Every investor’s dream is investments that bring big returns. However, sometimes life confronts investors with a choice: higher-risk investments with higher returns, or risk-free investments with smaller returns.
The thing is, low-risk investments can be profitable enough. Today we will explore how to make such low-risk investments and make them play in your favor.
What is a risk-free investment?
Riskless investment is a type of investment when you know for sure what the return will be. For example, you buy securities and have full confidence that the issuer will do well in the next few years.
But let’s be honest: totally riskless investments are very hard to find. Reality is such that all investments come with some degree of risk because of uncertainty. Markets inevitably move, responding to world events, and economic and political decisions. Which, sometimes, are truly unpredictable. And sometimes, a real wild card gets pulled — like the COVID-19 pandemic.
Moreover, even if they exist, riskless investments are subject to inflation, which is another point to consider.
Understanding the risks
No worries! Instead of an entirely risk-free investment, you can choose low-risk investments and benefit more from them.
Risk is not something you should be afraid of. Remember that in trading and investing, you can manage risks. Potential negative outcomes may be minimized with the help of special tools. You just need to learn to use them — that is how you will be prepared for anything that comes.
It is up to you to decide how big the risk you take will be. You can analyze the asset that you plan to invest in or trade, assess the potential return, and think of a plan of action.
So, let’s switch from looking for risk-free assets, or the best risk-free investments, to something more realistic. Instead, concentrate on the best risk-to-reward ratio. And learn to manage risks.
How to make low-risk investments
First, you must always have a trading plan, take profit at the right time and keep a cool mind when making decisions. Those are the basics.
If we look deeper, we will find several great ways to limit risks. They may help protect your account from unexpected moves and eventually multiply your capital.
Risk management techniques
Risk management is important for every trader or investor who wants to be successful in the long run. First, you need to remember the 1% rule. That’s when you only open positions that are no more than 1% of your capital. That way, you’re never risking a lot of your account.
Next is using stop-loss and take-profit.
If your trade or investment behaves not as you expected it to, your order will be closed to keep good profits or limit potential losses. To set stop-loss and take-profit correctly, use technical analysis.
Diversification
Another great strategy for protecting your portfolio is diversification.
As professional investors and traders say: never put all your eggs in one basket. Diversifying means choosing assets of various industries. For example, suppose you invest in stocks. In that case, you may choose not only US technology companies like Apple or Tesla, but also energy companies, e-commerce companies, or anything you think is good to deal with.
Put an emphasis on variety, divide your money between various assets, and you’ll be able to keep up even if one or two sectors go down. And let the great returns come!
Hedging
The last, but not the least way to reduce risk, is hedging.
That’s when you buy an asset with the intention of reducing the risk created by another open position. If you are into higher-risk investments, hedging will help you balance the potential gains and losses. Though it may add to the cost of your investment, this strategy is helpful against major losses.
As you can see, there are many ways to make low-risk investments in the market. Choose yours and try them out.
Find your investing path with FBS
Whether you prefer higher-risk investments or risk-free ones, you’ve come to the right place.
With FBS, you can learn to trade, invest, and manage risks effectively. We offer free education – a trading course for beginners and advanced traders, along with many articles and how-to video guides to teach the financial world essentials. Start trading with a trusted world broker now!