sses, the ways that people can invest continue to grow through new and innovative ways. While the methods of investing vary dramatically based upon time, research, or qualitative capabilities; risk tolerance still plays a large factor into determining investing patterns. In this blog, we will discuss three of the ways that risk tolerant people can invest with today's investment tools and the benefits that each presents. 1. Common Stock:
One of the foundational security instruments for investing comes in the form of common stock. Common stock (or equity in a company) is one of the more risky investments an investor can make, but also one with the highest rewards. Investing in common stock has many benefits such as the possibility for capital appreciation in stock price, dividends, and real-time liquidity (instant ability to buy/sell). However, investing in common stock ultimately comes with disadvantages such as losing the entirety of your investment, it requires research to gain insight, and you compete with financial professionals.
2. High-Yield Bonds:
High Yield Bonds offer high yield due to the added risk of default from companies looking to take on debt. Rating agencies (Moody's and S&P's) grade bonds based on likeliness to default. If bonds have an investment grade of "C" of lower, they are considered to have a higher chance of default and therefore compensate that risk with higher yield. Although investing in high-yield bonds might seem like a risky bet; capital appreciation and interest-rate fluctuation provide opportunities for investors to not simply count on getting interest and the principal on these bonds but instead to take advantage of an under or overvalued bond price.
3. Options:
An option is a financial instrument created through an agreement between a buyer and seller based on a future price of a financial asset. Options can either be call options (buy at a certin price) or put options (sell at a certain price) and can provide substantial returns in a specified period of time. However, options are considered to be high risk due to some extenuating factors. As mentioned, options are time sensitive, so even if you purchase a call option and the financial asset goes up, if it does not reach the specified strike price, you forfeit the contract.
Now you have learned more about some of the invesment considerations that a risk tolerant investor can purchase, make sure to check out this solution comparison and delve deeper into varying financial products!
