In the modern-day economy, investing has become a necessity rather than a choice. The cost of living is going up, interest rates are near zero, and saving does not achieve what it did 30 years ago.
Unfortunately for many people, investing has turned into a form of survival so that your hard-earned money does not get eaten away by inflation. This could be concerning for people who are not too enthusiastic about having to risk the fruits of their labor. That said, you can still put your dollars and cents in the market without having to worry about too much risk.
So, what can you do to dip your toe into the investment sphere while limiting your risk of losses? We have compiled a guide of six smart investing tips for risk-adverse individuals.
1. Dividend Stocks
In today’s environment of ultra-low interest rates, it can be hard to earn a decent return on your savings or bank deposits. You could have socked away tens of thousands of dollars, and you would still only receive a monthly yield of a few bucks.
How can you escape low rates and high inflation? Many people turn to the stock market for investments. Dividends is perhaps the best strategy to employ when you are investing in stocks. A dividend is a portion of the company’s profit that is distributed every month, quarter, or year. This is a great method of generating income and ensuring that your money is working for you.
There is a risk of owning stocks – you might lose a portion of your capital. But if you do your research and invest in companies with strong balance sheets and a reliable track record, you can greatly limit your risk of losing money.
Unsure what dependable dividend stocks to buy? Here are a few to get you started:
- National Health Investors Inc. (NHI): 6.59%
- 3M Co. (MMM): 3.54%
- J.M. Smucker Co. (SJM): 3.23%
- Nutrien (NTR): 3.39%
- Walmart (WMT): 1.53%
2. Real Estate Investment Trusts
Real estate investing is one of the best ways to earn an income. But with the amount of capital, time, and resources you need to get started, this approach can be daunting for any new or novice investor. Plus, there is plenty of risk involved in purchasing a property either as a rental income or a flip.
What about a REIT?
Real Estate Investment Trusts (REITs) are superb financial instruments that can offer low-risk long term gains. These companies own and operate residential and commercial real estate that pay shareholders a monthly or quarterly income. You gain access to real estate without the headaches that come with owning an investment property. Win-win!
3. Index Investing
Set it and forget it investing is a real thing if you embrace the indexes.
Index investing is a passive investment strategy that attempts to mirror the performance of a broad market index. Studies have found that these typically outperform actively managed funds over the long-term. This investing comes with lower fees, and many of these funds pay dividends.
What about the risk? Since it emulates a broader market index, the risk is less than picking individual stocks. You can dollar-cost average (DCA) your way to a decent return without having to monitor the business news channels constantly.
4. Checking and Investing Accounts
A great way to improve your investing prowess is to revaluate or adjust your accounts. In recent years, there has been an explosion of investment accounts with zero commission and a number of enticing benefits. From an all-in-one checking and investing account to a bare-bones investing account, you have plenty of options at your disposal to ensure you get the best bang for your buck, with a portfolio that is customized to your desired level of risk.
5. CD Laddering
Certificates of deposits (CDs) have essentially zero risks. The downside is that the interest rates are remarkably low, but there is a way to earn some potential income from CDs. It involves a ladder.
CD laddering is simple enough: you divide a total amount of money into equal amounts and invest the cash into CDs with different maturities (one year, two year, three year, four year, and five year). Once the CD matures, you reinvest the principal and invest in another CD.
While rates are likely to stay low for longer, you could benefit when rates start to normalize.
6. Treasury Market
Is the bond market your safest bet when you desire minimal risk? Perhaps. Ultimately, if you hold onto your bonds until they mature, you will most likely not lose any money.
That said, the Treasury market is vast, and here are the investments you need to know:
- T-bills: Mature in less than a year.
- Treasury Notes: Mature up to ten years.
- Treasury bonds: Mature up to 30 years.
- Treasury inflation-protected securities (TIPS): Investments that go up or down based on whether inflation rises or falls.
Investing is only risky if you are making speculative bets with your rent money. If you embrace a more conservative and cautious approach to investments, you do not need to worry about risk. An index fund that mirrors the S&P 500 is a lot safer than buying shares in a trending stock with its own meme!
You could make the argument that parking your money in a savings account has its own risk because of rising inflation by the time you hit retirement. Remember, $1,000 in 2021 will not be the same as $1,000 in 2060. Smart investing can be a low-risk strategy to make your hard earned dollars work for you.