ARK Investment Management and its CEO, Cathie Wood, are two of the hottest names in the investing world right now.

ARK is an investment management firm that offers a variety of exchange-traded funds (ETFs) that focus on "disruptive innovation." These ETFs contain stocks with the potential to disrupt their industries, including Tesla, Square, and Teladoc Health. Most recently, ARK made headlines after investing nearly $250 million in Coinbase Global, a cryptocurrency exchange platform.

ARK's ETFs have experienced phenomenal returns over the last few years, making them an appealing option for many investors. But are they the right investment for you?

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Weighing the risk and the reward

There's no doubt that ARK's ETFs have seen wild success in recent years. Its flagship ETF, the ARK Innovation ETF (NYSEMKT:ARKK), has experienced a staggering 175% return over the past 12 months. The ARK Genomic Revolution ETF (NYSEMKT:ARKG), which focuses on stocks in the gene editing and healthcare sectors, has earned a 186% return over the past year.

It's hard to ignore returns like these. However, it's important to keep in mind that historic returns don't predict future success. Just because a fund has experienced incredible returns over the past year or two doesn't necessarily mean it will continue seeing those returns down the road.

One of the biggest risks of investing in ARK ETFs is that they don't have a long track record. The firm itself was founded in 2014, and some of the ETFs were only established within the last year or two. That makes it difficult to determine how these funds will perform over the long run.

Also, keep in mind that in general, the higher returns a fund sees, the higher the risk as well. ARK's goal is to invest in the most innovative, cutting-edge companies. While those companies sometimes experience explosive growth, they're also more volatile and riskier than well-established companies.

Should you invest right now?

Before you invest any money in ARK ETFs, there are a few factors to consider.

  • Your risk tolerance: Investing in high-risk, high-reward funds like these isn't for everyone, especially those who are risk-averse. Would you still be able to sleep at night if your ETFs fall by 20%? What about 50%? Knowing how you'll handle volatile situations is key when deciding whether this type of investment is right for you.
  • Your portfolio: If you do choose to invest in ARK funds, it's crucial to make sure the rest of your portfolio is well-diversified. This means you have a solid core portfolio of relatively safe stocks to fall back on in case your ARK ETFs don't perform well.
  • Your financial situation: With any investment, you should only invest what you can afford. This is especially important with risky investments like ARK ETFs, though. If you do choose to invest in these funds, only invest money you can afford to lose.

Finally, it's important to keep in mind that investing in the stock market is a long-term strategy. This goes for any investment, too, not just ARK ETFs. Before you invest, think about whether you'd be willing to hold these funds for several years or even decades.

ARK ETFs have made a splash in the investing world, but they aren't right for everyone. If you have a strategy in place and a high tolerance for risk, you may choose to allocate a small portion of your portfolio toward these funds. Otherwise, it's best to steer clear for now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.