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8 High Risk Investments That Could Double Your Money
When an investment vehicle offers a high rate of
return in a short period of time, investors know this means the investment is
risky.
Given enough time, many investments have the potential
to double the initial principal amount, but many investors are instead
attracted to the lure of high yields in short periods of time despite
the possibility of unattractive losses.
Leveraged Oil ETFs
Leveraged oil ETFs are typically subject to high-volume
trading activity and are known for high levels of volatility. For these
reasons, the ETFs can offer investors exponential returns or losses if trades
are made due to pesky emotions. The price of oil can be equally volatile, and
for this reason, trading activity reflects an amplified level of volatility in
its prices.
An example of this can be seen in the ProShares
UltraShort Bloomberg Crude Oil ETF with a one-year return from 2014 to 2015 of
193%. Alternatively, the ProShares UltraShort Oil & Gas ETF has a five-year
loss of 26%.
Options
Options offer high rewards for investors trying to
time the market. An investor who purchases options may purchase a stock or commodity equity at a
specified price within a future date range. If the price of a security turns
out to be not as desirable during the future dates as the investor originally
predicted, he does not have to purchase or sell the option security.
This form of investment is especially risky because it
places time requirements on the purchase or sale of securities. Professional
investors often discourage the practice of timing the market, and this is why
options can be dangerous or rewarding.
Initial Public
Offerings
Some initial public
offerings (IPOs), such as Box's in early 2015, attract a lot of
attention that can skew valuations and the judgments professionals offer on
short-term returns. Other IPOs are less high-profile and can offer investors a
chance to purchase shares while a company is severely undervalued, leading to
high short- and long-term returns once a correction in the valuation of the
company occurs.
IPOs are risky because, despite the efforts make by
the company to disclose information to the public to obtain the green light on
the IPO by the SEC, there is still a high degree of uncertainty as to whether a
company's management will perform the necessary duties to propel the company
forward.
Venture Capital
The future of startups seeking investment from venture capitalists is particularly unstable and uncertain.
Many startups fail, but a few gems are able to offer high-demand products and
services that the public wants and needs. Even if a startup's product is
desirable, poor management, poor marketing efforts and even a bad location can
deter the success of a new company.
Part of the risk of venture capital is the low
transparency in management's perceived ability to carry out the necessary
functions to support the business. Many startups are fueled from great ideas by
people who are not business-minded. Venture capital investors need to do
additional research to securely assess the viability of a brand new company.
Foreign Emerging
Markets
A country experiencing an industrial revolution or a
new political regime that encourages development can be an ideal investment
opportunity, as it has been for China over the past ten years. Spurts in
economic growth in countries are rare events that, though risky, can provide
investors a slew of brand new companies to invest in to bolster personal
portfolios.
The greatest risk of emerging markets is that the
period of extreme growth may last for a shorter amount of time than investors
estimate, leading to discouraging performance. The political environment in
countries experiencing economic booms can change suddenly and modify the free
market or capitalist economy that previously supported quick growth.
REITs
Real estate investment trusts (REITs) offer investors high
dividends in exchange for tax breaks from the government. The trusts invest in
pools of commercial or residential real estate.
Due to the underlying interest in real estate
ventures, REITs are prone to swings based on developments in an overall
economy, levels of interest rates and the current state of the real estate market,
which is known to flourish or experience depression. The highly fluctuating
nature of the real estate market causes REITs to be risky investments.
Although the potential dividends from REITs can be
high, there is also pronounced risk on the initial principal investment. REITs
that offer the highest dividends of 10 to 15% are also at times the riskiest.
High Yield Bonds
Whether issued by a foreign government or high-debt
company, high-yield bonds can offer investors outrageous returns in
exchange for the potential loss of principal. These instruments can be
particularly attractive when compared to the current bonds offered by a
government in a low interest rate environment.
Investors should be aware that a high-yield bond
offering 15 to 20% may be junk, and the initial consideration that multiple instances of
reinvestment will double a principal should be tested against the potential for
a total loss of investment dollars. However, not all high-yield bonds fail, and
this is why these bonds can potentially be lucrative.
Currency Trading
Currency trading and investing may be best left to the
professionals, as quick-paced changes in exchange rates offer a high-risk
environment to sentimental traders and investors.
Those investors who can handle the added pressures of currency
trading should seek out the patterns of specific currencies before investing to
curtail added risks. Currency markets are linked to one another, and it is
a common practice to short one currency while going long on another to protect
investments from additional losses.
Trading on the forex market does not have the same
margin requirements as the traditional stock market, which can be additionally
risky for investors looking to further enhance gains.
