Which investment opportunities should I avoid?

The world is full of investment opportunities and if you want to make bigger gains, you typically have to go after higher-risk investments. Unfortunately, quite a few investment opportunities end up being bad investments. So what investments should you avoid and how can you make the most of high-risk investments in a safer way?

Understanding Risk

Investing is mostly about managing risk and when it comes to bad investments, they typically tend to be investment opportunities with high risk. Whenever you are considering a new investment opportunity, you need to understand the risks behind the investment.

Think carefully about the likelihood of that specific investment failing, and consider your own attitude towards investing in high-risk opportunities. If even the thought of a specific investment opportunity worries you, then it might be best to find something else.

You shouldn’t invest into anything that you don’t feel good about or fully understand.

Don’t go for "too Good to be True"

In many instances, you’ll be listening to someone talk about this great investment they found that promises great returns with very little risk. A golden rule for picking bad investments is: If it sounds too good to be true, it most likely is.

Whenever someone is trying to sell you a new investment opportunity, consider his or her message very carefully. What are they gaining by getting you involved? Do you feel they aren’t answering your questions? If you feel like you are not being told the full story, then step away from the deal. Never invest into anything without fully understanding the investment.
 

High-Risk Investments

Although the following investment opportunities can provide you great returns, they also come with a high-risk. These investments aren’t bad investments per se, but you should never invest in them alone.

According to the Money Advice Service, some of the most common high-risk investments include:

  • Structured products: structured products often offer you an income or capital growth, but understanding the way your return is calculated can be difficult, making it a risky investment. Some of the most common structured products include guaranteed equity bonds, guaranteed stock market bonds and protected investment funds.
     
  • Venture capital trusts (VCTs): your investment goes to a company or companies picked by the VCT manager, which means you could lose everything if the company fails.
     
  • Spread betting: you are essentially placing a bet rather than investing.
     
  • Contracts for difference (CFDs): very similar to spread betting, as you are predicting how specific assets will perform.
     
  • Land banking: you purchase a piece of land with no building permission in the hope that it will one day be worth more.
     
  • Unregulated collective investment schemes (UCIS): most collective investment schemes are regulated by the Financial Conduct Authority, but these are some investment schemes that aren’t and being unregulated means the UCIS can be a lot riskier.

As mentioned above, some of these investment opportunities can be a great addition to your investment portfolio, but you should never put all of your money into a high-risk investment. VCTs are generally a good way to boost your investments, but you don’t want to risk all of your money.

Always diversify your investments!
 

Speak with an Investment Adviser

Before you make an investment, you should consult an investment adviser. Your bank will most likely offer consultation or you could find an adviser through websites including Unbiased.co.uk.

So, before you invest, make sure you understand the risk and the investment opportunity; ensure you aren’t investing all of your money into one type of venture, and consult a financial adviser if you feel uneasy about any investment.