With the UK economy recovering from the depths of 2020, there might be a few bumps down the road even after 2020. Generally, the stock market enjoyed a significant rebound in the last quarter of 2020 and had remained hot since. It’s important that investors remain disciplined just incase the market cools off. Choosing to invest in less risky assets can help you ride out possible volatility in the market.

Of course, the trade-off is that in choosing low-risk assets, you’ll only be able to earn low profits in the long run. This might be fine incase your goal is to preserve the capital and also maintain a steady flow of income.

However, if you are looking to grow your portfolio, you should choose investment strategies, which match your goals. Although high-risk investments like stocks have segments that lower the risk and still offer lucrative long-term profits.

Things To Consider

Based on how much you’d be willing to risk, there are a few scenarios that will play out:

  • Some risk – It’s important to note that you will lose some of the money or break even over time.
  • No risk – You won’t lose even a cent of your principal.

However, there is a catch: the low-risk investment usually earns low returns than you can find anywhere with such a risk and the inflation could erode the buying power of money used in the low-risk investment.

If you only choose low-risk investments, you’ll eventually lose purchasing power. Also, this is the reason why low-risk investments make the best short-term investments. Essentially, high-risk investments are well suited for higher long-term profits.

Below are the best low-risk investments in 2021

Certificates Of Deposit

Bank Certificate of Deposits is loss proof in an FDIC-supported account if you don’t take your money out early. For the best rates, you should shop around and compare what most of the banks offer.

Incase you leave the Certificate of Deposit intact until it matures, the bank promises customers to pay a set interest rate over a certain term.

Some of the savings accounts usually pay high-interest rates than come Certificates of Deposits, but the so-called higher yield accounts might require larger deposits.

Savings Bonds

In the same way as savings accounts, the U.K. savings bonds are not investments.

The Series EE savings bonds will pay interest up to 3 decades and they’ll earn a fixed profit if they were issued after May 2005. Incase the UK savings bond is redeemed before 5 years; a penalty of the past 3 months’ interest is usually charged.

High Yield Savings Accounts

Although not typically an investment, the savings account usually offers a modest return on investment. You can find the highest yield alternatives by searching online and you’ll get more yields if you are ready to check out the available rates by shopping around.

A savings account is completely safe because you will never lose your money. The government insures most of the accounts, so you will always be compensated even if the bank fails.

Money Market Funds

Money market funds are usually pools of short-term bonds, certificates of deposit, and other low-risk investments put together in order to diversify risk and are technically sold by mutual fund companies and brokerage firms.

Unlike a certificate of deposit, the money market fund is usually liquid, meaning you take out the funds at any time you want with no penalties.

Treasury Bonds, Notes, Bills & TIPS

The U.K. Treasury issues Treasury bonds, Treasury notes, Treasury inflation, and Treasuring bills protected securities.

All these are great high liquidity securities that you can buy and sell directly or via mutual funds.

Corporate Bonds

Firms also issue bonds that can come in very low-risk varieties issued by big companies, down to the more risky ones.

To control the interest rate risk, you can choose bonds that mature in a short period. This is because long-term bonds are highly sensitive to changes in interest rates. To reduce default risk, investors can choose high-quality bonds from renowned companies.

References

Bond investing risks. (2015, May 28). CNNMoney. https://money.cnn.com/pf/money-essentials-bonds-risks/index.html

Belton, P. (2021, June 28). Why small investors are piling into share-trading apps. BBC News. https://www.bbc.com/news/business-57466918

Profit without risk? Not likely (Published 2008). (2008, August 22). The New York Times – Breaking News, US News, World News and Videos. https://www.nytimes.com/2008/08/22/business/22norris.html

 

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