Interest rates are low. How to find investment opportunities with high risk but good growth
As with any investment, there is a cost when investing in high-risk, high-return opportunities. Along with the potential of high returns, there are risks within these investments that can potentially cause significant losses which you must be aware of. Let’s take a closer look at some of these high-risk investments, how they differ from low-risk ones, and how you can benefit from investing.
What Are High-Risk Investments?
When considering an investment, there are different risk tiers. The lowest risk would be a regulated savings account, backed by FSCS (UK) or FDIC (USA) protection. A high-risk investment can be buying or starting a business, investing in high-growth small cap stocks, buying crowdfunded company shares (Seedrs shares for example) and investing in cryptocurrencies. The expected rate of return on any investment falls along a probability curve referred to as the risk/reward trade-off, with riskier investments having higher potential rewards than safer investments. These investments are referred to as high risk because of their potential for much greater returns.
One of the most commonly known examples of high-risk investment is trading cryptocurrencies, where early adopters of newly released coins can make huge profits in short periods.
We have seen some cryptocurrency coins making thousands of percent returns in very short periods of time. Trying to identify which coins will be the next big thing is extremely difficult and extremely risky, but it is possible with some research and some luck.
(One caveat here, don’t ever invest in cryptocurrency unless you can afford to lose the money).
How Do These Types of Investments Differ From Low-Risk Investments?
One of the biggest issues with cryptocurrency at the moment is many people invest in something without understanding what they are investing in. There is a lot of hype around certain coins with good marketing (Shiba Inu for example), and people FOMO (fear of missing out) into the coins and many times lose money from buying in at the high point (I’ve done it too). More seasoned investors have low risk tolerance and may consider a low-risk investment because it is a traditional investment or something their financial advisor suggests. Because there are so many factors involved in an investment, one should never base their opinion solely on how another person views an investment opportunity. I would really advise you listen to any YouTube influencer because many times those people have no idea what is going to happen to the price of an investment
Some basic concepts are present in most investments. Low-risk and high-risk investments tend to differ in many ways:
High-risk investments often require someone to gamble and invest in something with possible unproven potential. This can result in large profit with some luck. High-risk investments include:
- New or emerging stock markets (Asia for example)
- IPO stocks (Initial Public Offerings)
- Cryptocurrencies (especially small caps)
- Crowdfunded startup company shares / angel investing (Seedrs)
- High return paying peer to peer lending loans
- Buying a business such that are in debt but operating at a profit
- Assets that have management problems, legal issues, or other factors not considered “safe” by investors (e.g., the sale of “toxic waste” contaminated land).
Low-risk investments are made when an investor is looking for something more reliable, with low to moderate returns. Low-risk investments include:
- The purchase of government Treasury bills or bonds;
- The purchase of AAA grade corporate bonds (Usually blue chip stock companies);
- Savings accounts deposits paying low yields
High-risk investors generally have greater risk tolerances while low-risk investors generally seek to minimize their risk by picking safer investments with a lower potential for loss and a lower rate of return.
What are the investment opportunities with high risk but good growth?
There are many opportunities with high risk but good growth. One should only consider an investment opportunity if they are willing to accept the possible downsides. Potential prospects can include high risk stocks. And remember, what one person considers high risk, another may not.
Business purchasing can also be considered a high-risk investment.
- The purchase of an existing business with high growth potential but low-risk because it is well established. Sometimes businesses like this or for sale because they are low on revenue but there is a high potential for expansion.
- An existing company with the potential for significant growth by entering new markets or becoming more aggressive in cutting costs.
- A business that is currently very profitable with good assets but will have a low rate of return because of the high cost of capital.
What to consider when examining opportunities with high risk but good growth?
Before even considering the risks that an investment may come with, one should:
- Determine if the investment opportunity has a probable potential for success. Many people overlook that not all options have similar potential, and some investments will simply fail to live up to their expectations. Furthermore, some assets have a much higher potential than others do because they include so many other factors such as “entrepreneurial spirit,” “innovative technology,” “excellent service,” and the like.
- Assess if there is an already existing market that can support or increase sales.
- Determine if the product or service is new to the market. If the potential exists for a business with a unique selling point, one should consider the risk that the product or service may not sell well.
- Determine if the risk of failure is low. Some investors overlook this particular reason for investing because people always seem to hit on all cylinders when starting a new business. However, many companies have massive potential for growth and profitability but will fail simply because marketing or execution is lacking. In addition, some investors assume that they have found an “easy” way to make money by simply getting involved in something with high potential for success… However, that is often not the case.
- Research the investment to determine if it meets your criteria #1 & #2. Many business opportunities meet all of the requirements for a chance with high risk but good growth… However, there are also plenty of “bubbles” in the market today. There are many business opportunities out there with low potential for success or failure. Some people take too much risk to make an easy profit which they regret later. So, it is essential to be cautious when investing.
Investments with high risk but good growth can be very lucrative but you must do your homework to ensure the best chance of success. Not all investments will be winners and you must be emotionally prepared for that. Never invest in anything without thoroughly researching the investment. Risk Management is an essential skill for any investor to develop. There are many ways that an investor can minimize risk when investing, but it all boils down to one thing – research, research, research.
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** This page is for information purposes only. This information is not financial advice and has been prepared without taking your objectives, financial situation, or needs into account. You should consider its appropriateness for your circumstances. All investing carries risks. Opinions expressed on this page are opinions based on my own personal experiences. The FSCS and FDIC do not cover investments and your capital is at risk. Please don’t invest more than you can afford to lose. **