If the stock market crashes again, would you respond by investing more?
Is day trading your sport of choice?
Do you smirk at the idea of keeping money in asavings accountinstead ofinvesting it?
If you answered yes to these questions, youre probably an investor with a highrisk tolerance.
Hold up, Evel Knievel.
Its fine to embrace a no-risk, no-reward philosophy.
But some investments are so high risk that they arent worth the rewards.
Here are 10 high-risk investments to avoid if you cant afford big losses.
But even if youre a personal finance daredevil, think very carefully before you make these high-risk investments.
Our team has compiled alist of creative waysyou can fatten your bank account this week.
This is a long list, so dont get overwhelmed.
Well keep it updated as offers changes or expire.
Sure, if things go well, youd make money lots of it.
But if things go south, the potential losses are huge.
In some cases, you could lose your entire investment.
Penny Stocks
Theres usually a good reasonpenny stocksare so cheap.
Often they have zero history of earning a profit.
Or theyve run into trouble and have been delisted by a major stock exchange.
Fraud is also rampant in the penny stock world.
One common tactic is the pump and dump.
Then they dump their shares on unknowing investors.
Dont Miss:6 Companies That Send People Money When Theyre Asked Nicely
2.
Thats usually reserved for company insiders and private investors with deep pockets.
Then, were at risk of paying overinflated prices because we think were buying the next Amazon.
Many companies that go public have yet to make money.
But after five years, about 60% of IPOs had negative total returns.
But for now, cryptocurrency remains a speculative investment.
All that speculation often creates an extremely volatile cryptocurrency market.
But theres no guarantee when or if it will ever bounce back.
Plus, cryptocurrency still lingers in regulatory limbo.
But this high-risk investment is still more Wild West than Wall Street.
(Think of the Terra-Lunacrypto crashin May 2022.)
You borrow money from your broker using the stocks you own as collateral.
Of course, you have to pay your broker back, plus interest.
If it goes well, you amplify your returns.
But when margining goes badly, it can endreally, reallybadly.
Suppose you buy $5,000 of stock and it drops 50%.
Normally, youd lose $2,500.
Leveraged ETFs
Buying a leveraged ETF is like margaining on steroids.
That means you cant sit back and enjoy the long-haul growth.
Every day, youre essentially investing in a different product.
Collectibles
A lot of people collect cars, stamps, art, evenPokemon cardsas a hobby.
But some collectors hope their hobby will turn into a profitable investment.
Its OK to spend a reasonable amount of money curating that collection if you enjoy it.
Collectibles are illiquid assets.
Thats a jargony way of saying theyre often hard to sell.
If you should probably cash out these alternative investments, you may not be able to find a buyer.
Or you may need to sell at a steep discount.
Its also hard to figure out the actual value of collectibles.
After all, theres no New York Stock Exchange for Pokemon cards.
Plus, theres also the risk of losing your entire investment if your collection is physically destroyed.
With corporations, it works the same way.
Companies issue bonds when they need to take on debt.
The higher their risk of defaulting, the more interest they pay to those whoinvest in bonds.
Junk bonds are the riskiest of bonds.
If you own bonds in a company that ends up declaring bankruptcy, you could lose your entire investment.
Shares of a Bankrupt Company
Bondholders may be left empty-handed when a corporation declares bankruptcy.
But guess whos the very last to get paid?
Typically when a company files for bankruptcy, its stock prices crash.
(Ahem, ahem:Hertz.)
That post-bankruptcy filing surge is usually a temporary case of FOMO.
Remember: The likelihood that those shares will eventually be worth $0 is high.
Having a small amount invested in gold and silver can help youdiversify your portfolio.
But anything above 5% to 10% is risky.
Both gold and silver can be volatile in the short term.
Gold is much rarer, so discovery of a new source can bring down its price.
Silver is even more volatile than gold because the value of its supply is much smaller.
That means small price changes have a bigger impact.
Both metals tend to underperform the S&P 500 in the long term.
The right to buy is a call.
You buy a call when you think a stock price will rise.
The right to sell is a put.
You buy a put when you think a stock price will drop.
What makes options trading unique is that theres one clear winner and one clear loser.
Hypothetically, this can continue forever.
But suppose you buy a call or a put.
If your bet was correct, you exercise the option.
If you lose, youre out the entire amount you paid for the option.
Options trading gets even riskier, though, when youre the one selling the call or put.
When you win, you pocket the entire amount you were paid.
What Are the Signs That an Investment Is Too Risky?
The 10 things we just described certainly arent the only high-risk investments out there.
So lets review some common themes.
Consider any of these traits a red flag when youre making an investment decision.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder.
She writes the Dear Penny personal finance advice column.
Send your tricky money questions to[email protected].
Rachel Christian, a senior writer for The Penny Hoarder, contributed to this story.
No Interest Til Almost 2027?
Balance Transfer = Credit Card Cheat Code