What are 3 risky investments?

While the product names and descriptions can often change, examples of high-risk investments include: Cryptoassets (also known as cryptos) Mini-bonds (sometimes called high interest return bonds) Land banking.

fca.org.uk - Understanding high-risk investments | FCA

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Characteristics of high-risk investments

They target a high rate of return

High-risk investments offer the prospect of returns that are potentially more attractive than those available from mainstream investments. But there’s no guarantee that high-risk investments will actually deliver high returns. In practice, the actual returns could be below those of mainstream investments.

By association, there’s a high chance of losing all your money

In fact, if you choose to invest in high-risk products then you must accept the very real risk of losing some, or even all, of your money. And with some high-risk investments, if the worst happened you could even end up not only with nothing, but actually owing money. This makes high-risk investments unsuitable for all but the most experienced investors who fully understand the risks, as well as the opportunities, that high-risk investments involve and those who have the finances to absorb losses.

It’s harder to access your money if you need to

High-risk investments typically offer lower levels of liquidity than mainstream investments, so, particularly if something’s gone wrong and performance hasn’t met expectations, getting access to your money when you want may not be as easy. High-risk investments are suitable for a minority of consumers, so are likely to be less actively bought and sold by investors than mainstream products. Some high-risk products - such as land banking schemes – may involve investment in assets that are themselves not actively traded. This could make getting access to your money at short notice much more difficult. Even if short notice access is available, the investment provider may charge you a fee or you may have to pay penalties.

Volatility

High-risk investments often see more volatility than their lower-risk equivalents. The value of high-risk investments tends to be very dependent on market confidence, something that can change significantly from day to day. Sentiment towards riskier assets can be particularly fragile during periods of economic uncertainty. So investors in high-risk products should be prepared for their investment’s value to be much more volatile compared to mainstream products.

The lack of regulatory protection

Regulation aims to make sure that consumers are treated fairly when they invest. But many high-risk investments are not regulated by us. So if you invest directly in high-risk investments – such as commodities, student accommodation and wine (among a range of others) – you are unlikely to have access to regulatory protection from the Financial Services Compensation Scheme (FSCS) and the Financial Ombudsman Service (FOS) if things go wrong.

What the FSCS and FOS do

Tempted by high-risk investments?

Here are some things to remember:

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