Investing is a dynamic and evolving process but before you get involved in it, you need to assess its risk factors and since there are so many options nowadays, we need to see which option suits our needs. There are no perfect definitions or measurements of risk for any kind of investment. Every investment comes with risk but there are a few which are known as a low-risk investment.
Before exploring let’s have a sneak-peek into the difference between high risk and low-risk investment
Difference: which one to choose?
Investment with high risk where returns on our investment depend upon company stock price. When the stock price goes up, you have good profits in your pocket and when it crashes you also have to suffer some loss.
But low investment reduces the chances to lose the money, and there are several options for you to explore and invest in;
When you go for bank savings you are involved in a low risk of losing it. The value of the account does not dangle. When it comes to a savings account you are paying around 1% whereas inflation is 3% which means you are losing 2 %, but this happens slowly and steadily. These saving accounts are preferable since accessing money is flexible.
Certificates of Deposit (CDs) are a certificate that ensures a specific rate of interest over a definite period like 3 months, 6 months or a year maybe. It is fine if money is extracted before the decided period. The perk of CD’s is that they are very beneficial when you know about future purchases.
Another option, Treasury Inflation-Protected Security is issued by the U.S. Government. Operated online, you can buy EE Bonds, I Bonds, TIPS, Treasury Bonds, Treasury Notes and Treasury Bills.
Benefits of this kind of investment are like treasury notes, they can be extended up to 10 years. Treasury bills,
on the other hand, mature in one year or sooner and with bonds they mature after 30 years. TIPS have fluctuations when it comes to principal value that can go up and down depending upon inflation activities.
You can sell these investments directly or through a mutual fund.
Money Market Accounts, these accounts are a collection of low-risk investment that is put together to create variations with low risk, they are sold by brokerage firms and mutual fund companies. The perks of these accounts are that they don’t have any kind of penalty if funds are taken out before time.
Next option is Preferred stock, which is more of a bond through which you can make regular cash extractions. Oddly, these stocks may be able to swing payments in some situations but it has to make up for any kind of missed payments.
Provided by insurance company Fixed Annuities, are at low risk because the interest rate is fixed beforehand. The only risk that your money can face is if the insurance company crashes. But if you are under guarantee limits it will still be protected.
Comes with a benefit of quarterly income, Immediate Annuities do come with some risk if the company run out of business. They work as a pension plan the best choice when you are older; they ensure income till your last day.
Another new and evolving option is P2P lending, a revolutionary idea which has helped lenders as well as borrowers. If you are looking to invest your money instead of saving you can opt for this. Here people who are looking for taking loans can get themselves registered with their requirement, and the lender can connect with them. After verifying documents and credit score of the borrower you can invest your money by giving it as a loan at a decided interest rate.
This whole process is done online, with good benefits like high return rate, no prepayment charges, no hidden charges and regular returns; it’s becoming quite popular among investors, nowadays. But certain precautions should always be taken, always check for scams and run a thorough background check of the borrower.
Expectations with Low-Risk Investments
To settle for such investments, one needs to be practical about returns and degree of risk that they hold. They don’t provide a high return that is why the degree of risk is low too. High returns come with a high degree of risk. Before any investment, you can measure its risk on a scale of 1 to 5 where 1 is considered safe.
Low risk, a better choice
Low-risk investments are the optimal choice for all of the following situations:
- Not knowing where to put up all your money.
- It can be invested when you don’t require money for 10 years.
- It can be helpful when you require savings for emergencies.
When you want to go for an option of putting up money on a safer side you can always opt for such investments, with prospective for high returns and low risk it’s a good investment.