If you are considering where to place your money, it is important to understand the role of high risk investments. These are opportunities that offer the possibility of greater returns compared with traditional assets, but they also carry a much higher chance of loss.
From cryptocurrencies to emerging market shares, high risk investments require careful planning, an honest assessment of your risk appetite, and a clear strategy for managing volatility.
At a glance
- High risk investments have the potential for higher returns, but also a greater chance of losing capital.
- Common examples include cryptocurrencies, venture capital, leveraged trading, emerging market equities and peer-to-peer lending.
- You can reduce risk through diversification, clear time horizons and limiting your overall exposure.
- Your risk appetite depends on your goals, time horizon and financial situation.
- High risk investments may be more suitable for experienced investors with strong financial resilience.
What is a High Risk Investment?
A high risk investment is an asset or strategy where the chance of significant loss is much greater than with traditional options such as bonds or cash savings. While these investments can potentially deliver high returns, they also expose you to higher volatility, sudden price swings, and in some cases, the risk of losing all of your money.
The level of risk is closely linked to your own financial situation, time horizon and ability to withstand short-term losses.
Examples of High Risk Investments
1. Cryptocurrencies
Digital assets such as Bitcoin and Ethereum are highly volatile. Prices can rise sharply but may also fall dramatically within short periods. Regulation remains uncertain in many countries, adding further unpredictability.
2. Venture Capital
Investing in early-stage companies offers the chance of high rewards if the business succeeds. However, many start-ups fail, which can result in total loss of capital. Liquidity is also limited, as shares in private companies are hard to sell.
3. Leveraged Trading
Using products such as Contracts for Difference (CFDs) or margin trading allows investors to amplify gains — but also magnifies losses. Small price movements can have an outsized impact, making this one of the riskiest strategies available.
4. Emerging Market Equities
Shares in developing economies can deliver strong growth. Yet political instability, weaker regulation, and currency risk can increase volatility compared with developed market equities.
5. Peer-to-Peer Lending
Platforms that connect borrowers and investors may offer attractive interest rates. However, defaults can occur, and loans are not usually protected by the Financial Services Compensation Scheme (FSCS).
How to Reduce Risk When Choosing High Risk Investments
- Diversify: Avoid putting all your money into one risky asset. Combining with lower-risk investments can balance your portfolio.
- Limit Exposure: Allocate only a small percentage of your total investments to high-risk assets.
- Define Time Horizon: If you have a long-term perspective, you may be able to tolerate short-term losses.
- Stay Informed: Research carefully, monitor performance, and keep up with changes in regulation or market conditions.
- Review Regularly: Rebalance your portfolio to ensure it remains aligned with your goals and tolerance for risk.
Understanding Your Risk Appetite
Your risk appetite reflects how much volatility you can accept in pursuit of higher returns. It is influenced by:
- Financial resilience: those with stable income, emergency savings and lower debt can often take more risk.
- Time horizon: younger investors may have decades to recover from losses, while those close to retirement typically require more stability.
- Investment experience: experienced investors may better understand complex assets and manage risk effectively.
High risk investments are generally better suited to investors who have:
- A long-term time horizon,
- A diversified core portfolio already in place,
- The financial capacity to withstand losses.
Is There a Better Age to Do High Risk Investments?
In general, the earlier you start, the more capacity you have to absorb potential losses and benefit from long-term growth.
- Younger investors in their 20s and 30s often have the greatest flexibility to take on risk, as they have decades to recover from downturns.
- Mid-career investors in their 40s and 50s may still hold a portion of high risk investments, but usually at a lower allocation alongside more stable assets.
- As you approach retirement, the emphasis often shifts towards preserving capital and generating reliable income, making high risk strategies less suitable.
Comparison Table of High Risk Investments in 2025
| Investment Type | Tax Treatment (UK) | Potential Return | Liquidity | Risk Level |
| Cryptocurrencies | Capital Gains Tax (CGT) may apply | Very high | High (but volatile) | Very high |
| Venture Capital | May qualify for EIS/SEIS relief | Very high | Low | Very high |
| Leveraged Trading (CFDs, margin) | CGT may apply | Amplified gains | Very high | Very high |
| Emerging Market Equities | Dividends subject to tax, CGT on gains | High | Medium | High |
| Peer-to-Peer Lending | Interest taxed as income | Moderate to high | Low to medium | High |
Pros and Cons of High Risk Investments
Below are the main pros to choose a high risk investment:
- They have high growth potential
- Potential of big earnings
- Quick (potential) profits
- Exposure to fast-growing economies (this can be a con, depending on your risk appetite)
- Attractive yields
The following are the main cons of high risk investment:
- Extreme volatility
- Uncertain regulation
- High failure rate
- Not completely liquid
- Losses can exceed deposits
- Political, currency and regulatory risk
- Not FSCS protected
Key Points to Remember
- High risk investments can deliver high rewards but come with substantial risks, including total loss of capital.
- Diversification and limiting exposure are key to reducing potential losses.
- Your risk appetite should guide your decision — not all investors are suited to high risk strategies.
- High risk investments are usually best approached as a small part of a diversified portfolio.
- Consider professional advice before committing money you cannot afford to lose.
FAQs
An investment where the chance of losing money is significantly higher than with traditional assets such as bonds or savings accounts. Examples include cryptocurrencies, venture capital and leveraged trading.
Generally, no. They require experience, resilience and the ability to manage volatility. Beginners are advised to start with diversified, lower-risk options before considering high risk assets.
Yes. Many investors use a “core and satellite” strategy — holding a stable core portfolio while dedicating only a small portion to high risk assets.
There is no universal answer, but financial advisers often suggest limiting high risk investments to no more than 5–10% of your portfolio, depending on your risk appetite.
Not necessarily. While the potential is higher, returns are not guaranteed, and in many cases investors can lose some or all of their capital.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
