Many consumers don’t invest their money for one simple reason; they’re afraid of the risk that they’ll lose that money. Of course, keeping your money safe in a bank isn’t a great solution either because, at less than 1% interest, it will fall behind inflation and actually lose purchasing power.
With that in mind, today’s blog looks at 5 tips for low risk investing, so that you can grow your money without being too anxious. Enjoy.
Tip 1) Diversify. Diversification, while it’s a big word, Is actually a term used for a very simple concept; spreading your investments around so that, should one of them fail, the rest will keep going and prevent financial disaster. It basically means that you should have a nice mix of real estate, commodities, stocks, bonds and other investments to spread out your risk among them. Even if one is a loser, the other winners will keep you afloat.
Tip 2) Put Time on your side. If you haven’t heard of compound interest, it’s time you did. Basically it’s the best way to grow your money without having to do anything besides leave it alone. Over time, compound interest will grow your money in any type of investment you place it, like a 401(k), IRA and so forth. Not only that but, if you’re young and your “time horizon” is long, you can leave your investments to grow and weather any ups or downs the market might have.
Tip 3) Start small. If you’re worried about risk, you should just start small. Choose investments that, over the last 5 years or so, have performed well, and purchase them regularly in small amounts. You can get ideas on which ones are the “best” by talking to either a broker, reading an investing magazine like Money or Kiplingers, or even talking to the benefits administrator where you work.
Tip 4) Relax and let your investments do their job. Many people keep such a close eye on their investments that they end up making bad decisions because of what the market happens to be doing at a particular time. The fact is, like the ocean, the market will ebb and flow, go up and down, and have times of turbulence as well as times of tranquility. Through it all, if you want to be a good captain of your finances, you really just need to steer it straight and realize that, at the end of the day, the ocean’s not going anywhere and neither is the market.
Tip 5) Make good choices. If you want to keep your risk low, investing in poorly rated junk bonds is probably not a good idea. Aggressive growth stock funds are the same because they have much more risk then, for example, income stocks funds. If you don’t know the difference between one investment or another, as far as risk is concerned, educate yourself more by talking to someone who does, doing research online or reading investing magazines.