Q1. What are low risk investments?
Ans. Low Risk Investment is simply defined to be an investment where there’s little or no chance of losing some or all of the money invested. Typically, a low risk investment offers decent returns as opposed to the spectacular gains brandished by a high risk investment.
Investors who’re nearing retirement and thus won’t have a lot of time to recover from a catastrophic loss should consider low risk investments for their portfolio.
Q2. What are the best low risk investment options available?
Ans. Low risk investment options indeed offer lower returns but at the same time they also make people feel safe and comfortable about their money. Here are some investment options that low risk investors must consider:
a) Certificates of Deposit
With a Certificate of Deposit (CD), an investor deposits money for a fixed length of time in exchange for a guaranteed return on their money. In such an arrangement, the investor gets a set rate of interest on his or her investment no matter what happens to the market or the interest rate during that period. The money’s locked in until maturity time, but an investor can withdraw early for a penalty that typically equals 3 months worth of interest.
b) Peer to Peer Lending
P2P Lending is a highly recommended short term low risk investment option. P2P Lending companies offer screening tools and help the investor filter out risky loans. This options also allows the investor to diversify as much as the investor wants. For example, an investor can spread his or her money over a hundred different loans if he/she wants.
c) Money Market Fund
A money market fund is a mutual fund for investors who’re averse to losing any principal of their investment. This fund pays little interest to make parking money with the fund worthwhile. While it’s true that these funds aren’t completely foolproof, it’s rare to see them fail.
d) Preferred Stock
Preferred stocks resemble bonds in many ways. Like bonds, they trade in a very tight range and pay regular dividends. But as the name implies, preferred stocks have a preference ahead of common stocks. That basically means that an investor as a preferred stockholder has a higher claim on the company’s earning than does a common stockholder. That is, when a company declares a dividend, preferred stockholders will be paid ahead of the common stockholders. In addition, preferred stocks also have a more predictable have a more predictable dividend income.