Investments are often made to generate income or appreciation, but there is always a degree of risk involved. While some risks are worth taking in pursuit of greater returns, others are simply not worth the potential downsides. Bill Schantz will now take a look at some high-risk investments to avoid in 2022.
6 High Risk Investments to Avoid per Bill Schantz
According to Bill Schantz, cryptocurrencies are a highly speculative investment with volatile prices. While some investors have made a fortune from investing in cryptocurrencies, there are also many who have lost money.
Cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.
Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control. They are also extremely risky because they are unregulated, highly volatile, and prone to fraud.
Consumer Directionary Stocks
Consumer discretionary stocks are those of companies that produce goods and services that are considered non-essential. These include items like clothing, entertainment, and luxury items.
While consumer discretionary stocks can be profitable in good economic times, they are among the first to suffer when the economy weakens. This is because consumers typically cut back on spending on non-essential items when times are tough.
Commodities are natural resources like oil, gold, and silver. They are often used as a hedge against inflation or economic uncertainty.
However, commodities are also highly volatile, so they can be a risky investment. Prices can fluctuate wildly due to supply and demand imbalances, political instability, and other factors.
Junk bonds are bonds that are rated below investment grade by rating agencies. They offer higher yields than investment-grade bonds, but they are also much riskier.
Junk bonds are often issued by companies with financial problems, so there is a greater chance that they will default on their debt. Bill Schantz believes that this makes them a high-risk investment, especially in an economic downturn.
Stocks of Indebted Companies
Companies that have a lot of debt are at risk of defaulting if they can’t make their interest payments. This can lead to big losses for investors.
Highly indebted companies are also more likely to be downgraded by credit rating agencies, which can trigger a sell-off in their stock.
Initial Public Offerings (IPOs)
An IPO is when a company sells shares of itself to the public for the first time. IPOs are often very risky because there is often a lot of hype surrounding them, and valuations can be irrational.
Many people get caught up in the excitement and invest in an IPO without doing proper research. This can lead to big losses when the stock doesn’t perform as expected.
Cyclical Industrial Companies
Cyclical industrial companies are those that produce products that are sensitive to economic cycles. This means that their profits and stock prices can rise and fall with the economy.
Companies in cyclical industries such as automotive, aerospace, and energy are typically very volatile and risky. They can be profitable in good times, but they often suffer when the economy weakens.
Investing always comes with some degree of risk, but there are some risks that are simply not worth taking. Bill Schantz has highlighted some extremely high-risk investment options that you should be always on guard about. Be sure to do your research and understand the potential downside(s) before investing in anything.