I really enjoy emails asking me questions that I can answer with a post to benefit you all. This one was something along the lines of "Max, how do I aggressively grow my account through some high risk investments."
So I thought to myself, uh oh, this could be dangerous to answer because usually people willing to make high risk investments aren't actually ready and when shit hits the fan, they are panicking, surprised and devastated that something like losing all their money could happen to them.
For full disclosure, I cannot give investment advice and tell you where you should and shouldn't put your hard earned cash. That is for you capable people to do with your own due diligence.
So with that being said, here are some commonly known higher risk investments that investors use to grow or destroy their accounts depending on their own risk tolerances.
I should also point out that personally, high risk stuff scares me and I'm much more of a boring slow, steady type of guy when it comes to risk in trading and investing.
Venture Capital Investing
venture capital investing
Simply put, this is the type of investing whereby new companies (or established) pitch their ideas about how they want to grow and what they want to achieve. Potential investors who like the idea put up their own cash for a stake in the company.
On paper this sounds beautiful. Okay, I'll find the next Whatsapp, Snapchat, Tinder etc and become a billionaire. While this may very well happen to you, there is one major truth.
A lot of ideas fail to get off the ground.
So, while you may be blessed to find some new billion dollar company, the reality is the majority of your stakes in companies will be at best a break even return. Don't just take my word for it, look at Wall Street Journals findings on this.
Right, so you still haven't been put off and think you can make a good investment when you see one. Then you might want to know
How can I become a Venture Capital (VC) Investor ?
Well, there are many ways. If you want to join a firm and go the 'official route', you'll must likely need some qualifications. 50% of VCs have an MBA and have experience in the particular industry they want to invest in.
This article has some more great information on what you need to do to get into this line of work.
Don't be discourage, some people actually quite like it and would love this as a career path.
But lets keep things real here for you, it's a lot of effort and the majority don't have this in mind when it comes to high risk investment and don't have the capital requirements to go about this.
So a much easier way to be a 'mini VC' is what is know as Crowd funding.
What is Crowd Funding ?
Crowd funding is when a large number of people put small amounts of money together to fund a start up idea. Okay, you are thinking, well if we all put in 'small' amounts of money, this isn't a high risk investment.
Well let me just be clear on this. Yes, if you maybe invest small amounts of cash in a start up, you might risk losing a small amount, but what a lot of people do is risk small amounts in a lot of companies and this then adds up to a much higher overall risk.
As we know that over 75% of these startups fail, picking a successful one can be very tricky.
But like everything, if you do hard work and dig deep through some of these ideas, you might find something with high return on investment.
Obviously, the hard part is finding one, and the high risk comes with the number of failures you'll have along the way.
There are tons of websites out there that offer these opportunities. You can browse through different pitches from start ups in any niche or idea from movie productions to tech start ups and then invest in one you believe has potential.
Here are some useful websites where you can do this:
The above list offer a wide range of crowd funding methods. Gofundme is mainly only used for charitable or medical expenses type funding but sometimes, there are some very high risk 'opportunities' to invest in.
Kickstarter is where you can find all the business and different startups looking for funding.
Lending club is where you act similar to a bank giving a loan. Someone requires a loan and you pool together with other or just yourself and provide the loan at an interest rate. (Just how a bank works)
There are different tiers of loans (in the strategy section on their website) you can choose from high risk to medium risk etc.
SeedInvest is finding an equity/idea to invest in through their platform.
These are just some ways you can make high risk investments in the crowdfunding space. Obviously, within these examples, there are also lower risk options too.
Investing In Leveraged ETFs, (exchange traded funds)
Okay, now this can be very risky stuff. The volatility in ETFs can be massive, thus being a high risk investment strategy.
Lets put this into context for an example. In 2011, when the S&P500 was up just over 2.1%, the Direxion Daily S&P 500 Bull 3x Shares were down 15%.
So obviously not for most as an investment vehicle.
On the other side of things, there have been some very high returns on some ETFS :
Where can I find a list of ETFs to invest in ?
There are absolutely loads of different ETFs you can trade. A great website to find different lists is ETFdatabase.
Again, I cannot stress this enough, we all might like the idea of high risk high reward if it works out but these investments vehicles can be very risky in my experience so take care and do your own due diligence.
How can I trade ETFs ?
Well, great news ! Most brokers offer the option of trading and investing in ETFs. Y
Alternatively, below is a useful video provided by Fidelity Investments on How to Trade ETFs
Biotech Stock Investing
Let me just say that biotech investing can be like the wild wild west of risk. I would have sleepless nights holding some of these overnight with the potential for a massive gap in price.
That being said, there are some traders/investors out there that earn a handsome living from trading and investing in these.
