Loading the player...

What is 'Risk-Seeking'

Risk-seeking is an acceptance of greater volatility and uncertainty in investments or trading in exchange for anticipated higher returns. Risk seekers are more interested in capital gains from speculative assets than capital preservation from lower risk assets.

BREAKING DOWN 'Risk-Seeking'

Risk seekers understand, or should understand, the trade-off between risk and return. Generally, higher risk implies higher return potential, although the quality of the asset in question must be considered beforehand to ascertain whether there is sufficient return potential to justify the risk involved. Some types of assets that risk-seeking investors would be attracted to are small cap equities, arbitrage investments, emerging market equities and debt, currencies of developing countries, junk bonds and commodity futures, to name just a few.

Risk seeking might also describe an entrepreneur who is willing to give up the stability of salaried employment at an established company to start his or her own company in the hope of a greater financial and emotional payoff.

Risk-seeking behavior tends to rise in bull markets, when investors, encouraged by gains in the financial markets, are coaxed into thinking that the good times will continue. There is always a subset of risk seekers who orient their strategies around high risk-high reward investments. Others, however, may shed their discipline to chase momentum stocks, for example, or try their luck with a hot IPO that they know little about. Risk-seeking is an equal opportunity activity sought out by retail investors and professional fund managers alike, but it can go too far, as thoroughly demonstrated by the internet bubble burst of the early 2000s.

Risk-Seeking Versus Risk-Averse

Financial advisors endowed with common sense counsel their clients to minimize risk-seeking behavior with respect to their investments. In many cases, particularly for younger individuals, risk-seeking is part of an overall investment strategy, as risk assets can provide a boost to total portfolio returns. For individuals who need more certainty of funds for an imminent house down payment, college education or retirement, lower-volatility investments are recommended. Risk-averse investors would then look to assets such as government securities, blue-chip dividend stocks, investment-grade corporate bonds, and even certificates of deposit.

RELATED TERMS
  1. Risk Neutral

    Indifference to risk. The risk-neutral investor would be in the ...
  2. Efficient Frontier

    A set of optimal portfolios that offers the highest expected ...
  3. Market Risk

    Market risk is the possibility of an investor experiencing losses ...
  4. Risk

    The chance that an investment's actual return will be different ...
  5. Accepting Risk

    Accepting risk occurs when a business acknowledges that the potential ...
  6. Balanced Investment Strategy

    A balanced investment strategy is a method of portfolio allocation ...
Related Articles
  1. Investing

    Portfolio Basics For The Beginner Investor

    By following some broad allocation guidelines, new investors can build the portfolio they want.
  2. Managing Wealth

    Investing In Crisis, A High Risk-High Reward Strategy

    The financial crisis of 2008 and the great recession that followed is still fresh in the memories of many investors.
  3. Investing

    The Risks Associated with Common Investments

    Investing inherently involves some risk. Here are some of the different types of investment risks.
  4. Investing

    Understanding Risk is Key to Your Investing Strategy

    Here's why considering all types of risk is crucial for a successful investment plan.
  5. Insights

    How to Invest In Developing Markets

    Developing markets can be attractive additions to many investor's portfolios, but carry additional risks that must be considered.
  6. Managing Wealth

    Achieve Optimal Asset Allocation

    Minimize risk while maximizing return with the right mix of securities and achieve your optimal asset allocation.
  7. Investing

    Low Vs. High-Risk Investments For Beginners

    Understanding risk is key to better investing.
  8. Investing

    Using Logic To Examine Risk

    Know your odds before you put your money on the table.
  9. Investing

    Bond Funds Boost Income, Reduce Risk

    Bond funds can provide stable returns for those who depend on their investment income.
RELATED FAQS
  1. Is market risk premium the same for all investors and investments?

    Learn about how market risk premiums are determined, how they are calculated, why some assets require higher premiums and ... Read Answer >>
  2. What Are the Components of a Risk Premium?

    Learn the five main risks that comprise the risk premium and how they affect investors. Read Answer >>
  3. Why are mutual funds subject to market risk?

    Find out why mutual funds, like all investments, are subject to market risk, including how the different types of market ... Read Answer >>
Hot Definitions
  1. Treasury Yield

    Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
  2. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  3. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  4. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  5. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  6. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
Trading Center