Low-risk investing requires investors to choose those securities which will protect the capital invested and eventually return it to the investors. The general rule when searching for these safe investments is to make sure that the institution behind the investment is a stable one, like a government or a bank. Some instruments for low-risk investing are bonds, which are loans issued from investor to institution in return for interest payments, and money-market funds, which are pooled investment funds that invest the capital within in safe, short-term securities. Investors can also lessen risk by diversifying their portfolio with many different types of securities.
It is common for people to want the highest possible return from the capital they invest in various securities. Unfortunately, every conceivable investment also carries some measure of risk that the capital involved in the investment will be lost. Many investors will trade the potential for high rewards for investments which minimize the risk involved. For those investors, there are several ways to practice low-risk investing that will, in all likelihood, keep their capital intact.
Bonds are a good way to get involved in low-risk investing. They are known as fixed income instruments because the investor receives regular interest payments from the institution issuing the bond, in addition to the eventual repayment of the principal amount paid to buy the bond. The only risk involved with bonds comes from the possibility of the issuer defaulting on its debt obligations. To prevent against this, an investor should seek out bonds issued by federal governments or corporations with excellent credit ratings.
Some investors may wish to get involved with the money market, which involves investments in short-term, fixed income securities. These securities often carry a hefty price tag that might be too high for those interested in low-risk investing. Money-market funds, which pool capital from multiple sources and then invest it in various money-market securities, represent opportunities for average investors to benefit from the safety of the money market without paying excessive costs to do so.
An investor can also accomplish low-risk investing by diversifying his or her investment portfolio. Diversification involves investing in many different types of securities spread across a wide array of investment possibilities to lessen the overall risk. For example, an investor might think that bonds are relatively safe, but even these securities can falter in tough economic times. Having a portfolio filled with many different investments will keep an investor from being weighed down with the poor performance of a specific sector of the market.
