Speculative investments are always associated with risks and it is really important that you do not invest all your capital in just one or 2 options that are available for you. Remember that the most successful investors out there focus on passive investing, which is totally different than high risk investments.
The big problem is that there are situations in which something does work better than other options. In some situations we are faced with people that invest 80% in stocks and 20% in bonds with tremendous success. In others reducing volatility can bring in a lot more.
Deciding What Percentage To Invest
With speculative investments, you need to consider:
- portfolio size
- age
- risk tolerance
The size of the portfolio that you have is quite obvious. This is one fact that many understand. When referring to your age, this is the one factor that many tend to forget. Think about buying stocks in a firm that only now appeared and that will grow. You may need to wait a few years until you get a great payday.
There are many that believe they can invest in dividend paying stocks, with a thought that loss is impossible. This is not always a good strategy. That is because limited partnership price can go down by many percentages. Your profit may be really low or you could actually lose money. Individual stocks do exist and have to be considered but they should not make up a lot of your investment.
Risk Tolerance
Deciding how much money to invest in speculative investments is all connected to your personal risk tolerance. Think about one thing: how would you feel in the event that you lose all your money? This is definitely something that is possible. The answer to the question will tell you if you could invest the amount that you decide to invest. When referring to age, it is a good idea to be younger. This is because when you are young, you have a longer period of time in which you can make up the losses.
If you need a strict amount, it is a really good idea to always invest no more than 5% of your own net worth in speculative investments or any risky asset. If you just lose 5% of the money, it will not be something that you will feel.
As a final thought, in the event that you are not comfortable with losing the entire amount you invest, you should avoid speculative investments and opt for something safer. Evaluate the situation you are in and you can decide how much money to invest in the speculative assets.