– Low Risk Investment Opportunities –
Low risk investment opportunities is not a new topic of discussion on the internet space. Apparently, people keep searching for ways to maximize profits and reduce losses, whether in the business of sales or any other business. For investors, the tale is still the same; the goal is to maximize returns and reduce risks. You’ll find out how if you keep reading.
Volatility being a measure of investor sentiments caused by fiscal policies and other economic factors, like the current COVID-19 distress which resulted to an above or below 1% scale in standard volatility measure, prompting investors to transfer their investments to more stable although low-yielding investments.
A subject as the stock market exchange, which has records of high volatility, is no topic for the chicken-livered. An advantage of such transfer includes investment security and readable growth moderation.
But in lowering risk exposure and even in moderation, investors are likely to earn lower returns in the long run- quid pro quo. Which is still financially advisable if capital preservation and steady income interest flow is objective.
Before listing these opportunities, it is imperative to educate you on factors to help you make a decision. But if you are already aware and feel no need to be reminded, scroll to the last paragraphs on this page otherwise, here’s your reminder:
Factors to Consider When Choosing an Investment Opportunity
Zero risk and low-risk percentages are to be considered from investment capital however, two scenarios: Low-risk investments earn lower interests and inflation can depreciate the purchasing power of money in low-risk investments.
If you opt for only low-risk investments, you’re likely to lose purchasing power over time. It is also why low-risk strategies make for better short-term investments and on the contrary, higher-risk investments are better suited for long-term returns.
Now you are aware of the baby basics, it is time for your first milk tooth. Below is a list of factors to consider before choosing an investment opportunity:
1. Return on Investment (ROI)
Return on investment is a measure to evaluate the profitability of an investment. It compares the return on an investment to the investment cost by deducting the cost/capital of an investment from its returns.
You should know the following:
• ROI takes the form of interest, dividends or capital appreciation (an increase in the value of assets).
• Risk on Investment and Return on Investment are usually related.
• The net after-tax return should be higher than the inflation rate.
• It is expressed as the net after-tax income.
2. Period of Investment
This is concerned with the duration (length of activity) of an investment. This is where short-term and long-term activities are considered and how they are related to long-term and short-term returns. Here’s what you should know:
• Short-term investments are dependent on type and nature of investment as is the theme of this article.
• Short-term and medium-term investments are investments held for one year or less.
• The duration of an investment is dependent on the investor goals and objectives.
• Long-term investments are investments held for a period of more than one year.
• Periods of Investment(s) can be short, medium or long term.
• Long-term investments generally yield higher returns.
3. Volatility Investment (Market Fluctuations)
Volatility as the rise and fall of market prices is amongst one of the strongest factors to consider before selecting an investment option. It features frequent or irregular fluctuations (high and low swings) of a market.
High volatility comes in when these fluctuations are very frequent. Low volatility implies stability in the investment market. You should know too:
- Consider the economic market trends- international/national fluctuations, before making an investment.
- The degree of market volatility will influence the percentage of returns on investment yields.
- Investment risk can be considered a factor or market volatility.
4. Planning Factors of Investments
Narrowing down this list even as you consider the duration of Investment and its returns, investment security should be placed as priority over percentage of returns in most investments. Know this:
- Thorough research on background/history of such investment. Target investments with secure history and progressive returns.
- Risks should be evenly distributed across all listed investment options.
- Risk calculation methods should be evaluated.
5. Risks and Risk Evaluation
Risk as a financial term is the possibility of losing money on an investment. It shows admittance to unforeseen or uncontrollable factors and provides investor’s consent to charges they may apply.
It is the acknowledgement/awareness of an investor’s inability to control certain monetary policies and defaults on market behaviors.
Risk Evaluation is the process of determining the significance/effect of risk in an investment opportunity; should that investment be activated. But here’s what you should know:
• Investments in shares show increased risk percentages than fixed deposit investments and also promises higher returns.
• The potential return of a market investment is directly proportional to its potential risk of losing money.
Liquidity refers to how quickly an investment can be converted to cash. Irrespective of investment duration, investors expect their investments to be multiplied and increase in cash value. Although this reason sounds very inviting, you should know:
• Liquidity on an investment should be placed on easy cash conversion, which in savings account and property instance, the savings account option I better much preferred as property takes time to sell.
• There should be an allocated part from an investment’s capital that can be readily converted to cash in case of an emergency.
• Some stock market shares are considered fairly liquid because they can be exchanged for other stock options in the market.
7. Tax Implications
Taxes are levied paid to the Government of a country, serving primarily as Government revenue generation. The idea is, no matter how little your percentage of income generation is, it is an obligation to pay the national tax percentage as a citizen of that country.
Obligations usually come with an impression of weak/zero benefits and this is not so far from true, being that you get to enjoy the freedom of governed citizenship- whatever that means. All-the-same, you should note these:
- Consider income tax implications for a high net after-tax return.