First things first, to give an example of how deadly these stocks can be, heres a chart of the stock $DERM
A whopping 65% price decline on a failed trial announcement. Since this post is about high risk, there is some extreme risk right there.
Alternatively, if you are lucky or smart or both, you might find some biotechs with huge investment potential. An example of this is the stock ticker $XOMA
In 2017, it increased 747.6% so it works both ways. Obviously picking the diamond in the rough in terms of huge percentage returning biotechs is very very hard, otherwise we'd all be billionaires.
A useful guy to follow who can decipher between BS and real information within biotechs is Adam Feuerstein. Some people love him, others a critical of him but he does provide some great information on these type of stocks.
Where can I trade or invest in Biotechs ?
Most broker platforms out there today offer the option to trade these stocks. An important aspect to take into account is the cost of holding these stocks can vary drastically from one broker to another.
Please always know when there are scheduled announcements out in these stocks so you are not stuck with a biotech overnight into a very big PR event.
Maybe I am a just scared of them but I personally stay well clear of these stocks because for me, it is not worth the risk.
Again, it's all about what suits your needs so what works for you might not work for me and vice versa so there is no right or wrong way.
One final point on this. According to Investopedia, 85 -90% of experimental drugs within the biotech sector will fail, in turn bringing down most companies associated with these drugs.
High Yield Bonds
High yielding bonds over 15% can be exciting to see. However, it must be noted that they are more than likely junk bond status,
Junk bonds are described as fixed income instruments with a high risk of default.
It's easy to find these bonds as they are rated by Standards and Poor's or Moodys Investors Rating Agency as bonds which carry a credit rating of BB or lower, simply meaning they are much higher risk than the 'average' bond.
Where can I get a list of these bonds ?
One of the better places to find all things high yield bonds is Morning Star.
How do I invest or trade Junk Bonds?
You can choose to trade these through a broker which can be tough to do. However, a simple option is to access the market via ETFs or mutual funds.
There are lots of funds investing in these types of bonds. Here is a list of such funds to get an idea of performances and what to expect.
Contract For Difference
Another widely popular trading vehicle are CFD's & can certainly meet the high risk investment criteria. You can find out more information on all these at CFD trading school
Remember to always do your due diligence before starting into any new trading or investing product. CFD's can be very high risk so it's best you have a wide array of knowledge if this is something you are considering.
There can be absolute untapped goldmines (literally) in some emerging markets. Less competition means you could be on to some high returns if you can find a stock to invest in.
Obviously, that's not easy.
Some of the best investors in the world have found foreign markets with huge potential. So how is it high risk ? Well, like everything we mention, the risk comes from trying to find these stocks.
With hundreds of thousands of stocks across the globe, finding an ideal investment is tricky. Other risky factors (depending on the country) is political tensions or potential for conflict.
These can be very high risk factors as you might find a really good investment idea only to realize there is rampant corruption etc which obviously would put a massive dent in your investing decisions. Unfortunately, nowadays, it's all too common.
How do I find these markets to trade ?
This website has divided a really nice list of different emerging markets and countries you can dig further into for opportunities.
For simplicity here is a list of some emerging market countries:
Again, these can be great and are definitely part of the high risk investments you could embark upon. Do some digging and you might find a hidden gem.
How can I trade or invest in emerging market stocks?
Well, a lot of brokers offer this option but you should always check before signing up with them. Because they are foreign stocks, the hours traded, costs, currencies etc are different to the US stock markets.
Another way you can trade or invest in some of these stocks is through whats know as ADRs or American Depository Receipt.
I won't go into detail about what it is as you can find out everything you need to know at Investopedia ADR definition
Needless to say, ADR's have their benefits in simplifying the process of investing in these emerging market stocks.
Honestly, as I wrote this post, I imagined some of you going out and immediately starting up in some high risk investing vehicle.
All I can say is be careful.
Can you make money from these ? Absolutely and people have shown over the years that it can be done. Just be very diligent. It's not easy.
The list above is a variety of different higher risk investments but they can certainly pay off if done right. On the other end, you can also lose absolutely tons of money and have your account destroyed.
I'm probably biased and prefer a more 'safe' investment but people have shown that they can consistently make money in these types of markets.
Like I always say, finding markets that suit you as an individual is one of the ingredients to success in the market. So if this is something you would like to consider, great and the very best of luck in your journey.
For the rest of us, there is no shame in hiding in our low yield bonds or hedging our investments, its what suits us. Either way, there is no right or wrong way. Just your way !
So, if you want to get started in any market trading, you'll need a trading business plan, I've created a simple trading plan template you can follow when you are getting started.
Have a look, you might find it useful. It's free.