Identifying Low-Risk Investments For First-Time Investors

If you’re new to the world of investing, you may have been enticed by all of those get rich quick stories without really learning the facts of each situation. In reality, those instant rags to riches tales are very rare and even those few fortunate individuals didn’t invest without facing risk. While there’s a risk of loss to any investment opportunity, these investments offer the lowest risks for new investors to get their feet wet.

Understanding the Risks

Before delving into investment opportunities, it’s important to determine your investment goals and to form a strategy. Experts advise younger investors to take bigger risks early on, so they’ll have time to recoup losses. For instance, a portfolio that largely consists of stocks will face greater risks, so that’s something that should be pursued while you’re in your 20s. If you invest poorly and lose your savings, you’ll still have your 30s and 40s to recoup that loss.

As you get older, however, it’s best to focus on the more steady investments and those opportunities that present the lowest risks. As you near retirement age, your portfolio should consist largely of bonds. While the temptation is to make this switch earlier in your investing career, moving towards bonds too soon could cost you significant returns. If you have a financial advisor who counsels you on trust deeds and other matters related to your retirement, this may be a topic you should discuss. He can provide greater guidance in reference to your specific situation.

The Good and the Bad

One of the most volatile investments you can make is to buy into biotechnology stocks. While a success can be very lucrative, failure is predominantly more common. The 90% failure rate for new drugs means that just as many stocks are likely to fail. Phrased another way, there’s a 90% chance that your investment will lose money. If you’re young and willing to take the chance on that 10%, this may be something that would interest you, but it will require in-depth research into the biotech company and its upcoming projects.

Conversely, there’s virtually no possibility that you’ll lose your shirt in buying United States Treasury bonds. You’re almost guaranteed to receive the promised interest and your principal payments won’t likely be withheld, however, there is still some degree of risk. The risk of loss comes in when considering how the economy will evolve, while your money is tied up in the investment. If inflation drives the cost of living higher than the interest you receive on your investment, you will actually have suffered a loss.

More Low-Risk Options

Peer to peer lending is an option that’s growing in popularity, because it can be a low-risk way to grow your money. It involves lending money to others through a service and, just like any loan, the borrower will pay interest on the amount borrowed. The risk quotient comes in when choosing a borrower. If you don’t commit to a good, strong screening process, you may end up loaning your money out and never seeing it again. While the services have safeguards in place to protect against this, it’s ultimately your responsibility.

High yield savings accounts also offer a low-risk way to increase your savings. Typically, there are no fees associated with these accounts, as long as you meet balance requirements and they pay a much higher interest rate than traditional banks. Typically, these institutions only operate online and you should research each bank first to verify they are reputable businesses. Again, the primary risk is in earning enough interest to compete with inflation.

When choosing an investment, consider whether you’re looking for a long-term or short-term investment, because that may also affect how much risk you’re willing to take. Often, greater risk translates to a potential for greater earnings, so it’s sometimes worth it to commit to the risk. In any case, research your investments thoroughly to determine the risks and the likelihood of positive growth.

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