Anyone who has looked for investment opportunities has most likely heard some variation of the same warning: any investment involves risk. With justification, this term is commonly used in disclaimers on traditional financial investment options. Any investment carries some risk that the investor will lose money. Stock prices may fall below what was paid for them, and real estate investments may fail to produce a profit.
Any investment has the potential to fail. However, there are different levels of risk, and some investments are always thought to be better than others. The investment form with the lowest risk offers more protection for nervous investors, but this sense of security also comes at the cost of returns. This does not always have to be the case: there are a few investment opportunities that are less risky in terms of success than their peers.
Savings, CDs, Money Market Accounts, and Bonds are both forms of investments
There is a wide range of risk tolerance levels when it comes to investing. Some of the most secure often generate the least interest (or returns). A savings account is the least risky form of investment. CDs, shares, and money market accounts are among the least risky investment options available. These financial instruments have no market exposure, so they are less influenced by market volatility than stocks or funds.
At the same time, these investment options have significantly lower returns than other, less risky investments. Current savings account interest rates are less than 1%, a pittance as compared to a diversified portfolio linked to the Dow Jones Industrial Average, which calculates the overall output of the NASDAQ and New York Stock Exchange.
Bonds vary from the above accounts in that they pay a fixed interest rate on funds contributed after a set period of time has passed. A individual, for example, may purchase a municipal bond with a maturity date ranging from one to thirty years. The holder gets their money back plus interest at the end of the bond’s term.
In other words, these options are by far the most risk-averse, but they also deliver considerably lower returns than other investment types—even those that may be relatively conservative themselves. Savings accounts and bonds are essential components of a well-rounded personal finance plan, but they can never be the primary goal of investors seeking real returns.
Mutual Funds and ETFs
Investors willing to take on more risk in exchange for higher returns should consider ETFs, index funds, and mutual funds. Mutual funds are run by a portfolio manager, who makes decisions to purchase and sell assets within the fund in order to achieve certain objectives.
Mutual funds can be open-ended, which means that investors can continue to contribute to the fund indefinitely, or closed-end, which means that the fund is intended to pay out at a future target date.
Many ETFs take a wide swath of a business, sector, or industry, providing strategic revenue opportunities. At the same time, ETFs also swap out underperforming stocks, which helps to reduce risk.
Opportunities for Low-Risk Stocks
Stocks are an essential component of a well-balanced, competitive portfolio. Other stocks may not have achieved the same levels of success, but they do provide a consistent rate of return year after year.
Direct stock ownership changes the risk-reward equation by exposing investors to more risk, but also to significantly higher returns if their stock portfolio performs well. Long-standing market leaders, blue chip companies, and other stocks with a track record of consistent growth should be considered by a cautious investor. While headline-grabbing stocks can appear to be a compelling option, they are rarely a good choice for risk-averse investors. It is preferable to go with less exciting options such as existing companies with a proven track record of positive stock growth.
Alternative Investments with Low Risk
Alternative investments can provide risk-averse investors with a variety of opportunities to find value. Some well-known assets, such as gold and other precious metals. Regarded as safe havens for investors seeking to withdraw funds from the stock market during turbulent times. Depending on one’s asset allocation and long-term plan, buying real estate. Investing in real estate investment trusts, or even buying fine art may all provide competitive advantages in terms of risk.
Farmland investment also allows you to optimize returns while minimizing risk. These investments have the benefit of stable farmland prices, recurring income from crop sales. And returns that greatly outperform other low-risk alternatives. Farm together provides investors with access to one-of-a-kind investment opportunities with farms from across the world. As well as a variety of crops.
How to Reduce Risk without Giving Up Returns
Almost every investor faces the perpetual challenge of balancing their appetite for risk with their ability to maximize returns. No one wants to take risks just for the sake of taking risks, but few investors can claim. They are willing to lose money by being too cautious.
While finding this balance would be different for each investor. There are some options available that can maximize upside without exposing the investor to the same level of risk as other, similar investors. Farm Together does exactly that: with a portfolio of carefully chosen farmland investment opportunities. A team of experts to help direct you through the investment phase, and a track record of successful projects. We will help you optimize returns while minimizing risk exposure. Visit my blog: Finance Guide