Risk is absolutely fundamental to investing; no discussion of returns or performance is meaningful without at least some mention of the risk involved.
The loss of investment capital is a risk all investors dread. Who wants to lose their hard (even it is easy) earned resources? In fact, studies have shown that investors hate losing money twice as much as they enjoy making it.
However, it is good that you don’t allow the subject of associated risk scare you off from investing; especially if you desire a balanced and healthy financial life. No one ever thrives in life sitting on their comfort zone.
There are low and even zero risk investment options you can take advantage of at least to start out with in your investment journey; hopefully subsequently, you can then start taking giant strides into the high risk (but more profitable areas).
Below are low risk investment options to consider;
Owning a savings account at your bank is an investment and a low risk one; as an interest is accorded to your saved cash monthly. I understand that the excessive bank charges that ends up chopping of the whole interest, and sometimes eat into the invested capital/savings, especially to those of us in Nigeria and and this part of the world almost wants to make us ask, ‘is that really an investment’.
Bank savings accounts are the best choice when you want to invest your money at the lowest key where you can have access to your money at any time for the primary reason of keeping it out of sight and tamper in savings. Even in the parable of the three servants in the Bible, The Master had cautioned, “Why then did you not deposit my money in the bank, and upon my return I could have collected it with interest?” Luke 19:23.
Fixed Deposits/Certificate of Deposit
A better type of bank account you can consider for a low risk investment is the Fixed Deposit Account also known as Certificate of Deposit (CD). This type of bank account guarantees you a higher and specific interest rate over a specific term, such as six months, one year, depending on the package you sign up for; than just a savings account. If you withdraw the money before the end of the term, a penalty may or may not apply; depending on the bank’s terms and conditions.
Just like savings accounts, fixed deposit accounts are low risk investment options.
Treasury Bill Securities
Like individuals and companies, governments occasionally borrow to fund their operations. When government wants to borrow for less than one year, it does so by issuing Treasury Bills (T-Bills). Hence, T-Bills are short-term debt instruments issued by a national government through the Central Bank to provide short term funding for the government.
A bond is a loan an investor makes to a corporation, government, federal agency or other organization in exchange for interest payments over a specified term plus repayment of principal at the bond’s maturity date. There are a wide variety of bonds including Treasuries, agency bonds, corporate bonds, municipal bonds and more.
If the difference between Treasury Bills and Government Bonds are cloudy to you, know that the difference between them is the time you need to wait to collect your principal: Treasury bills have maturities of a year or less WHILE Bonds are long-term investments that have maturities of 10 to 30 years from their issue date.
On the bottom line, it is good not to allow the fears to avoid risks keep you in low/zero risk ‘safe harbors’; instead, acquire knowledge about any investment option that poses itself before you prior to signing up for it and also, consult your financial advisor.
It is not financially healthy to keep on playing it low and safe in your investment venture; especially if you want to grow and reach your financial goals. However, it’s advisable you avoid the red lights that screams high risks, and keep your adventures at moderate or minimum risk; not the high side or rest at the low side.
Notwithstanding, some research have pointed out that it is good for beginner investors to start out on their investment journey with the low/zero risk investment options; and thereafter keep it at minimum.
It is good to know that there is no ‘free lunch investment’ that offer the potential for high returns with low or zero risk; if you want to keep it low, expect low returns.