Some investors have a higher risk appetite than others. This makes certain markets good for this group while those who are more risk averse should stick to other alternatives. We offer five options for each category.
High risk options
Patient investors can double their initial investment. However, some prefer a quick win. The risk of losses (or profit) is greater, so investors should seek advice from a broker.
The riskiest investment overall is trading currencies on margin. The private investor is advised to educate themselves on what forex trading is and how it works and to seek advice from a broker. Although you can lend money to trade, any losses are for your account, and it may be more than what you have invested.
When you consider buying options, you are likely to receive a warning that it is speculation. An option consists of a contract meaning that you may want to sell or buy a commodity before the end of the contract and includes a fixed price. You don’t have to act. It is the time factor that makes it risky.
Initial public offerings (IPO)
Companies are required to be transparent in the information they disclose in their IPOs. This does not mean that the management will act correctly to ensure the success of the company. Discreet IPOs can lead to big gains.
You can invest in a start-up. As a new company and product, it has not been tested in the market. Thus, it may fail, in which case you would lose your investment but have no further liability.
Foreign Emerging Markets
Investing in bonds or shares of an emerging country offers the possibility of benefiting from its growth spurt. However, this may be short-lived. Politics often derails these markets.
Low risk options
Short-term investments may suit the timid investor. You lose the higher potential gains of the long-term markets. But you avoid the dangers they represent.
High Yield Savings Accounts
Compare with different credit unions or banks to get the best interest rate. You will not lose your initial investment, nor the interest earned. But you can’t keep up with inflation.
Corporate Bond Funds
Corporate bond funds are issued by companies to finance their expansion. They are low risk and interest is paid two to four times a year. Because you are investing in a basket of companies, poorly performing companies will not have a major effect on your returns, but losses are possible.
Money market accounts
This form of bank deposit offers a better interest rate than other savings accounts. However, you need to invest a larger amount. Inflation tends not to affect them in the short term.
Cash management accounts
Similar to bank accounts, these are provided by brokers. They work in much the same way as savings accounts and current accounts. There is no monthly limit on how often you can withdraw money.
Certificate of deposit without penalty
A CD offers you higher returns than other banking options. You are required to keep money in the account for an agreed period. The option exists to withdraw your investment and place it where you can earn more interest.
Once you are clear on what level of risk you are willing to take (high or low), you can start investing in one of five options for that level.