Sep, 21 2025
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Riskiest asset class refers to the category of investments with the highest chance of deep losses, extreme volatility, and hard-to-exit positions, depending on the risk metric you use. If you want the quick answer: by day‑to‑day swings and historical crashes, cryptocurrencies sit at the top. By permanent loss and illiquidity, early‑stage venture capital is right up there. Among public markets, commodities and emerging market equities take the crown. The catch? “Risk” isn’t one thing-how you measure it changes the verdict.
Ask three investors what “risk” means and you’ll get five answers. That’s why lists of the riskiest assets often talk past each other. Nail the metric first.
Volatility is the standard deviation of returns; higher volatility means larger and more frequent price swings. It captures day‑to‑day turbulence but not the pain of a long slump.
Maximum drawdown is the worst peak‑to‑trough fall in a period; it shows how deep the hole can get before recovery. If you care about staying solvent or sane, drawdown matters more than smoothness.
Tail risk is the chance of rare, severe losses that don’t show up in “average” stats; think of 5+ standard deviation events. Models tend to underestimate tails in real markets.
Liquidity risk is the cost or impossibility of exiting when you want; prices can gap or buyers vanish. It turns a paper loss into a realised one.
Leverage uses borrowed money or embedded gearing to amplify gains and losses; it shrinks the margin of error. The same move in the underlying can wipe you out when levered.
These metrics don’t always agree. Crypto scores sky‑high on volatility and drawdown. Venture capital scores off the charts on liquidity risk and permanent loss on single positions. Commodities spike on tails. So the “riskiest” label depends on which of these you care about most.
Here’s the straight take, backed by common market data from MSCI (equities), S&P Dow Jones Indices (commodities and REITs), the Cboe (volatility indices), and PitchBook/CB Insights (venture outcomes):
| Asset class | Typical volatility (annualised) | Historical drawdown (peak-to-trough) | Liquidity | Cash flow | Tail/Regulatory risk |
|---|---|---|---|---|---|
| Treasury bills/cash | ~0-1% | Negligible | Daily | Yes (yield) | Very low |
| Investment‑grade bonds | 4-7% | −10% to −20% | Daily | Yes (coupons) | Low |
| High‑yield bonds are below‑investment‑grade corporate bonds with higher default risk and yields. | 8-12% | −20% to −35% | Daily | Yes (higher coupons) | Medium (credit cycles) |
| Developed market equities | 15-20% | Up to −50% | Daily | Dividends (variable) | Medium |
| Emerging market equities | 20-30% | Up to −60% | Daily | Dividends (lower/variable) | High (policy/currency) |
| REITs (real estate investment trusts) are listed property vehicles that own income‑producing real estate. | 18-25% | −50% to −70% (notably in 2008) | Daily | Yes (rent‑linked) | Medium (rates/credit) |
| Commodities (broad) | 20-35% | −50% to −70% | Daily | No | High (shocks) |
| Cryptocurrency (large‑cap) | 60-100%+ | −70% to −90% | 24/7, variable depth | No intrinsic cash flow | High (regulatory/technology) |
| Venture capital (early stage) | Not priced daily | Capital loss common on single bets | Illiquid (years) | No until exit | Very high (execution/financing) |
Crypto has the highest mix of 24/7 trading, thin market depth outside top coins, reflexive narratives, and no intrinsic cash flows to anchor price. That cocktail pushes volatility into the 60-100%+ range and delivers regular 70-90% drawdowns. As Cboe data shows indirectly through volatility proxies and as tracked by major exchanges, the swings dwarf equities. The lack of a lender of last resort also means liquidity can evaporate when everyone runs for the exit.
Two more angles matter. First, regulation shifts can move price fast-policy headlines have triggered double‑digit daily moves more than once. Second, concentration risk: many tokens have short histories and small communities. In crashes, correlations among coins tend to go to one.
Venture isn’t priced daily, so it doesn’t look volatile. But that’s a feature of reporting, not reality. Most startups don’t return capital. Returns concentrate in a few outliers; industry reports from PitchBook and CB Insights show power‑law distributions are the norm. That means your realised outcome depends on access to the best deals, follow‑on capital, and a long runway to exit.
Venture also carries heavy liquidity risk. You can’t sell on a screen at 2 p.m. on a Tuesday. You wait years for an IPO or acquisition, and fund life is often 10+ years. If you need cash mid‑cycle, you’re stuck or you take a steep discount on a secondary sale.
Commodities move with weather, wars, inventory cycles, and OPEC meetings. They can spike 20% in a week and give it back just as fast. Remember when WTI crude futures traded negative in 2020 due to storage constraints? That was tail risk in real time. Broad commodity indices have had 50-70% drawdowns across cycles.
Emerging market equities have higher policy and currency risk. Devaluations, capital controls, and governance blow‑ups can drive large, sudden moves. MSCI EM has historically shown higher volatility and deeper drawdowns than MSCI World, with recoveries that depend on global dollar liquidity and domestic reforms.
