Investments for the Ultra Aggressive
By David Dierking
With the stock market continuing to struggle to make any meaningful gains over the last decade, the typical investor’s appetite for risk has shrunk. Back during the technology bubble days of 10 years ago, riskier high return investments were all the rage. Nowadays, people don’t want to touch them with a ten foot pole.
Still, there is that dedicated group of investors out there – be they contrarians or people simply willing to take a chance – that are eager to take a chance on riskier investments with a high return potential. Now when I say “riskier investments”, I don’t mean your run of the mill small cap or international fund. I’m talking about investments that can be highly leveraged, highly focused and potentially highly dangerous to your account balance.
If jumping out of an airplane or swimming with a school of sharks seems a little tame for you, consider these ultra aggressive investments to add a little spice to your portfolio.
If a conventional index fund looks to match the return on a daily basis, a leveraged fund looks to multiply the index’s daily return. Some leveraged funds look to enhance an index’s return by 50% and others will go as high as 200%. That means for every 1% daily gain, these funds could return as much 3%.
Be careful though. That same math works on the downside too. And in a bear market those losses can be magnified in a hurry. ProFunds UltraBull Fund which attempts to double the daily return of the Russell 1000 dropped over 67% in 2008 when the financial sector was collapsing almost doubling the index’s loss of 37%.
Leveraged Sector Funds
These work just like leveraged index funds except that they target the returns of a specific sector such as financials or technology. Rydex/SGI, ProFunds and Direxion all offer dozens of sector and country specific investments through both mutual funds and ETFs.
Options contracts give the holder the right but not the obligation to buy or sell a security over a specified period of time. Options are utilized strictly as a risk management tool in many cases but can be used in a purely speculative sense as well.
But that speculation can carry a lot of risk. Options trading can result in you paying just a little money for a whole lot of exposure and your potential loss buying or selling options is unlimited in certain situations.
Futures contracts are where you enter into an agreement to buy or sell a security at a fixed price at a future date.
Imagine that you entered into a contract to buy a new iPhone 4 for $149 on December 31, 2010. This will seem like a good deal if the price of the iPhone stays at $199 or more. But if Apple decides to slash the price to $99 by the end of the year, you’re going to come out on the losing end. Futures contracts work the same way but instead you’re betting on the future price of a stock or index.
Investments like these certainly won’t be suitable for everyone. Putting a chunk of your money into one of these vehicles will require a bit of an iron stomach but if utilized judiciously you can find one of them adding a little extra punch to your portfolio.
Tread carefully though or you may find yourself longing for the safety of jumping out of the airplane.
Photo credit: MR38
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