High and Low-risk Investment Strategies: Which is Right for you?

canstockphoto9358088While there are numerous theoretical and technical elements associated with investment, the make-up of your portfolio will depend largely on your own philosophy as an individual. More specifically, it will hinge on your appetite for risk, and the balance that you want to strike between minimizing loss and pursuing optimal gains.

To this end, there are a host of low and high-risk investment strategies available to modern investors, as new assets and derivatives are launched on the financial market on a regular basis. Your task is to determine which is right for you, based on your outlook and the prevailing economic climate.

What are the Most Common, High-risk Investment Strategies?

If you have a healthy appetite for risk, you are likely to pursue investment strategies that promise marginal and optimal financial returns. The best example of this is currency trading in the forex market, as this is represents an option where investors are not encumbered with the burden of ownership. As a result, their returns are marginal, meaning that they can either lose or earn far more than their original investment.

The key with this type of strategy and derivative is to identify methods of lowering the initial level of risk, and this can achieved by determining how you want to trade currency. Options such as “spreadbetting” enable you to simplify the process of currency trading, for example, by speculating as to whether your preferred currency pair will decline or prosper within a specified period of time. This not only enables you to make a simple and informed decision, but it also enables you to generate income in a depreciating market.

So while the risk profile of currency as a derivative does not change, as an investor you can take strategic steps to minimizing loss and optimizing your returns over time.

What are the Most Common, Low-risk Investment Strategies?

In an ideal world, all traders would be able to pursue low-risk investment strategies that deliver high returns. The issues is that such investment vehicles are hard to find, as while the type of margin-based derivatives discussed earlier offer typically high returns they are usually vulnerable to volatile market conditions and sudden price movements. This is the type of trade-off that creates a precarious balance between risk and reward, although it is interesting to note that there are at least some lower-risk investment options that can drive consistent and significant returns.

One of the best examples is a preferred stock, which is a hybrid security that combines the best of traditional stocks and bonds. More specifically, it is traded like a stock option on the financial market, but it acts like a bond and offers a stated dividend that is typically 2% higher CD’s or treasuries. This creates a unique balance of reward and risk management, and it represents an excellent vehicle for risk-averse or novice investors.

Dividend investment options offer similar peace of mind, as they deal in blue-chip stocks (such as Coca-Cola) that have showcased consistent growth over a period of years. They therefore deliver consistent returns, and offer the type of security and financial reward that defines any popular, low-risk investment option.

The Bottom Line: Which Option is Right for you?

It is pivotal that you base your investment strategy on an underlying philosophy and your appetite for risk, as this ensures that you are comfortable and able to make informed trading decision. Of course, the ideal scenario is to create a diverse portfolio of options that includes both high and low-risk investment assets, as this should create a delicate balance between risk and reward. Such an approach also enables you to profit in variable market conditions, which is crucial if you are hoping to earn consistent gains.