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A risky investment strategy taking advantage of momentum

by , 13 November 2015

The type of investment strategy best suited to you comes down a lot to the risk that you're comfortable taking on.

If you're prepared to take on risk, you have the chance of making better returns, but the chances are higher you're going to lose money.

If you're looking for a more high-risk investment strategy, here's one to consider…


How the Bonkers portfolio works

 
The Bonkers portfolio follows an investment strategy that buys into the fund with the best performance over the previous six months and switches every six months into the next best performer.
 
Fundexpert.co.uk show that if you’d began following this strategy in 1995, you’d have made 3,080% or nearly 19% a year. That’s a lot better than the FTSE 100’s gain of 250% over the same period.
 
It’s a very risky investment strategy to follow as you’re putting a chunk of your wealth into one fund. This means it would be an extremely volatile rise. And there is also the chances of huge losses. 
 

The momentum effect works

 
The Bonkers portfolio is basically taking advantage of the momentum effect. Momentum is when stocks tend to rise strongly and keep rising.
 
It’s a strange stock market anomaly that exists against the odds.
 
Data shows that momentum investing has performed well over the past three decades. But you may find it difficult to pinpoint shares to buy yourself.
 
If you want to invest in momentum stocks, rather opt for a fund that does it for you. For example, there are different momentum-based ETFs on the market that you can invest in.
 
By including momentum stocks in your portfolio, if history is anything to go by, you can boost your returns.
 
So there you have it. A risky investment strategy taking advantage of the momentum effect.
 
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