Options and futures are tools. Used well, they hedge. Used poorly, they magnify risk. Shorting volatility, selling far‑out‑of‑the‑money options, or running high leverage on futures can turn a small market move into a margin call. The product didn’t do that; the position sizing did.
VIX is the Cboe Volatility Index, a forward‑looking measure of expected S&P 500 volatility implied by option prices. When VIX spikes, leveraged short‑vol trades can implode. Risk isn’t just what you hold; it’s how you hold it.
Crypto: Bitcoin fell roughly 83% from late‑2017 to late‑2018, and around 77% from 2021 to 2022 at the trough. That’s not a one‑off. Smaller coins did worse. Volatility? Regular triple‑digit annualised spells.
Oil: In April 2020, front‑month WTI futures printed below zero because storage ran out. No model with tidy bell curves had that as a likely outcome. Tail risk was real, and it bit hard if you were long without understanding delivery mechanics.
REITs: Listed property trusts globally fell more than 60% in 2008-2009 in several markets as credit shut. Property has income, but when financing dries up, listed vehicles move like high‑beta equities.
Emerging equities: Several EM markets have had 50-60% drawdowns during crises, with recoveries tied to currency stabilisation and external financing conditions. The volatility premium is real, but so is the patience required.
Australia lens: The S&P/ASX 200 fell about a third in the 2020 COVID shock before rebounding with policy support. Australian REITs dropped more than the broad index as rate expectations repriced. Local investors felt the classic pattern: equities fall first, property leverages the move, and cash felt safest for a time.
Value at Risk (VaR) estimates the maximum expected loss over a time horizon at a given confidence level; it misses truly extreme tails. Great for reporting, weak for black swans.
Modern Portfolio Theory (MPT) is a framework that balances expected return and variance; it relies on correlations that can change in crises. Useful map, imperfect territory.
Risk‑free rate is the yield on default‑free short‑term government bills; it sets the hurdle for taking risk. When the cash rate is high, risky assets must work harder.
Sharpe ratio measures excess return per unit of volatility; higher is better, but it punishes upside as much as downside.
Correlation measures how assets move together; low or negative correlation is good for diversification, but can jump toward one in panics.
If you care about violent price swings and deep, frequent crashes, crypto wins. If you care about permanent loss on single positions and getting stuck for years, venture capital wins. In public markets that you can buy in a brokerage account, commodities and emerging market equities are typically the riskiest buckets. Bonds and cash sit at the other end.
The better question is: what’s riskiest for you? A retiree in drawdown faces sequence‑of‑returns risk from equities that a 25‑year‑old with steady income can stomach. A business owner with cyclical cash flows might find commodity exposure doubles their existing risk instead of diversifying it.
By volatility and crash depth, yes. Major coins have shown 60-100% annualised volatility and multiple 70-90% drawdowns. That said, risk has layers: venture capital can be “riskier” in terms of permanent loss on single bets and illiquidity. Choose the lens (volatility, drawdown, liquidity) before declaring a winner.
Derivatives are instruments, not an asset class. They derive value from an underlying and can either hedge or amplify risk. Losses can exceed your initial outlay (for example, short options or levered futures). The danger comes from leverage and poor sizing, not the existence of derivatives themselves.
Both are riskier than developed equities, but in different ways. Emerging market equities carry policy, currency, and governance risks with higher volatility and deeper drawdowns. Commodities are driven by supply shocks and geopolitics, with sharp spikes and slumps and no cash flow. If you hate tail events, commodities may feel riskier; if you dislike long, grinding bear markets, EM can be worse.
Illiquid assets can be less volatile on paper but more dangerous in practice because you can’t exit when you need to. Venture and private credit can show smooth quarterly marks yet impose multi‑year lockups. If you require access to cash, liquidity risk should dominate your decision and shrink the allocation to illiquid buckets.
Start with volatility, historical maximum drawdown, and worst crisis performance (2008, 2020). Add liquidity terms (daily vs gated), correlation with your current holdings, and whether there’s cash flow. If the asset or fund uses leverage, stress‑test a 2-3 standard deviation move to see if you’re still solvent and calm.
It depends. Listed REITs trade like equities and can be quite volatile-drawdowns of 50-70% have happened. Direct property has less visible volatility but adds leverage and liquidity risk; you can’t sell a house in a day. Property’s cash flow (rent) helps, but financing costs and credit cycles can make the listed side swing harder than broad equities.
Diversification can make the portfolio safer even if a single asset is risky. If a risky asset has low correlation to your core holdings, a small allocation can improve risk‑adjusted returns. But diversification isn’t a magic trick-correlations can rise in panics, and leverage can undo the benefit. Size matters.
It’s personal, but many investors cap speculative or illiquid exposures (like crypto or early‑stage venture) at 1-5% each. If your total portfolio drawdown must stay under 20-30%, reverse‑engineer position sizes from realistic worst‑case scenarios. If a 70% drop is possible, a 3% position risks a 2.1% portfolio hit-make sure you can live with that.
Final thought: the label isn’t the lesson. The lesson is fit. Pick the metric, check the tails, respect liquidity, and size it so a bad day doesn’t become a bad decision.
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