Hedge funds are a popular kind of high risk investment.
The formula for investing is simple: a high risk investment is supposed to provide a high rate of return. But it doesn’t always work out; otherwise, the investment would not be “high risk.”
Studies show that less than half of investors are willing to put money into high risk investments. Unregulated products such as hedge funds tend to be high risk, as does others known as alternative investments.
In a Spectrem’s Millionaire Corner study of High Net Worth Millennials under the age of 45, only 41 percent of investors with a net worth under $1 million said they would be willing to take a significant risk on a portion of investments in order to earn a high return. Among investors with a net worth greater than $1 million, 49 percent of Millennial investors said they would invest in high risk products.
That study also asked the question of older investors, and the only segment that showed over 50 percent interest in high risk investments was the Generation X group, aged 45 to 54, with 51 percent of those with less than $1 million net worth and 55 percent of those with greater than $1 million net worth expressing willingness to take a significant investment risk for the possibility of a significant return.
A separate Spectrem study of investors based on net income – Financial Attitudes of Wealthy Investors Based on Income - showed that only 36 percent of all investors were willing to take a significant risk in order to get a high rate of return. As income increased, so did the willingness to take the risk, but even among those with a net income of over $750,000, only 47 percent said they would be willing to take a significant risk with a portion of their portfolio with an eye toward a high rate of return.
In fact, the level of risk associated with investments is the single most important factor in the selection of an investment, according to the Spectrem income study. Eighty-eight percent of investors said the level of risk was an important factor, while only 78 percent said the reputation of the company in which the investment was made was an important factor.
Other examples of high risk investments include aggressive growth funds, emerging markets mutual funds, foreign company stocks, precious metal mutual funds and penny stocks.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.