Investors understand that when an investment vehicle offers a high rate of return in a short period of time, it is a risky investment. Many investments have the potential to double their initial principal amount given enough time, but many investors are drawn to the allure of high yields in short periods of time, despite the risk of unattractive losses.
Make no mistake: there is no way to ensure that any investment will double your money. However, there are numerous examples of investments that have doubled or increased in value in a short period of time. There are hundreds of failures for every one of these, so the buyer must use caution.
TAKEAWAYS IMPORTANT
- It’s nearly impossible to find an investment that can allow you to double your money without taking risks.
- Some investments may not double your money, but they do have the potential for large returns.
- Because they are based on fundamentals, strategy, or technical analysis, certain investing risks are manageable.
- Investing risks such as the Rule of 72, options, IPOs, venture capital, overseas emerging markets, REITs, high-yield bonds, and currencies are all controllable.
1. The 72-Hour Rule
This is not a quick fix, but it has worked in the past. Given a set yearly interest rate, the Rule of 72 is a straightforward way to calculate how long it will take an investment to double. Investors can get a general estimate of how long it will take for the initial investment to double by dividing 72 by the annual rate of return.
2. Investing in Alternatives
Investors who try to time the market with options can earn a lot of money. A stock or commodity equity may be purchased at a set price within a future date range by an investor who acquires options. The investor does not have to buy or sell the option security if the security price turns out to be less appealing at future dates than the investor projected. 2
Because the purchase or sale of securities is subject to time constraints, this type of investment is risky. Professional investors frequently oppose market timing, which is why options may be both risky and rewarding.
3. Initial Public Offerings (IPOs)
Some initial public offerings (IPOs), such as Snapchat’s in mid-2017, receive a lot of attention, which can skew valuations and the short-term returns judgments specialists make. Other IPOs are less well-known, but they can provide investors with the opportunity to buy shares in a company that is badly undervalued, resulting in substantial short- and long-term returns after the company’s valuation is corrected. Most initial public offerings, like SNAP.34, fail to yield large returns, if any at all.
Twilio Inc. (TWLO), a cloud communications firm that went public in June 2016, raised $150 million at a $15 per share IPO offer price.5 Twilio went up on its third day of trade.
IPOs are dangerous because, despite the firm’s attempts to reveal information to the public in order to secure the SEC’s approval for the IPO, there is still a significant level of uncertainty about whether management will execute the necessary tasks to move the company ahead.
4. Private equity
The future of entrepreneurs seeking venture capital funding is unstable and unclear. Many startups fail, but a select few can provide in-demand products and services that the general public desires. Even if a startup’s product is appealing, poor management, marketing efforts, and even a poor location can stymie its growth.
Low transparency in management’s perceived capacity to carry out the necessary responsibilities to support the business is one of the risks of venture financing. Many startups are fueled by brilliant ideas from non-business people. To safely assess the viability of a brand new company, venture capital investors must conduct additional research. Minimum investment amounts in venture capital are typically very high, which can be difficult for some investors to meet. If you’re thinking about investing in a venture capital fund or making an investment, make sure you do your homework first.
5. International Emerging Markets
A country with a rising economy can be an excellent investment prospect. Investors can purchase government bonds, equities, or sectors in a hyper-growing country, as well as ETFs that represent a booming stock sector. From 2010 to 2018, China was in this situation. 7 Economic growth spurts are unusual occurrences that, while dangerous, can present investors with a slew of brand new companies to invest in to diversify their portfolios.
The most major risk in emerging markets is that the period of high growth may be shorter than investors anticipate, resulting in disappointing performance. In countries experiencing economic booms, the political environment can shift quickly, altering the economy that previously encouraged growth and innovation.
6. REITs
REITs (real estate investment trusts) provide investors substantial dividends in exchange for government tax benefits.
The trusts make investments in commercial and residential real estate pools.
REITs are prone to fluctuations based on changes in the broader economy, interest rate levels, and the current health of the real estate market, which is known to flourish or experience depression, due to the underlying interest in real estate initiatives. REITs are risky investments due to the extremely volatile nature of the real estate industry.
Although REIT income can be substantial, the initial primary investment is subject to significant risk. REITs with the greatest dividend yields of 10% to 15% are also the riskiest.
7. High-Yield Bonds
High-yield bonds, whether issued by a foreign government or a high-debt firm, can promise investors astronomical profits in exchange for the risk of losing their investment. In a low-interest-rate environment, these securities can be very appealing when compared to current government bonds.
Investors should be warned that a high yield bond yielding 15 to 20% could be junk, and the first thought that many reinvestments will double a principal should be weighed against the risk of losing all of their money. However, not all high-yield bonds fail, which is why these securities can be profitable.
8. Foreign Exchange Trading
Currency trading and investment are best left to the specialists, as rapid swings in exchange rates expose sentimental traders and investors to a high-risk environment.
To reduce additional risks, those investors who can take the added pressures of currency trading may look for trends in certain currencies before investing. Currency markets are intertwined, and shorting one currency while going long on another is a typical tactic to safeguard investments from further losses.
What Do You Mean by High-Risk Investments?
Currency trading, REITs, and initial public offerings are all high-risk ventures (IPOs). There are also other high-risk investments available, such as venture capital and cryptocurrency trading.
What Is Foreign Exchange Trading?
The forex market includes exchanging one currency for another, and the margin requirements for trades differ from those in the stock market. For newcomers, Forex can be a difficult market to navigate.
Penny Stocks: Are They High-Risk Investments?
Penny stocks (typically traded for $5 or less per share) may appear straightforward, but if a trader is unfamiliar with over-the-counter trading, they can become a high-risk investment.
Because of the nature of the company and the small number of the shares, penny stocks lack liquidity and ready buyers in the marketplace. These stocks are classified as speculative, and if you overinvest in them, you risk losing your money, making them a potentially dangerous investment.
In conclusion
High-risk investments are not suitable for all investors. These investments may involve a significant risk of loss but also a high potential for profit. While certain high-risk investments are appealing, you should conduct your research first. You may be able to include certain higher-risk items in your portfolio while maintaining lower-risk holdings by developing a better understanding of risk and how it can affect your finances.
