5 Low-Risk Investment Opportunities Available In 2020
When global events make markets volatile, low-risk investment opportunities become all the rage.
As 2020 has seen wicked highs and lows, adding less-risk to your growing portfolio might be prudent. Especially for the more conservative investor.
Be warned, less-risky investments aren’t risk-free. Your capital is still at risk unlike saving accounts. If you’re intrigued, do your due diligence on these five investment opportunities:
1. Treasury Bills, Notes, Bonds & TIPS
- Think of Treasury Bills, Notes, Bonds, and TIPS (Treasury Inflation-Protected Securities) as a loan to the government.
- With each bill, note, bond, or TIPS, you have to let them mature to get the full return of investment.
- Each of these offers different investment opportunities, based on specific properties:
- Treasury Bills: Short-term loan of one-year or less. Less risk, less return.
- Treasury Notes: 10-year loan. More risk, more return.
- Treasury Bonds: 30-year loan. The biggest risk, the biggest return.
- TIPS: These fluctuate based on inflation and can vary in duration and risk.
- Watch out for negative-yielding bonds when doing your due diligence. These are more risky investments and could end with you owing them.
- Only invest what you can effectively lose for the duration of the bills, notes, bonds, or TIPS. If you trade before maturity you’ll potentially lose out on your initial investment.
2. Corporate Bonds
- When buying corporate bonds you’re effectively giving that company a loan, with the promise that they’ll pay you back, with interest by a certain time.
- To reduce risk (nothing is risk-free), do your due diligence on big, long-lasting companies only. If they have no track record of repaying debts to bondholders, don’t take the risk.
- For example, if buying corporate bonds seems interesting, consider majors like Microsoft, Johnson & Johnson, and others. These majors are less-likely to fold. If a company folds which you have corporate bonds with, then your capital will be lost.
- Some top corporate bonds can offer a return on your initial risk (capital) of 4-percent.
- If you’re willing to put your capital at risk over a long period you’ll get a better return on your investment.
3. Preferred Stocks
- Preferred Stock gives you, the stockholder, fixed payments called dividends. The size of the dividend varies based on the company.
- Some investors consider preferred stocks similar to bonds. In that, they both pay out on-going regardless of the market value of the stock.
- However, unlike bonds, if the company isn’t making a profit they can forgo paying out dividends. This act will not only stop your dividend payment but likely drive the stock value down.
- Sadly, stockholders are paid after bondholders, so in terms of risk, preferred stock is a higher-risk than a corporate bond. Yet it is still a lower-risk than regular common stock.
- Additionally, on average preferred stocks increase in value slower than common stock and reflect interest rates more than company results.
4. Index Funds
- Everyone who invests in stocks knows the pitfalls of picking the wrong stock. Yet, the more conservative person looking for investment opportunities might prefer to put their money in the hands of a weighted set of stocks.
- These come in the shape of Index Funds. And they usually consist of hundreds, if not thousands of stocks and bonds in one single investment opportunity.
- What this does is reduce risk by mitigating your investment across lots of companies. So even if one or ten suffer, the others may perform well and keep the value (or increase) your investment.
- Some Index Funds require a certain level of investment to buy in, or they may focus on a specific sector, so always do your due diligence.
- Index Funds are perfect for investors who don’t want to pick stocks.
CHECK OUT: 10 Stocks to watch if you are on a $10 budget.
5. Fixed Annuities
- A Fixed Annuity is a contract where you, the investor, pays a lump sum upfront for a staggered series of payments over the duration of the contract.
- By doing this you can get a better interest rate on the money you invest. Interest ranges up to around 3.6-percent.
- The issue with a Fixed Annuity is that it has more risk than other investment opportunities on this list. This is because payments are determined by insurers. So if they default, your capital is lost.
- Plus, if you need that lump sum back, you will face penalties. However, depending on the contract, you may have access to a limited amount from your initial investment each month.
- Always do your due diligence, and we recommend getting a financial advisor to review any contracts before you commit.
Disclaimer: Like with every investment opportunity, do your due diligence. None of the above is investment advice. Only information, trying to give an overview of some of the lower-risk investment opportunities available.