- Quality investments produce quality after-tax incomes.
- Tax rates differ across different investments.
Inflation as a depreciating factor of money is the continuous increase in the prices of general goods and services consequential to the drop in value of a country’s currency.
Inflation rate an annually calculated percentage which measures the rise of the average price of goods and services in an economy.
Gross domestic product (GDP) measures the economic growth of a country and the degree of growth decline compared to an earlier year is adjusted for inflation.
Example: if a country’s growth as measured at 4% and its inflation calculated at 2%, the GDP of that country will be registered at 2%. In brief, what does all the economic jargon have to do with your choice of investment?
• The value of most investments, such as property and shares, react to rise in inflation percentages. Such value can increase with increased inflation values.
• Quality investments should yield higher rates of return on investment than the existing inflation rate.
• The purchasing power of consumers is inversely proportional to the rise and fall of inflation rates.
Simply put, a budget is the amount of capital an investor is willing to deposit in an investment. Although very simple, here are a few things you must know:
• Budgeting for an investment is very essential as this prevents for unexpected expenditures.
• Proper budgeting should include funds/conversions for emergencies, savings and investments.
• Investors should decide how much surplus cash goes into investments.
If you are looking for cash-security and growth even in moderation, the following investments offer lower risks than stocks and assure of a calmer repose:
Best Low Risk Investment opportunities
Based on the nature of returns as described above, these investments will be grouped in three (3) categories:
- Zero Risk Investments
- Low-Risk Investments
- Medium Risk Investments
Zero Risk Investments
Zero risk investments can otherwise be regarded as investments that bring you 100% returns. This kind of investments can be found below.
1. Bank Bonuses
Still thinking about what to do with leftover money from your budget? That cash with no designed purpose can multiply your financial accounts in ways you didn’t know. These bonuses are promotions offered by banking institutions when an account is opened.
One of its outstanding perks is- it is a bank. That should mean something; you either gain from this opportunity or you don’t. Either way, your capital stays intact and secure.
These are incentives for opening an account with, and can be worth, multiple digits. These offers are regional and depend on the bank locations, but to do this, you’ll need to do three things:
- Locate a bank offering this promotional bonus
- Meet the requirements to earn the bonus, which includes opening the bank account type to activate the sign-up bonus.
But make no mistake–a lot is required for eligibility. Most of these requirements are automated. It depends on the bank and an hour spent on this; is an hour well spent and profitable (if you get selected).
Here, you would find further information on this zero risk investment.
2. High Yield Savings Accounts
Speaking of earning with zero risks, a high yield interest savings account is a good opportunity to gain when you stake nothing. This provides a nominal earning interest for just keeping a deposit.
Very similar to the bank bonuses, but different in that of banks bonuses, is an advertising strategy in search of customers whereas the high yield savings account is a strategy to retain acquired customers.
Competition is noticed in this market as the best of these openings offer high interest rates and with zero fee.
3. Credit Card Rewards
It should not strike you so much as a surprise as to why bank services are fore-listed as the carriers of zero risk investments. A credit card can return certain and even more of your expenditure amounts.
Owning a cash back credit card gives you “points” with monetary value- especially the top cards, which are far more lucrative than the rest. To know more about offers and applications, click on this link.
4. Online Checking Account
Very similar to high yield savings accounts as online checking accounts let you earn at calculated interests on each deposit. Might not be much, but this is among the safest investment opportunity and rates differ for existing account types.
You could earn from a long-term return notice but at a minimal rate and the best part assures of free/minimal online checking account charges.
Low Risk Investment Opportunities
Unlike the zero risk category, where there is no risk at all, in this category, however, risk is very minimal. Therefore, the following investment opportunities are prone to minimal risks, as well as minimal returns.
1. Treasury Inflation Protected Securities (TIPS)
Treasury Inflation Protected Securities (TIPS) are bonds issued by the U.S. government to protect against inflation and enhance modest interest payments. U.S. government debt issue is purchased, to receive face value regular interest payments for the securities.
You are eventually paid the original amount loaned to the government at the expiration of the TIPS’s term. This payment on interests is adjusted annually for inflation.
Interest rate remains constant for the duration of the TIPS term, but interest payment received half a year is based on your TIPS’ current face value; which is to account for an effective increase in CPI inflation.
2. Certificate of Deposit
A certificate of deposit (CD) is a savings account holding a fixed amount of money for a stipulated period of time, such as one-quarter of a year, six months, a year, or even five years, all in exchange, for an interest on deposit.
An interest (if any) will be given to you on CD cash-in and your original investment capital will be returned to you. Certificate of Deposit (CD) lets you deposit your money for a fixed duration in exchange for a 100% guaranteed return irrespective of the interest’s disappearance.
