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High Risk Investment

Many conservative options double the investment over a period. However, some investors prefer high returns in a short period rather than waiting patiently for long periods for their money to grow. In the bargain, they expose their investments to potential risk, i.e., loss due to underperformance. An investment with a risk of losing some or all capital is termed a high risk investment. ...Read More

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High Risk Investment

What is High Risk Investment?

High Risk Investment
January 09, 2025

Table of Content

 

An Investment with a higher risk of loss when compared to conventional plans that offer capital protection is a high risk investment. The returns are much higher but uncertain in these investments. With a proper investment plan, you can create substantial wealth in a shorter period with these financial assets.

Creating a diverse portfolio where your funds are spread over various assets is one of the proven risk management strategies in high risk high return investments. This approach balances risks with rewards to minimise potential losses. Though a high risk investment is correlated to gambling with money with the hope of earning big, proper planning can provide high returns in a short period. This investment is ideal for people who are willing to take high risks with their investments.

Features of High-Risk Investments

Learn about the features of high-risk investments before you venture into investing in risky financial assets. They are:

  • Market Fluctuations

Market fluctuations reflect asset price changes due to factors like government regulations, interest rates, consumer confidence, and natural calamities. These fluctuations provide the potential for higher returns. Similarly, the chances of losses are also great. This makes the investment suitable for investors with a high-risk tolerance who prefer high returns to capital protection.

  • High-profit Opportunities

Speculative investments like stocks, cryptocurrencies, start-ups, etc., provide high profit opportunities owing to their volatile price movements. These high risk high return investments take advantage of market trends, technology advancement, and growth potential. Though the risks are high, proper planning and prudent decisions can provide high returns, making the investment ideal for investors with high risk appetites and a mindset of staying invested for longer durations.

  • Uncertainty

You should be mindful of the uncertainty when you opt for a high risk investment. The returns are unpredictable as they depend on factors including market fluctuations, regulatory changes, consumer confidence, innovation, and competition.

To offset the uncertainty associated with high-risk investments, pairing them with an insurance-backed investment plan can offer some assurance. While the investment component seeks market gains, the insurance coverage safeguards your dependents in case of unforeseen events.

  • Illiquidity

Some high-risk investments cannot be encashed easily as they have a lock-in period, unlike safe and conservative investments like a savings plan or a fixed deposit. If all funds are blocked in high-risk investments, it will be difficult for you to adapt to changing situations.

  • Larger Investment Requirements

A larger capital is required to participate in a high risk investment.  The scope for diversification of the portfolio is higher when the capital is significant. Also, you need substantial capital to leverage the growth opportunities in a volatile market. It needs tolerance for potential losses and the capacity to hold on to investments during market downturns. The insistence on larger investments also restricts access to the investment as it is meant for investors who can take calculated risks.

Types of High-Risk High Return Investments

The high risk high return investments are:

  • Stocks and Equities

Stocks and equities are high-risk investments with significant growth potential. When you buy stocks of a company you become a shareholder in the company and are entitled to a percentage of the company’s profit commensurate to your shareholding. However, the performance of the company impacts the returns. It could either be high or low. If you have considerable risk tolerance and can withstand the stock market volatility, this investment is ideal for you.

  • Cryptocurrencies

Cryptocurrencies like Bitcoin are highly volatile investment tools due to constant price fluctuations. Market sentiment, sensitivity to technology, unpredictability, and government regulations are factors that impact the crypto value. In spite of the risk attached, investors prefer cryptocurrencies as they are categorised as investment opportunities with high returns.

  • Startups and Venture Capital

Investments in startups through venture capital are alternative investments with a high risk due to the unpredictability of the company’s performance. Venture capital investment is in startups with high growth potential with significant returns. However, since the success rate in startups is lower, investors’ risk in this investment is considerably high. The liquidity events are limited in startups. It can be either through acquisition or initial public offering.

  • Initial Public Offerings (IPOs)

IPO is a process where the shares of the company are made available to the general public for the first time. Though participating in IPOs is profitable, it is a high risk investment. The companies listed for the first time can be a highly volatile bet without a guarantee of their success. Evaluating a company’s various parameters to assess its financial health is paramount before investing.

Benefits of High-Risk High Return

The benefits of high risk high, return investments are:

  • Potential for Significant Gains

High-risk investments like mutual funds, stocks, start-ups, IPOs, etc., have a potential for high returns as a reward for the investor’s risk. These investments pose a great level of uncertainty. The returns are high when the company performs well and significantly low when there is a downside.

