. Even when things seem to be going great, there could be unpleasant surprises. Hence, as long as your funds are still in the investment vehicle, think only of the worst possible outcome. It sucks, but it would have you ready for anything objectively.

Invest In Other Things

It is great to want to try your hands on a few high-risk investment opportunities but do not base your entire wealth future on unstable lands. High-risk investments work better when you diversify. Invest in various classes of assets or securities; invest in a range of industries. Simply put, do not place all your eggs in one risky basket.

Written by Lawretta Egba.