High-return investments are synonymous with high risk. Taking the chance on high returns also means you could easily lose most, if not all, of your invested money.
It's important to match your risk profile with the company and product you're considering. Investment options are truly limitless, and it can be difficult to figure out where to put your money. A comprehensive risk and goal assessment can help you narrow your options.
Best High Return Investments for All Types of Investors
To get you started, Benzinga put together a list of 10 high-return investments - with low, medium and high-risk options you can review. High-risk investments offer incredible potential, but you should remember that you could also lose your investment. Budgeting, researching, and planning are almost more important than the investment itself.
3 Low-Risk, High-Return Investments
Ready to tackle some low-risk investments? These may not have the highest returns, but are great options if you don't want to put your money at risk.
1. U.S. Savings Bonds
U.S. savings bonds are one of the lowest risk investment types. These securities are issued by the U.S. Treasury and you provide a loan to help the government fund operations. Savings bonds offer a fixed interest rate paid by the U.S. Government over a specific period of time.
Savings bonds come in 2 types:
- Series EE Bonds earn a fixed interest rate for up to 30 years. This interest is set bi-annually, so you know how much interest the bonds will accrue over the lifetime before you buy. These securities are sold at face value, so a $100 investment nets you a $100 U.S. savings bond. Series EE bonds are long-term investments, and you will be penalized for redeeming them early.
- Series I Bonds earn interest based on a combination of the inflation rate and fixed rate. A fixed rate is set once you buy the bonds while the inflation rate is adjusted every 6 months. Cashing out Series I bonds before their 5-year maturity period results in a penalty.
2. High-Yield Savings Account
A savings account is another low-risk investment option and has the benefit of providing liquidity when you need to access your funds. The downside to savings accounts is that even most high-yield options pay an annual percentage yield (APY) of less than 1%.
3. Certificates of Deposit (CDs)
Certificates of deposits (CDs) are a great low-risk, long-term investment option. A CD account is available at your credit union or bank, and just like a savings account, you can earn interest on money deposited. You'll earn an interest rate premium in exchange for leaving your deposit untouched for a set period - this could be 6 months or 5 years. Long-term CD accounts pay more than shorter-term ones. If you cash out before the maturity date, you will pay an early withdrawal penalty.
See also: The Best CD Rates in 2022
4 Medium Risk, High-Return Investments
Look into some medium-risk investments if you want higher returns.
1. High Dividend Stocks
Dividends are a form of profit-sharing through which a corporation makes regular payments to its shareholders. The payment of dividends isn't required by law, but corporations choose to pay stockholders a share of the money earned through a reinvestment plan or as a cash option.
Investing in dividend paying stocks can be risky if you don't know what to look for. Always consider large corporations with a long history of low volatility and financial stability. This means it probably has enough capital stored to deal with market fluctuations.
2. Real Estate
Real estate is a popular asset class for investors looking for high returns without taking on too much risk. Luckily, there are options for investing in real estate outside of the traditional method of purchasing your own property.
Real Estate Investment Trust (REIT): REITs are one of the easiest ways to invest in the real estate market without having to become a property owner yourself. REITs are required to pay at least 90% of their taxable income to shareholders in the form of dividends, so they're a popular investment among investors seeking passive income. Some REITs even provide monthly income with dividends paid monthly.
Well-managed REITs can also provide long-term growth in addition to paying out above-average dividends. As property values rise, the value of REITs tend to rise as well. Start with research for REITs that purchase property that's increasing in value, such as residential, industrial and self-storage properties.
Most REITs are registered with the SEC and listed on public exchanges. These are referred to as publicly-traded REITs. Private REITs are exempt from SEC registration and aren't listed on public exchanges. Non-traded REITs have been qualified by the SEC, but the shares don't trade on a major stock exchange.
Non-Traded REITs often provide higher dividends and more consistent growth but liquidity options are limited, so they're best suited for individuals with a long-term investment strategy.
