High-Risk Investment Portfolios: What You Need To Know

A high-risk investment portfolio is one that contains investments that have a higher than average chance of underperforming or resulting in a substantial loss of capital. In other words, there is a large percentage chance of loss of capital or underperformance, or a relatively high chance of a devastating loss. High-risk investments are often balanced with low-risk investments in a portfolio, but investors with a high tolerance for risk may choose to focus more on high-risk investments, which can offer the potential for larger returns.

High-risk investments can offer larger returns

A high-risk investment portfolio is one where the chances of underperformance, or of some or all of the investment being lost, are higher than average. These investment opportunities often offer investors the potential for larger returns in exchange for accepting the associated level of risk.

A diversified portfolio often contains a mix of high- and low-risk investments. It can make sense for investors with a high tolerance for risk to focus more on the former. Some of the best high-risk investments include initial public offerings, venture capital, and real estate investment trusts.

It is important to do your research and evaluate different investment options before you buy. High-risk investing demands responsiveness and attention to detail.

High-risk investments are not the same as volatile investments

A high-risk investment portfolio is one where the chances of underperformance, or of some or all of the investment being lost, are higher than average. However, high-risk investments are not the same as volatile investments.

Volatility is often used as a proxy for risk, but it is a poor analog. Risk is defined by investors as the probability of loss or the probability of an asset providing less than the expected return. A high-risk investment is one where there is a large percentage chance of loss of capital or underperformance, or a relatively high chance of a devastating loss.

High-risk investment opportunities often offer investors the potential for larger returns in exchange for accepting the associated level of risk. Many high-risk investment opportunities fall under the classification of alternative investments, though not all, and are used to balance a portfolio and introduce assets that may have little to no market correlation.

A diversified portfolio often contains a mix of high- and low-risk investments, but it can make sense for investors with a high tolerance for risk to focus more on the former. It is important to do your research and evaluate different investment options before you buy.

High-risk investments can be used to balance a portfolio

A high-risk investment portfolio is one that has a large percentage chance of loss of capital or underperformance, or a relatively high chance of a devastating loss. The probability of an investment underperforming or resulting in a substantial loss of capital is the best way to think about risk. A high-risk investment is one where the chances of underperformance or loss are higher than average. These investment opportunities often offer investors the potential for larger returns in exchange for accepting the associated level of risk. Many high-risk investment opportunities fall under the classification of alternative investments, though not all, and are used to balance a portfolio and introduce assets that may have little to no market correlation.

It is important to understand that not all risk is the same. Investors should only seek out the smart risks, the risks they get compensated for taking. For example, investing in the equity of bankrupt companies almost never pays off. While the stocks trade for pennies and the companies often survive, the bankruptcy process almost always completely wipes out equity investors. Investors should also guard against laziness and complacency. High-risk investing demands responsiveness and attention to detail.

It is also important to understand another key detail of "high-risk" portfolios—volatility is not risk. True, many academics and market participants do use volatility as a proxy for risk (beta, for instance), but in many respects volatility is a poor analog to risk. Risk, as most investors would define it, is either the probability of loss or the probability of an asset (or collection of assets) providing less than the expected return.

High-risk investments require responsiveness and attention to detail

High-risk investments often offer the potential for larger returns, but investors must accept the associated level of risk. Many high-risk investment opportunities fall under the classification of alternative investments, though not all, and are used to balance a portfolio and introduce assets that may have little to no market correlation.

A diversified portfolio often contains a mix of high- and low-risk investments. It can make sense for investors with a high tolerance for risk to focus more on the former. However, it is important to do your research and evaluate different investment options before buying. Some of the best high-risk investments include initial public offerings, venture capital, and real estate investment trusts.

When building a high-risk portfolio, it is important to remember that not all risk is the same. Investors should only seek out the smart risks, the risks they get compensated for taking. For example, investing in the equity of bankrupt companies almost never pays off. While the stocks trade for pennies and the companies often survive, the bankruptcy process almost always completely wipes out equity investors.

High-risk investments are not always the same as low-priced stocks

A high-risk investment portfolio is one where there is a large percentage chance of loss of capital or underperformance, or a relatively high chance of a devastating loss. The probability of an investment underperforming or resulting in a substantial loss of capital is what defines risk.

High-risk investments often offer the potential for larger returns in exchange for accepting the associated level of risk. Many high-risk investment opportunities fall under the classification of alternative investments, though not all, and are used to balance a portfolio and introduce assets that may have little to no market correlation.

A diversified portfolio often contains a mix of high- and low-risk investments, and it can make sense for investors with a high tolerance for risk to focus more on the former. However, it's important to do your research and evaluate different investment options before buying.

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