Low Risk Options For First Time Investors

How much investing risk can you live with?

Every investor needs to answer this question for themselves, because the answer will have a big impact the investments you select, and on your personal finances.

The world of investing can be very daunting for beginners. Even though you know it’s the best way to make your savings grow, the fear of losing it all puts a lot of people off. They think that you have to be a financial expert to get anywhere, but that isn’t always the case.

Get free sample chapters from my book: Not Another Personal Finance Book.

There are some good resources online that can teach you the basics and help you avoid many common mistakes. The other big misconception is that you have to put up loads of money on very risky investments, but you can build wealth over time by consistently investing in lower-risk investments.

How Much Risk?

So ask yourself.

If your investment portfolio declined 10% in given year, is that something you could live with? How about 15% or 20%? Keep in mind that the more risk you’re willing to take, the higher the potential rewards you can earn.

Go through this exercise, and then ask a financial advisor about the types of investments you should choose, given your risk tolerance.

Do Savings Accounts Pay Off?

Using a savings account allows you to earn a small return over time.

A savings account isn’t technically an investment but for some people, it’s a better option. If you’re really not sure about risking your money because you haven’t got that much saved, it’s often better to take a low-risk option and just put it in a savings account with a good interest rate. There’s little chance of losing it, and you’ll make a small return on the money.

What Is a CFD?

A contract for difference (CFD) is an investment tool for trading in derivatives, which are investments that gain or lose value based on the price change in a security, currency, or a commodity.

When you’re trading on the CMC Markets you don’t buy the stock itself. Instead, you make a bet on whether the value will increase. Crucially, you don’t have to put in the full value of the stock, you can enter the trade with a lot less. If the value increases, you can sell and make a profit; if the value decreases, you’ll lose money.

The relatively small buy-in makes it a lower-risk investment.

 

When To Consider Bonds

Bonds are essentially loans. You lend the money to an organization of some kind (usually a corporation or the government), and the issuer pays back the your principal with interest over a fixed period. There are a lot of variations on that time period, some will start paying in one year, others 10 and some up to 30 years.

They’re ideal for first time investors because they’re pretty safe. You’ll make small gains over a longer period without too much risk of losing any money. However, if the issuer selling the bond isn’t in a stable financial position, there is always the risk they won’t be able to pay back the money.

Investing With Others

A money market fund is a collection of investments like certificates of deposit, and short-term debt instruments that are grouped together. By putting your money into a diverse range of investments, you spread out that risk and reduce the chances of incurring a big loss.

These money market funds are usually offered by brokerage firms and handled by financial advisors, so you’ve got the benefit of having an expert make your investment choices for you. That gives you an extra level of protection and further reduces the likelihood of losses.

Do Your Homework

If you’re entering the investing world for the first time, these are the least risky places to start. It’s critically important, however, to start by assessing you personal risk tolerance, then find investments that are a fit for your needs.

This post is for educational purposes only.

Ken Boyd

Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies

Co-Founder: accountinged.com

(email) ken@stltest.net

(website and blog) https://www.accountingaccidentally.com/

(you tube channel) kenboydstl

 

Image: Bullseye, Jeff Turner CC by 2.0