Financial success as an investor also entails the ability to identify not just potential markets but also the ones that should be avoided. Some markets could be risky to invest in and it might be the case that risks outweigh the reward that is to be earned.
Some of this new financial products register high returns but are generally risky and unstable. Political instability, economic inefficiency, and bad structures of regulation can result in sudden and relative market instability. Shareholders may also discover that their aforementioned assets could be losing value at a very high rate because of reasons that they do not have control over, for example, government expropriation or currency devaluation.
Another market where caution is required concerns the cryptocurrency market. With Bitcoin and the scene of cryptocurrencies shooting up exponentially, the market remains extremely unstable. It is common to see prices rise or drop a few points within a single day due to speculation and other external factors, such as news about the regulatory and technological sphere. The absence of control and the possibility of fraud/cyber clap makes for further risk. Though many have become millionaires many others have lost a lot in this unstable international investment market.
Corporate bonds with high yields have been called junk bonds, and these can be another hazardous investment. Companies with low creditworthiness also issue these bonds and tend to default more compared to the conventional bond. The high interest rate attraction to an investor is a good way to attract them; however, the loss of principal amount invested into an issuer is also a threat.
Also beware of property in maturing markets. The danger is that the demand for property in such regions has built up too quickly and the market may then collapse. Property values can decline due to conditions beyond one’s control such as interest rates change or overbuilding or due to economic recessions. If a buyer gets an asset at the cost of a peak price then that asset is usually very difficult to sell on the market and make a profit.
Nevertheless, these markets are characterized as being specifically risky and indeed high-risk investments. The possible dangers associated with entering these markets through proper research and risk assessment and the pertinent market dynamics are discussed in the following sections.