Most of us are aware that risky investments come with the potential to bring us bigger rewards. The higher the risk the bigger the potential reward can be. However, it is all too easy to get caught up in the idea of significant rewards. If you are considering sinking some money into this kind of investment, you should remember the all important word in the sentence above:
When we are talking about potential rewards for a risky investment proposition, we should really think about chances. How big is the chance you’ll receive the reward advertised for the investment you are looking at? This is one thing you need to bear in mind if you are seriously considering this type of investment. And just as there is a chance of getting good rewards in this situation, there is also a chance you could lose out on them. Not just that, you could also lose the money you originally set aside for that investment.
Are you ready?
The basic piece of advice to remember with regard to risky investments is only to put money into them that you aren’t relying on for some other reason. For example, let’s say you have $5,000 set aside for your daughter’s college fund. You might be tempted to put that $5,000 into a risky investment so you have the potential to make a much bigger sum out of it. However, there is also the potential to lose the lot. In this situation you’d be best advised to go for something much safer.
Now let’s look at a second example. Let’s suppose you have your finances organized and you have $5,000 left over that is basically ‘free money’. In other words, while you don’t really want to lose that money, it wouldn’t be the end of the world if you did. You’d still be able to cover every other financial need and requirement you have (including that college fund). In this case you’d be more amenable to making the most out of that excess cash, and you might be more willing to try a riskier investment than you would otherwise.
You can probably see how your financial situation has a major bearing on whether you should go for risky investments or not. Your own demeanor also plays a part, since some people are automatically more willing to try riskier investments. Others wouldn’t go anywhere near them, instead preferring to make sure they could rely on safer propositions. These two elements combine to provide the answer to whether you are ready to consider this type of investment or not. It’s not a failure if you don’t like the idea and never want to risk your money in this way – indeed, some would say it’s a smart move. It just depends on which group you happen to fall into.
Providing you make the best decision for your own financial situation, you can always be sure of doing the right thing with your money.