Unsafe and Risky Investments Explained
Becoming an investment wiz isn’t something that happens overnight. If you are interested in exploring the financial market to build a secure nest egg, there are many options available. Depending on what you put your money toward, you could build up a health sum for your retirement and your bank account if you perform your due diligence.
However, for every good investment, there are options that are considered “unsafe” or “risky.” These high-risk, high-return investments can be very appealing if you are looking to make money fast, but investors stand to lose a great deal if this tactic doesn’t pay off. Risky investments are attractive options that yield quick results, but can be detrimental if done incorrectly.
If you are looking at any types of risks, considering the following as you build up your account portfolio.
High-Risk Investment Options
High-risk investments can take many forms. Whether you are looking for high-volume trade, timed rewards, or a risky market, there are many unsafe investment options that have potential to result in total loss. There are no long-term investments with these types of risks; the bottom line, if you wish to avoid possibly losing your hard-earned money, be wary of these investments.
Leveraged Oil ETFS
ETFs have high-volume trading activity, which leads to market volatility. As investors risk drilling for the black gold, the market price is something that is ever-changing. Within a year, market percentages can rise and fall over 100% the same year. These investments may have a big pay-out, but only if they pay off. If you do happen to strike oil, there’s no telling how the market will fluctuate.
Another high-reward option involves trying to time the market. Investors purchasing stock or commodity equity do so at a price with a “future” date range. Only after a period of time can they be sure if their risk has paid off. If the stocks do not change, the investor may be left with something that has no potential worth. Option investing is a practice of timing; it could either lead to a big pay out, or end up being a waste of an investment.
Initial Public Offerings (IPOs)
IPOs are considered ‘high-profile’ investments that may have little return on investment. This is the practice of purchasing undervalued shares on the off-chance that it could grow in the future. These purchases are dependent on company performance. If you are well-versed in a particular market, this type of investment could result in a major account boost.
Venture Capital and Foreign Emerging Markets
If you own a self-directed IRA, you might be considering investing in a startup venture. Many startup entrepreneurs seek out potential investors, and depending on the borrower, a lender could have a solid investment.
The bottom line with this asset is that many startups eventually fail, sometimes within the first year. These companies fail for various reasons: lack of market, poor management, poor marketing, bad location, etc. The risk is the lack of business-minded entrepreneurs running what they hope will pay off.
Additionally, another investment option is investing in economic growth in other countries and new companies. These investments carry a similar risk, since it’s unclear how long the economic will remain at a profitable peak. It’s crucial to perform your due diligence when you consider lending or investing. Who exactly are you investing in?
REITs and High Yield Bonds
In a highly fluctuating market, real estate investment trusts can be a risky option. The real estate market is prone to swings based on economic changes, interest rates, and the market itself. With an inconstant market, potential growth could be difficult to measure.
Similarly, high yield bonds can have a decent return if the investor manages to purchase one with significant worth. Most high-yield bonds are considered “junk” and the ROI isn’t worth the risk. While these types of risks are easily avoidable, there are other options that may seem appealing, but can lead to a loss as well.
Deceiving Investment Options
Depending on your investment account, many of these investment options may not be applicable, especially for a retirement fund. Many of these investments may carry a higher price tag that initially thought, but with little long-term growth for your account. As you consider these investments, be sure that the risk is worth the reward.
Collectibles, like art, automobiles, or other like items may seem like a high-return investment, but with all collectibles price is subjective. Most of these items have a limited sales market. Of course, you could make a mint off a collector’s item at auction, but you would have to find a potential buy first.
Additionally, items like classic cars can be money pits; investors may have to spend a bit before they have something worth selling. It should be noted that most collectibles are not recognized as viable assets for investment for a self-directed or traditional IRA. To be worth something for retirement, collectibles would have to be sold first.
Cash Value Life Insurance and Timeshares
Another investment option to avoid is cash value life insurance. More often than not, these policies are company inflated and do not pay out as promised. What you pay into may result in a small percentage of what you’ve invested. This asset is also considered forbidden for any retirement account.
Another deceiving investment involves a real estate purchase: timeshares. While a vacation rental seems like an ideal investment, most of these investments carry a high-price tag and are difficult to sell. As you consider your investment options, keep in mind that risk isn’t limited to what you choose to invest in. Sometimes the strategy is what can result in total account loss.
Risky Investment Strategies
Investing can be a tricky business, especially if you are inexperienced. While particular assets are easy to avoid, setting up your investment strategy is crucial to a successful account. As you start investing, here are some risky styles you should avoid.
Lack of Diversity
If you are investing in a self-directed IRA, one of the easiest pitfalls is investing in all or nothing. Account holders should develop well-balanced portfolio to protect against losing money in high-risk investments.
A diversified portfolio can secure your account with passive income and protect you from total loss should one of your assets fail. If you put all of your investment eggs in one basket, however, you could run the risk of having too many short-term investments or high-risk assets.
Using Borrowed Money
As you make investments, it’s difficult to have long-term goals if you are purchasing on a borrowed dime. Borrowing money to make money can affect your long-term growth. Buying up debts outside your wheelhouse could end up costing you more in fees, tax penalties, and interest rates than you are saving.
Lack of Research
One of the biggest pitfalls for any investor is a lack of knowledge. It’s difficult to thrive in the financial world without the proper information. If you are considering opening any investment accounts for your future, consider the options available to you and the cost.
Financial advisors, IRA custodians, bank trusts, and investments all have fees, but how much are you paying and are you getting your money’s worth? Without due diligence, you may run into financial woes, trouble with the IRS, or end up paying too much for a service. It’s essential to do your research before engaging in any financial venture.
Avoiding the Risks
As you venture into the financial world, be aware of all the unsafe and risky options. With proper investment, you can successfully grow your investments for a substantial ROI. Whether you wish to take the risk or protect yourself with a diverse portfolio, it’s up to you to decide on your fund’s short or long-term growth. Perform your due diligence and take advantage of potential investments to enhance your future. Contact us today for additional information.