Low Risk Investment Strategy

Simple tips on personal investing from a regular person. This low risk investment strategy is designed to be low maintenance as well as low risk, so investing doesn’t have to become your second job.

Some securities are naturally low risk but very low yield also. For example, money market mutual fund rates are very low, lower than short term bonds for example. Yet the money market funds are so stable that it attracts the highly conservative traders and investors.

What is low risk investing? Investment is putting your money at risk, to be used in business long term, in the hopes that you can receive a good return on your money.  You’ve heard of day-trading, margin trading, and commodities trading?  This is gambling…not investing. 

If you invest, it’s over 5 or more years…the longer, the better.  You want your investments to have a chance to overcome seasonal problems in the market.  The Dow Jones Industrial average gained 10.5% per year over the last 100 years, despite depression, 2 World wars, the Cold War, the War on terror and many recessions.   During that time, there were many down years but they were more than compensated for by the up years. 

Investing isn’t putting your money in a savings account, the money market, or a CD…that’s called saving.  The returns on these types of accounts rarely keep up with inflation and taxation.  These are great secure places to store your emergency money short-term, but as you accumulate more money, you must find a better return for your money, without putting it at too great a risk.  

What Are The Best Methods Of Safe Investing?

  1. Blue Chip Stocks Stocks are pieces of a company normally available for purchase by the general public. Blue chip stocks are stocks issued from highly capitalized companies with a lengthy history of solid earnings. A blue chip stock can be a stock from any industry at all.
  2. Certificates of Deposit– You can ignore the stories of the people who put all their money in a company and “made a killing”.  Even if it occasionally happens, there are thousands who lost it all for every one who lucks out.  “He who saves a little at a time makes it grow.” Solomon, 2900 years ago.  If you’re going to invest the money you’ve saved by years of sacrifice, you need to put it at a much lower risk.  No, it won’t be doubling this year, but you won’t be losing half of it, either.  My first experience in the stock market was the “bursting of the bubble” We lost 66% of our life savings in 18 months.  So, never invest money you can’t afford to lose.  Even though we’re covering a very low risk investment strategy, it isn’t “no risk.”  My strategy is conservative because of my experience, but should bring in 7-10% per year over the long term, which is the only term to be investing.  This strategy is also low maintenance.  You don’t need to become a financial expert to make money in your investments…you just need to be careful.  Here are some recent popular books about investments and reducing risk .
  3. High Yield Mutual Funds – Especially Index Funds, even better low risk investments down the list are the bond mutual funds which are collective investments in many types of bonds. Bond funds come in several types, one of them is taxable versus tax-free. Calculating the yield on bond funds is complicated by this extra consideration. Be sure to check out no load index funds to minimize your fees. Another way to classify bond mutual funds is by the term of the held bonds. Some bond funds only invest in very short term bonds, resulting in lower yields but also lower risk. Some bonds invest in long term bonds with corresponding higher risk and yields. The fund types are independent in that it can be either tax-free or taxable, at the same time be either short, medium or long-term. The best mutual fund companies can give you an idea of what rates to expect.
  4. Money Market Funds Even lower risk than bond funds are the money market deposit account and money market funds. Look up the highest money market rates to get an idea of what to expect. Likewise they are a group-investment instrument that spreads the risk across many money market accounts. Money market funds are actually a bit more subtle. Each individual instrument in the money market fund belong to the category of fairly low risk investments that almost never drop below initial values although the return is expected to vary. Taken as a fund, the money market fund is low risk for both losing its value, and also for growing too slowly as an investment.

The term low risk investment has different meanings for people because different people have different perceptions of risk. For example, for some people, an investment which has even a remote chance of a 5% loss over a one-year period is extremely risky, whereas others would only find a remote chance of a 30% to be risk. Indeed, had you invested in stocks in 2007, you would have found that your investment dropped by about 50% over the next year.

Hence why do you invest? To feel the adrenalin of fast paced trading ups and downs? Or to ensure a balanced and steady source of income throughout the years? Whatever it is, your decision will determine if low risk investing is right for you!

Happy kaizen trading!

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