Some Tips About Low Risk Investments

People who consider investing in conventional forms have not been satisfied with the recent rates of interest.

There is no such investment which does not pose a risk. People who consider investing in conventional forms have not been satisfied with the recent rates of interest offered by the market. The low rate of interest has left nothing for them and even if there is a rise in the next few years, they will never be able to outsmart the inflation rates.

This situation often leaves the investors in a dilemma who are seeking a decent return on the money invested and do not want to risk losing their principal. There are several options of investment which pay higher interest rates than the CDs and treasury securities, with very little risk involved. 

What are the types of risks?

There are a plethora of risks involved with various investments:

  1. Market risks: It’s the risk of losses in positions arising from movements in market prices. 
  2. Interest rate risk: The ever-present possibility that interest rates will rise and drive down the value of a security, particularly bonds.
  3. Liquidity risk: It's a financial risk that for a certain period a given financial asset, security or commodity cannot be traded quickly enough in the market without impacting the market price.
  4. Legislative risk: It’s the potential that regulations or legislation by the government could significantly alter the business prospects of one or more companies. 
  5. Tax risk: This is the risk faced by an investment that it will lose its value or return on capital because of the taxes imposed on it.

The fluctuation in the economic conditions can often destroy the portfolio of investments of an investor. The investments with low risks can help in overcoming this situation and gaining the maximum out of them. 

Some investments are of low risks

There are several good choices in the categories of low risk investments.

  • Preferred stock: This is a kind of hybrid security that can be referred to as a combination of stocks and bonds. It trades like a stock and behaves like a bond in many ways. They usually have monthly or quarterly payments. Some of the types are convertible preferred, cumulative preferred and participating preferred.
  • Utility stock: These stocks pay about 2% to 3% above the treasury securities. They also have voting rights associated with them. They are noncyclical stocks i.e. their prices are not affected by economic fluctuations.
  • Fixed Annuities: These investments are meant for conservative savers who are interested in saving a certain amount of money for their retirement. The fixed annuities allow the investors to attach a virtually unlimited amount of money and let it increase till retirement.
  • Brokered CDs: The extremely conservative investors choose this form of investment as a low-risk investment. Although they do not come with high rates of interest as the utility or preferred stocks, they pay more than their other counterparts.
  • Bond and Income Mutual Funds and UITs: Those investors who are looking out for higher yields consider bond mutual funds and Unit Investment Trusts as preferred modes of investment.

As already mentioned, there is no such investment which is completely free of risks, but the low-risk investments can be chosen for producing moderate to high incomes.

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