Shares are unpredictable, but they attract so many investors from all over the world who buy more and more shares, assess risks, sometimes sell and above all hold tight when this roller coaster makes a surprising turn.
It’s no wonder that average investors can get a little dizzy at the top and sometimes experience concerns on the downside, and they realize after a while that they are built for more restrained and solid investments and are looking for a safe investment.
But is there such a thing as a safe investment? And what are the safest investment options?
Investors generally view securities as a safer investment channel than others, but no investment has a 100% guaranteed rate of return, and there is more than one type of risk to consider when investing. In general, safe investments have a low risk of losing value, are easily accessible and do not change like other types of investments. However, low risk usually also means low returns, so investors often aim to create a portfolio with assets that have a variety of risk profiles.
What is the safest investment?
It is difficult to argue which investments are the safest because they are all subject to different types of investment risk. Your personal risk tolerance as an investor also comes into play, as you may have a much higher or lower risk appetite than someone else. Seen through this lens, an investment that seems relatively safe to you may seem risky to someone else.
So what is the safest investment? You can just assume it’s any investment that has zero risk, but that’s not necessarily a final answer. When building an investment portfolio, it is important to look at the broader picture that includes the risk profile of an individual investment as well as the risk tolerance of the investor. Risk capacity, or the amount of risk required to achieve a rate of return, can also play a part in investment decisions.
Things to consider before investing
Investors who choose products and strategies to avoid market volatility leave themselves open to a variety of risks. When researching potential safe investments, it’s important to consider how various risk factors might affect them. Here are some of the most common types of risks you may encounter:
Inflation risk – this is the risk that your purchasing power can erode over time as inflation increases.
Interest rate risk – variable interest rates can affect returns for otherwise safe investment options such as bonds.
Liquidity risk – Liquidity risk refers to how easy (or difficult) it is to “convert” assets for cash if necessary.
Tax risk – Tax risk can affect the yield of an asset, depending on how it is taxed.
Legislative risk – changes in investment or tax regulations may affect the return profile of the investment.
Global risk – certain investments may be more sensitive to changing geopolitical events or fluctuations in foreign markets.
Reinvestment risk – this risk refers to the possibility of not being able to replace an investment with one that has a similar rate of return.
Investments known to be low risk
Investors who are looking for a safe investment, buy a very low risk product and are willing to accept a lower return for it may look at government bonds, securities, bank savings plans and shekel financial funds.
After many years of zero interest, in which these products yielded an extremely low yield, now that the interest rate is relatively high, these investment avenues yield investors more adequate returns, however it is important to remember that they are exposed to inflation and/or liquidity risk. But it is unlikely that an investor will lose all or a large part of his money with any of the following options:
Investments known to be low to medium risk
Investors who are willing to take on more risk—even if it’s just a little more—may find specific types of bonds and preferred stocks that offer the returns they need. Their choices may include:
Corporate bonds – They may not be as safe as bank savings plans or government bonds, but investors generally see them as lower risk than stocks.
Preferred stocks – these stocks may be an attractive option for conservative investors looking for a higher return than bank savings plans or bonds have to offer.
These investments may pay quarterly dividends that you can use as income or reinvest for further potential growth.
Blue Chip Stocks – Stocks issued by large companies that have a reputation for performing well in good times and bad, are commonly known as blue chips. They are not immune to big losses, but they tend to handle market declines better than other stocks.
Investments known to have higher risk
We tend to think of risky investments as the kind that result in jaw-dropping returns or soul-crushing losses – and that they are not for the faint of heart. But another way of looking at it might be in terms of probability: what are the chances that the investment will underperform or cause a significant loss?
Is it worth giving up the potential profit for more stable and safer investment returns? Is it an investment decision based on careful research and/or in-depth advice, or is it a gamble? Traditionally, investors consider stocks a riskier investment than bonds, but there are other investments that also require careful consideration before jumping on board.
Cryptographic currencies – Cryptocurrency is a digital currency that operates independently of a central bank. Crypto refers to encryption used to keep transactions safe.
Hedge funds – pool investors’ money to buy securities or other types of investments, just like mutual funds. However, they are not as heavily regulated as mutual funds and have more leeway when it comes to riskier investments.
Promissory notes – Promissory notes are similar to bonds in that investors lend money to a company, which promises to return them a fixed amount of periodic income. But because businesses typically issue promissory notes when they can’t get a traditional loan, they are associated with greater risk, and investors who buy these notes do so with the expectation that they will receive a higher rate of return.
REIT funds
– Real estate investment trusts (REITs) offer investors the opportunity to earn income through ownership of commercial real estate without the practical work of buying and managing the properties themselves. Investors can use REITs to diversify their portfolio, and some REITs may offer higher dividend yields.
If you want to let your money work for you, smart investing is the way to do it. By managing a personal investment portfolio you can rest assured that your investment portfolio is in good and professional hands and that your money is invested in different investment channels depending on the level of risk you are willing to take.
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