There's a direct link between the risk an investor is willing to accept and the potential reward they might gain. Simply put, the more risk an investor takes, the more they might gain or lose. High-return investments are riskier, so while there's a chance for bigger profits, there's also a higher chance of losses. These investments are often unpredictable, with prices that can change quickly. This can result in big wins or big losses. To make this clearer, it helps to look at the features of risky, high-reward investments.
Here are the rewards that you can expect:
1. Better returns
The high returns you can expect are the biggest reward of a high-return portfolio.
2. Allows diversification
A high-return portfolio is a basket of diversified assets and funds.
3. Can help beat inflation
Inflation bites into all your investments. However, with a high-return portfolio, the high returns can hedge against inflation. The value of your portfolio may grow much more than the rate of inflation.
Here are the risks of a high-return portfolio that you should be aware of:
1. High chances of loss
High-return portfolios are more prone to significant losses due to increased volatility and risk compared to conservative options.
2. More complexity
These portfolios are harder to manage, as they involve various types of investments with different risks and rewards.
3. Market timing challenges
Successfully investing in a high-return portfolio is difficult, requiring more skill and experience to navigate the greater volatility and uncertainty.