Investors know that a high risk investment is supposed to provide a high rate of return. But it doesn’t always work out, which is why they are called “high risk investments”.
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 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.
For more information on the Financial Attitudes and Concerns of the Millionaire Investor, click here