How to Determine the Risk Level of An Investment
Smart investing means understanding the risk levels of the types of investments you are choosing and ensuring that your portfolio has the level of risk you are comfortable with.
Before you invest your capital into anything, it’s important to know what the risk level is.
Of course, the truth is that there is no investment in the world that is without some risk. Whenever you invest in anything, there’s always the chance that it will not prove to be worthwhile. However, some types of investments have a higher level of risk than others.
Let’s take a deeper look into how to determine the risk level of an investment.
Low Risk vs High Risk
A low-risk investment is one where you are very likely to gain some sort of return on your money (or at least preserve the amount of money you put in.) However, although you can be confident that you will likely earn something from these stocks, chances are the earnings will be relatively small compared to other investments.
In contrast, a high-risk investment is one where there is a large percentage chance of losing the capital you have invested. With these types of investments, there is usually the possibility of earning a much higher return.
In other words, the higher the risk of the investment, the more you could potentially receive (or lose). The lower the risk, the less you can receive (but you won’t risk losing it all.)
When you look deeper into comparing investments, there are several different types of risk any given investment can have. For example, it can have ‘market risk” which means that it will lose its value in the marketplace. Or, it can have a “political risk” and have the potential to lose value if the political situation in a particular country changes.
The risk level of investment can also be tied to interest rates, legislation, inflation, taxation, and so many other factors.
When you are choosing investments for your portfolio, it’s important to look at all of these options so you can accurately determine the risk level of each investment.
Examples of Low-Risk & High-Risk Investments
To give you an idea of what types of investments are high and low risk, here are some examples.
United States Treasury Bonds: If you have one of these bonds there is very little chance you won’t receive the interest and payments due to you. They are considered one of the safest types of investments out there.
Certificates of Deposit: Invest your money in a CD with your bank over a specified term. As long as you don’t withdraw it before the term is up, you’ll earn a return.
Stable Value Funds: This is an option available with many 401k plans. It is a low-risk investment with returns that are comparable to intermediate term and short term bonds.
Fixed Annuities: A fixed annuity is offered by an insurance company. They are a low-risk option because the company will pay you a fixed interest rate. If you wait until you are 59.5 years old, you can withdraw the money without having to pay a penalty tax.
Biotechnology Stocks: Investing in new experimental drugs can be risky business. A high percentage of them will fail and when they do, they crash spectacularly. However, when the investment doesn’t fail, the payoff can be huge.
Cryptocurrency: Bitcoin and other electronic currencies became incredibly popular with investors. Over the last few years, the value of a bitcoin has soared astronomically. However, unless you get in early it is a bubble that is bound to burst.
Venture Capital Trusts: A Venture Capital Trust is a company that invests in small, start-up companies that haven’t been bought or sold yet on the stock exchange. These small startups might fail, but they also might do really well - so it’s a gamble!
Spread betting: This type of high-risk investment is more like a bet than a true investment. You make a wager on whether something, such as the value of a share, will go up or down. The more it fluctuates, the more you could potentially win or lose.
Partbnb: A Low-Risk Investment
Partbnb offers fractional ownership in vacation rental property - an advantageous low-risk investment.
We divide a property into 10,000 parts, starting at just $34 each. It is then rented out as a vacation home, which means that all investors earn monthly income (delivered into a digital wallet.) Plus, owners have the ability to stay at these investment properties in gorgeous Caribbean locations for a discounted rate.
One of the main reasons why Partbnb is considered such a low-risk type of investment is because the amount you invest is relatively small.
There’s no need to spend hundreds of thousands or even millions buying a full property. Instead, you can buy a small portion of a property for a fraction of the cost.
This also allows you to diversify your portfolio. Rather than putting a lot of money into one property, you can buy a fractional investment across 3, 4 or even 5 different properties in diverse locations. This will spread your funds so that you don’t keep all your eggs in one basket.
Also, there’s no need for a mortgage with this type of investment. You don’t have to sign up for 25 years of debt repayments when you invest in a Partbnb property. You can simply buy your fractional pieces of a beautiful vacation property on the platform. After you have held onto them for a minimum of 6 months, you’re free to resell them at any time. (Making this a very liquid form of investment.)
To learn more about Partbnb, visit our How It Works page.
Any questions? Reach out and contact us at any time.