High Return Investments

Written by Jacey Harmon
Bookmark and Share

There are varying classifications of investments: bonds, stocks, futures, options, and real estate. Not every investment vehicle is suitable for every investor. It is very important to know your risk tolerance when you are going to invest. You must also know your time frame and the purpose of the investment capital. You certainly don't want to invest next month's mortgage payment in an option contract. When you have your time frame, purpose, and tolerance figured out you can choose an investment vehicle.

Investment Returns are Tied to Investment Risk

Bonds and real estate are often considered "safe" investments. This is because bonds deliver annual interest rates and you're basically guaranteed the return of your initial investment. Real estate prices are typically steady and rarely go down in value. These low risk investments in turn offer low rewards. But these investments are not risk free. Bonds carry certain risks--interest rate, inflation, and credit risk--and real estate markets can collapse.

In the middle of the road are stocks. Stocks are grouped into different classes--small, mid, and large cap or growth and value--that investors believe carry different risk levels. It is often accepted that a small cap growth stock carries more risk than a large cap value company. But a small cap stock can easily rally 100 percent or more in a year while a value stock would be lucky to push 15 percent.

On the high end of the risk/reward spectrum are futures and options. Options can easily double and triple in price in a very short period. This high reward potential has a dark side: options may expire worthless. Futures can create immense profits but carry a high degree of risk. One can control a contract valued well over $100,000 with a $3,000 investment. With futures--because of margin--you can actually lose more than what you invested. If you want high returns you must be willing to take on high risk.


Bookmark and Share