Are you an investment risk-taker?

Everything in life comes with a certain amount of risk, and the stock market is no different. But while many, if not most investors would prefer to avoid it when they can (because after all, money doesn’t grow on trees), some people really just prefer living on the edge.

And this isn’t mere market thrill-seeking for the heck of it: investment logic dictates that if an investor wants higher returns, they have to take more risks. It naturally follows that a smart investor would then think twice about a potential investment promising high returns with low risk.

Words of Risk-Takers’ Wisdom

If you’re an investor with nerves of steel who’s willing to take on more than anyone’s fair share of stock market risk, Investopedia and the Financial Web have the following friendly nuggets of investment wisdom for you:

• Be smart. Investopedia points out that not all risk is the same; some companies are actually able to reward you with higher returns for taking a chance on investing in them. The trick is to choose these companies carefully, and avoid those that aren’t likely to earn you anything for your pains.
• Be pro-active. Choosing to take on higher risk means taking on greater responsibility — you’re going to have to pay extra attention to what’s going on in the market and be ready to act on it. You’ll also have to pay extra attention to detail when it comes to due diligence and so on.
• Be diverse. Building up a high-risk portfolio is yet another reason to diversify. (Check out Spiking’s post on diversification.) Finweb says that the extent to which an investor diversifies his stocks is the extent to which market changes won’t be able to affect their returns.
• Be levelheaded. In the excitement of any windfalls that come along whilst trading, many risk-takers tend to miss the chance to cash in on their good fortune — before they know it, the window of opportunity closes, and they suffer substantial losses. While there’s no harm in celebrating, be sure to keep an eye out for the right time to sell.
• Be disciplined. Finweb suggests using sell stops, or sell orders attached to certain shares — as soon as the shares reach a certain price, they are sold on the spot. This helps to keep risk-takers from holding on to the shares for too long (or from forgetting to sell while they were celebrating).
• Be realistic. Stop losses are the opposite of sell stops — as soon as certain shares drop to a certain price, they are sold immediately. This is one way risk-takers can control how much they lose, which necessitates their determining how much they are willing or able to lose beforehand.

Investment Options for Risk-Takers

There are many ways for investors with high risk tolerance to satisfy their investment appetites. Consider these options compiled from Investopedia and GO Banking Rates:

1. Choose spiking stocks. Investing in a stock spiking on the bourse (what Investopedia calls “momentum investing”) is risky because super popular and expensive shares have a tendency to shoot way up there before they plummet. To guard against losses, an investor might use stop losses or diversify with shares from several sectors.

2. Focus on a single sector. Putting most of your money into just one sector or industry is a surefire way to raise the risk level of your portfolio, as well as potential returns. Investors willing to go this route must choose that single sector carefully and have a thorough understanding of it.

3. Choose new technology companies. Getting in at the start of upcoming tech can be exciting, but investors taking a chance on these companies need to be patient as well as plucky — most new tech companies fizzle out before they have a chance to succeed, and many of them burn through a fair amount of funds in the process.

4. Short sell. This is what investors do when they think the share price of a certain company is going down: an investor borrows those shares and then sells them. When the share price drops, the investor buys the shares back at the lower price, profiting from the difference between the sell and buy price. This could mean heavy losses, though, if the share price goes up, instead.

5. Pick out penny stocks. Both Investopedia and GO Banking Rates mention penny stocks (or low-cost stocks) as a high-risk investment option, and both urge caution. On the one hand, low cost means being able to buy more shares — a real jackpot if the penny stock turns out to be a ten-bagger (see Spiking’s post about ten-baggers).

On the other hand, penny stocks could be difficult to sell — the SGX had a problem with penny stocks back in 2013 (but has been working to make things better since then).

6. Buy on margin. Basically, an investor borrows money to invest: the example GO Banking Rates gives is if you buy 100 shares of a certain stock which is SGD10 per share, your total cost is SGD1,000. You could borrow SGD500 and cover the rest of the cost with your own money.

If the stock value goes up to SGD12 per share, you get a 40% return, having SGD200 in profit after investing only SGD500. However, if the share price should drop, you’ll have to fork over more funds.

7. Invest in an IPO. If investing in a company without a public track record isn’t risk, we don’t know what is. Be aware of the fact that while there are several success stories about IPO investments turning into gold mines, there are just as many (and maybe even more) tales of IPO investment woe. (Look up Spiking’s post about IPO’s.)

Giving Risk-Takers the Edge

Spiking gives an edge to investors living on the edge with its real-time updates on any stock spiking on the SGX. Investment risk junkies will be able to take their risk-taking cue from more than 8,000 sophisticated market movers and shakers. Look before you leap and visit the Spiking app homepage today!