The way the U.S. stock market has been performing lately might make it look like a high-stakes casino. But you should not be fooled into thinking that all investing is this way. Indeed, only a small percentage of the broader financial arena is searching for easy and fast paydays.
So, is there a way to invest in the market without any risk? That is an impossible request because everything comes with risk unless it’s an insured account or is backed by the government, like the Federal Deposit Insurance Corporation (FDIC). That said, there are smart strategies and investment vehicles that can mitigate risk and ensure you are not losing sleep at night over a stock purchase.
Here are seven of the best investments that are low risk:
1. Index Funds
Legendary billionaire Warren Buffett’s favorite investment strategy is using the index fund. Since the stock market goes up over a period of time, Buffett says this is a worthwhile strategy, albeit not as exciting as day trading.
This is a portfolio of stocks that mirror the composition and performance of a broader index, like the S&P 500 or the Nasdaq Composite Index. These are passively managed with low expenses and fees. It is an excellent option for investors who are relatively low risk and would rather not spend time staring at their investing accounts all day long.
2. Dividend-Paying Stocks
In today’s ultra-low-rate economy, it can be challenging to earn a return on your savings account that even matches the rate of inflation. Essentially, your capital is being eaten away by the rising cost of living, setting you behind on your financial goals.
One of the most popular solutions to growing your money is to hop into the stock market. If you strip away the daily fluctuations and concentrate on the dividends, it is not too much of a risk, particularly if you select value stocks.
A dividend is a portion of a company’s profits that is paid out every month, quarter, or year. For example, Walmart offers a dividend of $0.54 per share paid out every three months. If you own even just ten shares, that is way more than your generic bare-bones savings account.
Need some good dividend-paying stocks? Here are a few to consider:
- Target (TGT): 1.6%
- JPMorgan Chase (JPM): 3%
- Johnson & Johnson (JNJ): 2.39%
- McDonald’s (MCD): 2.49%
- AT&T (T): 7.22%
3. Checking and Investing Account
How is your checking account doing lately? If your response is “nothing,” perhaps you need to reconsider how your bank so your money does not lie dormant. The solution? Try looking into an all-in-one checking and investment account that gives clients daily investment returns on deposits, while allowing you access to your funds, when you need them. This account can allow your money to work for you.
4. REITs
Is real estate investing high-risk? Certainly. Is it expensive? Most definitely. Can you do it? Yes!
While many people think they need to flip houses or sit in a three-bedroom semi-detached house for five years to make money, there is a much easier, lower risk, and more affordable way to earn income from real estate: REITs.
A real estate investment trust is a company that owns and operates income-producing properties. For every share you own, you are given a monthly or quarterly dividend, in addition to how much value the REIT gains over the period of your holdings.
5. CD Laddering
A certificate of deposit is a promise from the financial institution to pay you an interest rate over a specified term. Take for example a $1,000 deposit at 1.2% over five years. Is this a lot? No. Is it risk-free? Absolutely.
The workaround to achieving a greater return and maintaining that risk-free strategy is CD laddering. Here is how it works:
- Open five separate CDs that mature in one, two, three, four, and five years.
- Renew and convert each CD at the maturity date.
- Repeat this until you are prepared to cash out and utilize this capital.
6. Life Insurance
Life insurance as an investment tool? This unconventional approach is beneficial to investors who have families, mainly because it is an easy savings instrument that can be tapped at the end of the term, or that will be cashed out upon your death. In either circumstance, this is a great way to earn money for retirement and ensure that your family is well-provided for in the future.
7. Utilities
During the coronavirus-induced market mayhem, utility stocks were one of the few categories to survive and thrive. They increased in value and maintained their dividend (yes, that word again!) payouts. Here are some of the best utility stocks on the market today:
- American Water Works (AWK) 1.38%
- Brookfield Infrastructure Partners (BIP): 3.68%
- AES (AES): 2.2%
- National Fuel Gas (NFG): 4.2%
- Vistra (VST): 2.5%
If this were 30 years ago when interest rates were higher, investing in the stock market would be unnecessary. Socking away your hard-earned money into a high-rate savings account would have sufficed.
However, as economic conditions change and monetary policy evolves (or in some circumstances, devolves), it has become a necessity to explore other avenues to ensure the growth of your earnings – such as investing in stocks. But do not assume that you are going to lose all your money on your first day. As we have shared above, there are a number of great, low-risk investment options for reaching your long-term financial goals.
It all boils down to practice, patience, due diligence, and an understanding of conservative investment strategies.