  • Diversification

With significant capital involved, diversification in various assets is possible in a high risk investment. The losses from one investment can be set off with the high returns of another investment.  A diverse portfolio balances risks with rewards, reduces potential losses, and retains high-return opportunities.

Diversification can also include insurance-linked investment products like Unit-Linked Insurance Plans (ULIPs), which allow you to allocate funds to equities while providing life cover, thereby balancing risk with protection

  • Market Outperformance

Market outperformance is when an asset generates more returns than the benchmark set for the asset. Investors review the performance of different investments to assess the probable returns they can generate. Investing in an asset that has outperformed the market can not only get high returns but also offer higher liquidity due to the demand.

  • Early Access to Emerging Markets

Emerging markets offer ingenious technology and products with high growth potential. Investors with investment risk tolerance can acquire the assets at lower costs by entering early into the market and benefit from significant long-term gains as the market improve. While the risks are considerably high, the rewards are equally good, making the emerging market a high-return opportunity for investors with a high risk appetite.

Key Tips to Invest in High-Risk Investments

To safeguard the investments and retain the scope of high returns, follow the tips given below:

  • Proper Research and Checking

Conduct thorough research and check for the market conditions, the performance graph of the asset, and the financial health and viability of the company involved before making a high risk investment.

  • Spreading Your Investments

Create a diverse portfolio and spread the investment across various asset classes, i.e., low risk investment and high-risk investment, different sectors, industries, or companies. This investment risk management technique distributes the risk, and the loss from one asset is overcome by high returns from another, thus keeping the return potential in a high risk investment intact.

  • Understanding Risk and Goals

Before making unstable investments, understanding what is financial goal and defining your goals is crucial. Also, assess your risk tolerance level and invest only as much as you can afford to lose without disturbing your financial well-being.

  • Track Progress and Adjust

When you are into market speculation, tracking the progress of your investments and adjusting them to align with the market conditions and your financial goals is paramount to safeguard your investment and minimise losses.

  • Stay Calm and Stick to Your Plan

Potentially profitable investments involve allocating funds to high-risk assets. You can make the best out of this investment only if you can stay calm and stick to your plan even in drastic market conditions. Making impulsive decisions during market downsides can only harm your investment.

  • Protecting Against Losses

Adopt risk management strategies like diversifying your portfolio and using hedging techniques as a guard against losses. Understand that all high-risk investments are not profitable. Learn from your mistakes. Draw an investment plan based on your experience and lessons learnt.

Conclusion

A high risk investment has a potential for high returns but involves the risk of loss of investment and dilution. Understanding the market trends, the performance and viability of the assets, and the company involved can reduce the chances of losses. Creating a diverse portfolio, i.e., allocating funds to different asset classes or companies, can balance the risks and rewards. Seeking professional advice helps balance funds to safeguard your overall financial health.

While high-risk investments offer opportunities for substantial gains, coupling them with Life insurance offer by HDFC Life can provide a safety net for individuals seeking financial security alongside aggressive returns.

FAQs on High-Risk Investment

Q. What investment is the highest risk?

Investment in stocks and equities, venture capital and angel investments, mutual funds, IPOs, cryptocurrencies, etc, are the highest-risk investments.

Q. How can I diversify my portfolio with high risk investments?

You can diversify your portfolio with high-risk investments by spreading it across different asset classes or companies

Q. What’s the best strategy for investing in high-risk assets?

Diversifying your investment option to reduce the impact of a single investment is the best strategy for investing in high-risk assets. Spread your investment across various asset classes, companies, industries, and sectors.

Q. How do I manage risk in high risk high-return investments?

Assess your risk tolerance and distribute the funds across various asset classes. Invest in high risk investments only to the extent of loss you can bear.

Q. Are high risk investments worth it for long-term growth?

High-risk investments are worth it for long-term growth when clubbed with smart management. Sticking to your investment plan and waiting patiently can balance the risks and reward you with high returns. Not getting perturbed by short-term market fluctuations and avoiding impulsive decisions can prevent losses.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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This material has been prepared for information purposes only, should not be relied on for any financial advice. You should consult your own financial consultant for any financial queries.

**The past 5 year fund performance of HDFC Life Discovery Fund (SFIN: ULIF06618/01/18DiscvryFnd101) as on 30th November 2024. The benchmark taken into consideration here is is Nifty Mid Cap 100 which as a return of 26.77% as on 30th November 2024. HDFC Life Discovery Fund is available with HDFC Life ULIPs which comes with a life cover. Please note past fund performance is not indicative of future performance.

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