What types of investments tend to have the highest risks?
It’s difficult to lump different types of investments into broad risk categories, in part because the way you invest in them could increase or decrease your risk. For example, buying futures contracts on commodities is generally considered one of the riskiest investments you can make. But that risk is greatly reduced if you instead purchase options on those futures or you use derivatives to completely hedge spot (cash) positions. Since risk is based on volatility and uncertainty, buying futures contracts themselves would certainly be included in anyone’s definition of high-risk investing. Other investments that should be left generally to risk-oriented traders include financial derivatives, junk bonds, speculative stocks and the mutual funds that buy them. Precious metals have traditionally been considered high-risk investments, although the value of gold and silver has traded in a fairly narrow range over the past couple of years.
It’s difficult to lump different types of investments into broad risk categories, in part because the way you investment in them could increase or decrease your risk. For example, buying futures contracts on commodities is generally considered one of the riskiest investments you can make. But that risk is greatly reduced if you instead purchase options on those futures of you use derivatives to completely hedge spot (cash) positions. Since risk is based on volatility and uncertainty, buying futures contracts themselves would certainly be included in anyone’s definition of high-risk investing. Other investments that should be left generally to risk-oriented traders include financial derivatives, junk bonds, speculative stocks and the mutual funds that buy them. Precious metals have traditionally been considered high-risk investments, although the value of gold and silver has traded in a fairly narrow range over the past couple of years.
