The fact is that any investment carries risk of loss. If you have been following these hubs, you’ll remember I talked about the loss you incur by holding your cash in a savings account or under your mattress. Your losses here are due to inflation. The risks of real estate investing can be significant if you lack knowledge. The risks of buying shares of a company are largely dependant on the credibility of the company, but even there, as in the case of Enron, you can lose.

Here are 10 of my personal rules on investing:

1. All excess capital must be invested in such a way that it beats the rate of inflation, which is currently at about 3%.
2. My portfolio of investments must be diversified to minimize any losses.
3. The highest risk investments are limited to 10% of my portfolio.
4. Never ever put more money into high risk investments that I can’t afford to lose. Note: If you’re prone to do this, consider getting help.
5. Never put 100% of my confidence in a stranger to advise me. Yes, that even means my money manager. Not because I don’t trust him, but because he is a human and as such can make mistakes or overlook an undervalued winner in the market. However, I pay close attention to the investment strategies of successful investors. I follow the five question rule: WHO are they and who's on their team, WHAT type of investments do they hold, WHEN did they invest, HOW did they implement their investment strategy. Answers to these questions help determine if the strategy they use is appropriate for me.
6. Never start a business venture without thoroughly researching it first. I did this once and am still putting aloe on the burns.
7. Be highly suspicious of all get rich quick offers as they’re usually scams.
8. Ferret out all the costs associated with an investment such as business start up costs, commissions, fees, closing costs, overhead, etc.
9. Always remember that every dollar I save is just like un-taxable earnings. For instance, if you’re in the 15% tax bracket, you’ve just made 15% on that saved dollar and that’s a good return on your investment. If you’re in the 50% tax bracket, that’s a marvelous return.
10. Always keep my eyes open for opportunities, but never act on impulse. This is particularly true with seminars that try to sell me high priced books, tapes, and or services. It’s also when I step through the door of a car dealership or look at a piece of property. Salespeople love to play on our fear of losing out on something. “The sale ends today.” “The offer won’t be good if you walk out that door.” “The seller is receptive today, but who knows, she might change her mind.” “There’s another offer coming in later today.” There are other high-pressure sales tactics, but I think you get my drift.

That said, we’re going to move on into the realm of high risk investments and what you need to know about them.

Of course, high risk investments are, well, risky. That’s a big duh. The question is should you take the risk? The answer, as always is that depends on a lot of things such as how much money you have to invest, your fear factor (and that of your significant other), and your knowledge of a specific type of investments.

Let’s pretend you have a few thousand dollars to put in high risk investments with the idea you can win big. You can go for the penny stocks, options, your friend’s start up business, antiques, art, and a whole smorgasbord of other possibilities. In my next posts, I’ll be covering some of these in various degrees of detail.