All investments have risk, but some carry more risk than others do. It is especially important to do your due diligence before making a high-risk investment because of the possibility that you could lose all of your money.
High-risk investments include alternative investment strategies and products outside of common investment types to achieve a return. Understand your risk tolerance and know how an investment works before making a decision.
Types of High-Risk Investments
There are dozens of investments that could be considered high risk.
A few examples are:
- Start-up crowdfunding
- Crypto assets, like initial coin offerings and cryptocurrencies
- Foreign exchange or forex trading
- Hedge funds
- Inverse and leveraged exchange-traded funds (ETFs)
- Private company investments
- Promissory notes
- Real estate-based securities
What are some of the Risks of High-Risk Investments?
A major of risk with these types of investments is the likelihood that you could lose all of the money you invested. Do not invest unless you can afford to lose all the money you pay for the investment.
- Liquidity Risk: There may be strict resale restrictions on the investment, or you may not be able to sell it at all.
- Information risk: You may receive little or no information about your investment.
- Socio-political Risk: Political decisions can affect investment markets. Consider how economic policies, trade negotiations, and more could affect the investment.
- Interest Rate Risk: The interest rate reflected in the investment could change to a level that severely affects the return or performance of the asset.
- Management Risk: Inexperienced management team members, unethical behaviour, or bad decisions can affect a company’s performance.
A registered investment advisor can help you work through the level of risk and type of investment most suitable for you.
How to Research High-Risk Investments
Always evaluate and consider any high-risk investment opportunity with caution. The investment outcome may be different from your expectations.
- Understand Your Risk Tolerance
You should have an idea of your risk tolerance before making an investment. Risk tolerance is your willingness to accept a level of risk to achieve a return. Everyone’s risk tolerance is different, but there is a degree of risk in every investment.
- Gather Information
Before making a decision, get as much information as possible in writing. Ensure you understand how the investment works and the factors that could affect performance.
- Consult a Professional
An independent professional, like a lawyer or accountant, may be able to help you determine if the investment is right for you.
What are the Potential Returns of a High-Risk Investment?
Investment returns are always uncertain and depend on factors beyond the company’s and your control. Even investments with well-managed risk and strong business opportunities can fall short of expectations.
What are the Fees and Charges of a High-Risk Investment?
There are no standard fees across this diverse group of investments.
Report a Concern to the BC Securities Commission
Be wary of so-called “safe” investments with high returns. If you come across an investment that seems too good to be true, report it to the BCSC. We welcome questions, comments, and tips from investors.
If you have any concerns about a person or company offering an investment opportunity, please contact BCSC Inquiries at 604-899-6854 or 1-800-373-6393 or through e-mail at [email protected]. You can also file a complaint or submit a tip anonymous using BCSC’s online complaint form.
Last week, I spoke to the Association of Certified Fraud Examiners, the world’s largest anti-fraud organization and premier provider of anti-fraud training and education. There is no more appropriate a group for a preview of the second year of the Be Fraud Aware campaign. The goal of this campaign is to fraud proof […]
Summer break is always an exciting time for young people. Recent high school graduates are about to embark on a new chapter in their lives. Their plans could be post-secondary education, full-time employment, or a mix of work and school. Some non-graduates may be entering the workforce for the first time, or taking […]