Cirion
Member
I have early retirement goals which probably means I'm gonna need to front some high risk stocks here and there. Of course, high risk stocks means diversifying is even MORE important than a normal portfolio. I'm new to all this though. Anyone here have experience working with risky stocks? An example - GE. They have dropped 90% over a couple of years, and there is a risk of bankruptcy, but it has been around for a long time so I think they have a good chance to turn it around. It may bankrupt BUT the payout could be HUGE, if they turn around that's a potential for up to 1000% return. I would think though like I say, to avoid problems, you'd want to invest in a handful of risky stocks, that way if a couple crash, but a couple you win big on, it's still a bigger return than 4 more stable funds at the usual 5% return a year or so. Basically for those familiar with statistics, you want to maximize your "Expected Value" (Expected Earnings if you will). Expected value is essentially probability of winning times the return.
Example:
25% chance to "win" (1000% return on investment)
75% to "lose" (lose all your money, worst case scenario)
Even in this abysmal scenario, your expected earnings are STILL in your favor. As long as you diversify enough funds like that such that you win at least one or two of them.
Since you have 25% chance to win, you'd multiple 25% times 1000% which means your "Expected" winnings is still a cool 250%.
So to be sure, high risk stocks is gambling much like in a casino, but the odds are probably more in your favor overall.
Just to avoid major problems, you'd still probably want to invest a healthy amount in "safer" stocks, just so if something goes horribly wrong you don't lose "everything". But I'm at a fairly young age. Now is the time to take these massive risks IMO... Because you surely don't wanna take huge risks when you're older...
Example:
25% chance to "win" (1000% return on investment)
75% to "lose" (lose all your money, worst case scenario)
Even in this abysmal scenario, your expected earnings are STILL in your favor. As long as you diversify enough funds like that such that you win at least one or two of them.
Since you have 25% chance to win, you'd multiple 25% times 1000% which means your "Expected" winnings is still a cool 250%.
So to be sure, high risk stocks is gambling much like in a casino, but the odds are probably more in your favor overall.
Just to avoid major problems, you'd still probably want to invest a healthy amount in "safer" stocks, just so if something goes horribly wrong you don't lose "everything". But I'm at a fairly young age. Now is the time to take these massive risks IMO... Because you surely don't wanna take huge risks when you're older...
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