Category: Investments

Is it Worth Taking Out High-Risk Investments?

There are lots of different types of investments and therefore lots of different options with regards to what you might like to go for if you are choosing an investment. There is one main decision that you need to make though and this is whether you want high or low-risk investments. This might seem like an easy decision but it is worth noting a few things before you make that decision. 

There is no Such Thing as a Risk-Free Investment

 It is good to think about the fact that all investments have some element of risk Even if you take something considered to be a low-risk investment there is still some risk. With investment, the risk refers to the chance that you might lose money. It is important to realise that this is not referring to the chance that you will get a return on the investment, so whether you get dividends on the shares or rental income from a home but on the risk that you will actually get the money back that you have paid in. Investments require you to buy an item, such as a home, share of a company or piece of art and the risk that you are taking is whether the value of that goes up or down. When you come to sell the item, you want to be able to make more money or at least the same amount as when you bought it. This means that you need to make sure that you invest in something that you hope will go up in value and also only use the money to invest that you are prepared to lose. Although there is always a risk, there are some things that are riskier than others. 

The Higher the Risk the Higher the Return

 It tends to be the case that with some investments, the more risk you are prepared to take, the more return you are likely to get from it. This means that it can be tempting to take on a high-risk investment because you want to get a high return. However, it does mean that you have a large risk that you will lose money as well. For example, if you buy a piece of art by an art student and they become hugely famous then that piece of work could worth a lot of money. However, if they never become famous then it will be worth nothing. So, although there is a chance of a huge return, there is also the risk that will not get any of your money back. When buying an item such as art or antiques, it will be wise to buy something that you like and will enjoy looking at. Then you will feel that the money is well spent as you have had pleasure from it, even if it has not increased in value. However, if you are buying shares in a company and the company goes out of business, you will not have anything to show for it. 

Might need to Hold Them for Longer

 With all investments, it is recommended that you hold on to them for a long time so that you can have a better chance of the value increasing. This is because the value of investments tends to go up and down a lot in the short term but in the long term this evens off. This means that holding on to it for longer means there is a bigger chance that when you sell it that the value will have gone up. It could be the case that with a higher risk investment, you will need t hold on to it longer to give it a higher chance of increasing in value. Normally, you would hold investments for at least five years and probably double that as a minimum but with higher risk ones, you may have to hold them for even longer in order to have a better chance of making money.