Crowdfunded Real Estate: Real estate crowdfunding allows you to pool your money together to invest in properties. When a developer identifies an investment opportunity, he or she might not have the ability to fund the investment entirely, so passive investors can contribute to the deal for a share of the equity and income generated by the property. You don't need a large amount of money to join a crowdfunding deal with many platforms having options for less than $1,000.
Crowdfunding real estate has 3 players - a sponsor who identifies, plans and oversees the entire investment, a crowdfunding platform where the sponsor rallies investors and capital and an investor who contributes capital in exchange for a portion of profits accrued by the deal.
3. Mutual Funds
A mutual fund pools money from multiple investors to buy securities like stocks and bonds. The managed funds usually have a diversified portfolio of growth stocks, index funds and bonds or other fixed income investments. The target investment return for a mutual fund depends on the fund's investment objective and risk profile.
4. Corporate Bonds
Corporate bonds provide a predictable financial benefit without sophisticated strategies. They are issued by large corporations to fund capital investments and business expansions. When you buy corporate bonds, you lend out money to the issuing company. The company then makes a legal commitment to pay interest on your initial capital and refund the principal upon maturity of the bonds.
Corporate bonds offer higher returns than government bonds of CDs, and you can maintain your principal while earning a steady income. They give you the ability to invest in multiple sectors with the flexibility to cash out before maturity.
3 High-Risk, High-Return Investments
Like to live life on the edge? Tap into these risk-heavy high yield investments for the maximum potential returns. Keep in mind, that while some investors have made out very well with these investments, most end up losing some, or all, of their investment.
You invest in forex when you buy and sell different currencies. Countries issue their own currencies, and the value of each currency varies in relation to every other country. You should select a reputable broker to reduce the risk of fraud. FOREX.com is a great option - it's the largest forex broker in the U.S. and is strictly monitored by the CFTC and NFA regulatory agencies.
Understand all the risks and trends associated with currency trading. Take a look at how to trade forex to learn more.
Options trading isn't entirely different from stock trading. An option is a contract to sell or buy a stock at a pre-agreed price and by a specific date. In options trading, you must decide:
- How low or high the stock price will move from its current price
- Which direction the stock will move
- How the stock will move during a specific period
Options contracts are based on various underlying securities, and you can place different types of orders, making them a more versatile investment option than stocks. Options trading is complicated and risky, so you need to work with the best brokers for options traders .
3. Penny Stocks
Penny stocks trade at $5 or less per share. These companies usually have a poor or nonexistent financial history. These stocks are a great option if you want to own many shares due to their low price. Prices are highly volatile, so you must be patient and risk-tolerant to reap big. Think of these as "easy" high-risk investments because you tend to put in less money than you would with other stocks or financial vehicles.
Penny stock investing is highly speculative - there's a high-risk and high-reward balance - and it's often tied to small-cap markets. Due to this nature, many penny stocks are not available on the big stock exchanges like NASDAQ and NYSE.
Choose the Right High-Return Investment
When you’re looking for high-return investments, you must remember that you cannot make all your money in just one place. You can do quite well on a range of investments, but you should not assume that one investment is a slam dunk that will help you retire tomorrow. Diversifying these investments, looking to build a solid portfolio and investing with wisdom will help you increase returns, guarantee future income and protect your financial situation.
Frequently Asked Questions
How do I determine my risk tolerance?
It’s a good idea to know how much risk you’re willing to take and which types of risk most worry you. Your risk tolerance (how much you’re willing take on to achieve potentially greater rewards) depends on a combination of factors, including but not limited to, your investment goals and experience, length of time you have to invest, other financial resources and your “fear factor.”
How do I generate the highest returns in my portfolio?
Understanding and managing portfolio risk is one of the most important ways to effectively manage your portfolio. Quantifying risk in your portfolio allows you to optimize your potential returns. When you do that, you can allocate more capital can be to riskier assets that generate the highest returns.
Are there safer high-return investments?
You can look into REITs, preferred stocks and corporate bonds for high-return potential.
What are the investments with the highest risks and rewards?
Penny stocks, cryptocurrency, Forex, commodities and options are said to have higher risk but higher reward.
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