When I talk about high risk investing I’m talking about investment opportunities where you could lose all your money. The allure of the rewards often encourages us to push past our fears and take the plunge. However, just like that mouse, if we risk too much in this arena we could lose it all.
With medium-risk investments, you could lose some of your money. With medium-risk investments you can attend webinars or get help from an advisor, but with the high risk, you almost need a degree to succeed in it. With high risk, you could lose it all. Ideally, you only invest up to 5% of your money into these types of investments. If you’re extremely savvy and experienced, maybe up to 10% but never more than that. Even the most experienced angel investors (who invest in startup companies) agree with this. The big reason is that the risk that you will lose it all is very real, but so are up to triple-digit returns.
As risk increases so do the information requirement. Most of the high-risk investments will require you to be extremely disciplined in following rules and not get sucked into gambling. Here is a list of some high-risk investments. Even with “expert” level knowledge, these investment vehicles can be very risky.
Types of High-Risk Investments
Cryptocurrency
A cryptocurrency, like Bitcoin, comes and goes as the flavor of the month investment strategy. It’s alluring because there are many who have made millions riding the waves of the blockchain phenomenon and become overnight rich. For cryptocurrencies to be successful they need to solve a real-world problem. Do they make transactions more transparent and create less friction and waste? Is there a specific niche that they ease transactions in? There are a ton of questions when it comes to evaluating a cryptocurrency. It’s for this reason, I don’t recommend investing in blockchain unless you know what it is, how it works and the ideal application of that token.
Angel Investing
Being an angel investor is exciting. As an “angel” you’re in on the very early stages of a new business. Usually pre-revenue and usually (as the experts say) early rounds. In fact, angel investors are usually the investors that are the first “strangers” to invest in a business. Experienced angel investors suggest that you expect to lose all of your money at least 90% of the time. Professional angel investors want to win 1 to 5% of the time. These rare wins often go for 100X the return making all the time and previous financial investments worth it. Angel investing can be extremely rewarding as it can often give you opportunities to mentor others.
If you understand the business, have significant funds to invest and time, then angel investing can be a great hobby that helps others and sometimes produces huge wins for your retirement. Note that in some cases to be an “official” investor you will have to be accredited.
Accredited Investor
The simplified version of accredited investor status is essentially anyone who makes over $200,000 a year for 2 consecutive years or has a net worth over $1 Million dollars. Investment vehicles that are regulated by the SEC require this status to allow individuals to participate in what they feel is ultra-high-risk. This includes some hedge funds, venture capital, and angel investing. Essentially the SEC wants to make sure that you can afford to lose all your money and that you’re knowledgeable enough to know that.
Commodity & Currency Trading
Just like stocks you can trade commodities like oil barrels and pork bellies and currencies. If you’ve ever been spammed about making millions through forex (foreign exchange market) trading then you’ve been exposed to this. Successful traders have a strict methodology to follow here.
There are long term and short term plays. Some investors even watch 5-minute market shifts. The highest skilled investors here know how to read a graph, know which way the market is going and then make trades based on that direction. An experienced trader will tell you that 80% of your trade goals is to not lose money. You’re hoping that the winners will make up for the losers and there are a lot of losers in the trading world.
Crowdfunding
One popular way to get in on the action of high risk investing is to participate in crowdfunding type opportunities. They come in all sorts of flavors such as business and real estate. Crowdfunding promises the reward of being able to invest in these opportunities without having to be accredited. While the opportunities can be enticing, the returns are greatly muted and you lack any of the ownership or influence you might have as an angel. It’s, for this reason, I don’t recommend crowdfunding as an investment. Instead, I recommend you look at crowdfunding as a gift or a bet on a particular opportunity.
Recommendation: If you are interested in these high-risk investments then I recommend paper trading for at least a year. Use pretend money and keep track of your trading. There are several ways to do this for day trading stocks in particular. You don’t have to participate in any of these opportunities. In fact, you probably shouldn’t. However, if you do, don’t invest more than 5% of your overall savings and know your numbers.
