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How To Find The Happiest Risk/Reward Medium In High Risk Investing


Risks and rewards of high risk investing

high risk investing

High risk investing offers a mixed bag of benefits and drawbacks. As might be expected, both factors are directly proportional. Potential returns can indeed be quite spectacular. Losses sustained can also be especially excruciating.

Identifying ideal high risk investing vehicles

The choice of which best high risk ventures to invest hard-earned funds into is a highly individualized decision. Relative risk-tolerance, desired rate of return, total amount of investment funds and length of time available to accomplish your personal goals should be the primary determinants.

Two common high risk investing strategies are highlighted below:

Penny stocks

Novice speculators often find securities that have prices nominated in pennies to be attractive. A common thought is that spending $500 on 1,000 obscure 50-cent offerings is better than buying five $100 blue-chip stocks. The fallacy of this reasoning resides in the fact that performance – rather than price – is the best indicator of relative stock value.

In the realm of investing – as everywhere else – you get what you pay for.  One stock may be grossly overpriced at 75 cents per share, while another can be vastly undervalued at $125.  Penny stocks are cheap for a reason.

New venture capitalization

This category includes new enterprises and novel innovations introduced by well-established businesses. Such securities are considered “high risk” due to the lack of long-term empirical evidence to portend probable future performance levels.

Most penny stocks undergo a brief growth bubble that eventually explodes in investors’ faces. Others experience booming success.  How would you like to have been among the first financial backers of McDonald’s, Pizza Hut, or Federal Express?

Conclusion

Many high risk investment vehicles exist in addition to those highlighted above. Serious soul-searching and realistic evaluation of your particular circumstances is the best means of maximizing long-term success in high risk investing.

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