Sean Casterline

Understanding High-Risk Investments

 Sean Donovan Casterline

Sean Donovan Casterline


The keys to successful investing are understanding your risk tolerance, conducting thorough research, diversifying your holdings, investing for the long term, and working with an experienced financial planner. Do these five things, and you’ll have a recession-proof investment portfolio.

So, does this mean you only review your risk tolerance once and never change it? No, it doesn’t. Periodically reviewing your risk tolerance is essential to any successful investment strategy. If you feel like taking on more risk, then consider the following.

Risk-Reward Trade-Off

With every investment you make, you must first understand the risk-reward trade-off. This refers to your willingness to incur higher losses for the opportunity at much more significant gains or profits. Some investors are more comfortable with risk than others, so understanding this trade-off is critical.

The key is to work with a financial consultant who can adequately explain a given investment’s risks and potential payoffs. They can take you through the process and present scenarios to gauge your risk tolerance. They’ll make sure you’re comfortable with the investment before moving forward.

Venture Capital

Venture capital investing is where venture capitalists provide private funding to startups and existing companies looking to expand. You and other investors choose startups and enterprises you believe are poised for long-term growth. However, it’s not about just going with a gut feeling.

Success involves thoroughly researching the company or startup’s business plan, its current financials, its prospects for growth, the market it operates in, its existing customer base, and what it is selling. In this case, it’s about mitigating the possibility of losses as much as possible. However, make no mistake; it is much riskier than conventional investing.

Penny Stocks

Penny stocks used to include any companies whose shares or share value was less than a dollar. However, the Securities and Exchange Commission has since revised it to any publicly traded company whose shares trade for less than $5. Some are listed on the New York Stock Exchange, but most are traded on over-the-counter exchanges.

Penny stocks are considered high-risk, high-reward investments. The potential for losses may be high, but the capital required to invest in penny stocks is typically low, given how inexpensive the shares are. Penny stocks with lower share values are usually seen as riskier. However, that doesn’t mean you don’t have to do your research.

Speculative Real Estate

Speculative real estate investing involves purchasing under-valued, high-earnings-potential properties and then selling them when the prices of properties increase. Investors must make a calculated guess when to buy and sell. A typical strategy is buying during lower price periods in anticipation of property values increasing. Investors will keep a pulse on the real estate market and interest rates to gauge when or when not to buy.

Investors often look for deals by buying multiple foreclosed properties in a hard-hit neighborhood and waiting until market conditions improve. They may not even do any renovations and are just waiting for the market to go back up. In other cases, it might involve investing in real estate developments like new condominiums, older buildings, and apartments.

Always Be Mindful of Risk

Regardless of how comfortable you are with risk, working with a financial consultant who can thoroughly explain what you’re investing in is essential. They are best suited to ensuring the investment meets your long-term goals and that you’re fully aware of what you’re investing in.