The FDIC insured financial institution offers CD up to $250k is insured. The longer the duration of the CD, the higher the interest of the financial institution. And CIT Bank 11 No-Penalty CD at 1.10% is recommended.
3. Crowdfunded Real Estate Investing
You probably must have heard of the potential within the bricks and walls of real estate as it relates to happy bills, well, Crowdfunding is a method business owners raise money by reaching out to a large pool or community of investors to contribute a small amount of money.
The major difference between crowdfunding and other methods of raising money lies in the methods and platform, and crowdfunding is done mostly online.
You may want to think its operations as a lending club, only that these investments are geared towards real estate. They maintain risks low and interest high policies by carefully vetting and project selections.
4. Preferred Stock
Preferred stocks are stock options issued by companies which have both equity (stock) portion and a debt portion (bond). In the levels of payouts to forms of investments, it sits between bond payments and common stock dividends.
Preferred stock is not traded heavily as common stock is, but it has less risk than these common stocks. It is just another way to own shares in a company while getting dividend payments.
Like a bond, preferred stock allows for regular cash payout. But, unusually, companies that issue preferred stock may be able to suspend the dividend in some circumstances.
Most times, the company has to make up any missed payments. And the company has to pay dividends on preferred stock before dividends can be paid to common stockholders.
5. Municipal Bonds
These can be regarded as debt securities issued by the government of a country to finance Government projects and fund other state affairs within context.
It is money borrowed by a government entity and it is also known as “munis”, and is different from Federal income tax, making them a smart investment for people who are trying to minimize their exposure to taxes.
You would probably wonder what makes municipal bonds so safe. Not only do you avoid income tax, but the likelihood of not getting paid because the borrower defaulted is very low.
We are not ruling out the fact that some municipalities have been severely bankrupt in recent years, but this is very rare.
Governments can always raise taxes or issue new debt to pay off old debt, which makes holding a municipal bond a pretty safe bet.
The following brokers can help you invest your money in low-risk investments like municipal bonds: TD Ameritrade, Ally Invest, E*TRADE
6. Corporate Bonds
Unlike Treasury bonds, corporate bonds are not backed by the government and we both know that can be risky.
A Corporate bond is a debt security but this time around, it is between a corporation and investors, backed by the corporation’s ability to repay the funds with future profits or using its assets as collateral.
The risk involved here is that you are investing in a company. The returns on corporate bonds are higher than other types of bonds because of the level of risk involved.
No matter how creditable the company’s reputation is, it has to make payments. And that is all some investors need for assurance. However, if you’re looking for truly low-risk corporate investing, you should consider bond funds.
Bond funds come in the form of ETFs or mutual funds and help to diversify your investment across a number of bonds.
Robo advisors are one of the great providers of opportunities to invest in bond funds. You can choose what types of funds to build into your portfolio and won’t need to deal with the hassle of constantly balancing your account and re-allocating funds.
7. Dividend-Paying Stocks and ETFs
There are tricks you can use to squeeze a bit more return out of your stock investments, and simply targeting stocks or mutual funds that have nice dividend payouts is a very popular one.
If two stocks perform exactly the same over a given period of time, but one has no dividend and the other pays out 3% per year in dividends, then the latter stock would be a better choice.
With dividend stock mutual funds, the fund company targets stocks that pay nice dividends and does all of the work for you. Sounds easy, doesn’t it?
8. Cash Value Life Insurance
Cash value life insurance is one of the controversial low risk investment opportunities to consider.
This life insurance product is considered controversial because it not only pays out a death benefit to your beneficiaries when you die (like a term life insurance policy) but also allows you to accrue value with an investment portion in your payments.
Whole life insurance and universal life insurance are both types of cash value life insurance. Term life insurance is a lot cheaper, but it only covers your death.
A cash value life insurance is the accrued value can not only be borrowed against throughout your life but isn’t hit with income tax. You can read that again and feel good.
This particular low risk investment opportunity isn’t meant for everyone, but it is a smart way to pass some value onto your heirs without getting hit with income tax.
9. Money Market Account
For people who don’t want to lose any of the principal of their investment, a money market account is created for them. And it is a mutual fund.
In some cases, the fund pays out a little bit of interest as well to make starking your cash with the fund worthwhile. The fund has a primary goal of maintaining a Net Asset Value (NAV) of $1 per share.
These funds come with a strong ability to protect the underlying value of your cash.
It is possible for the NAV to drop below $1, but it is rare. Keep cash in a money market fund using a great brokers like Ally Invest, and E*TRADE or with the same banks that offer high interest savings accounts.
If your low-risk investment doesn’t earn you a lot, you won’t have to worry about losing vast amounts of your principal or the day-to-day fluctuations in the market.
Everyone wants to make money, but the truth is you need to have money in order to make money. If you have money, then you can make more money by investing wisely.
In order to invest wisely, you have to be aware of the risks involved. When you are aware of the risks involved, you will always go for low-risk investment opportunities.
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