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5 Investment Strategies for the Risk Averse

Updated: Mar 17

Learn how someone who avoids risk can safely grow their wealth with minimal volatility.

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You're risk averse - you don't care about higher returns, you would rather know that the money you have is there and can be relatively easy to access when you need it (liquid). If this sounds like you, here are 5 ways you can develop a risk averse investment strategy to grow your wealth.

Investment Strategy #1: Bonds

Bonds pretty much allow a customer to act as a lender. A customer will loan the money to a borrower (typically corporate or governmental) and the borrower will agree to pay fixed or variable interest payments until the maturity date of the bond is reached. Once the maturity date is reached, the borrower must pay back the principal amount.

The customer also has the ability to resell the bond to someone else and make a profit rather than having to carry the bond to maturity.

There are different bonds to choose from, a few are: corporate bonds, municipal bonds, treasury bonds, and junk bonds.

Investment Strategy #2: Certificates of deposit (CDs)

Certificates of deposit are generally offered by banks and credit unions to customers. It gives the customer an interest rate premium in exchange for leaving a lump-sum deposit untouched for a predetermined period of time. Rates and length of time will vary by bank, so it's best to shop around and compare rates before deciding which one is the best for you. Your interest rate premiums will not be as high as gains from investing in stocks, but again, this is a pretty low risk, guaranteed rate of return.

If you want to learn more about CDs, I have a full guide on how to invest in CDs.

Investment Strategy #3: Exchange-traded funds

Exchange-traded funds are the best way to get started in investing and to grow your wealth at a low risk. ETFs offer instant diversification - instead of investing in individual stocks, you're investing in a fund that contains a number of different companies. For example, rather than owning company A stock outright, you own ETF B, which includes a 1% stake in company A. If company A doesn't perform well and drops by 10% in their stock price, the impact will be less severe if you owned ETF B. If you owned company A stock outright, you would have a 10% loss. If you owned ETF B, you're only losing .1% because company A only represents 1% of the total fund (assuming there are no stock price movements on the other stocks in the fund).

Plus, there are a ton of options to choose from. ETFs can be found by sector or industry. QQQ is a popular tech ETF that includes Nasdaq 100 holdings. There are many others that are specific to healthcare, biotech and much more!

Investment Strategy #4: Dividend stocks

My husband lives by this strategy - he loves these because dividend stocks are relatively stable in price and you get money for investing in the company. A dividend is a small reward given to shareholders for investing in the company's equity. Not all stocks are required to give a dividend, so you will have to do some research to see which one will give you the highest yield. Real estate investment trusts (REITs) typically have high dividends and are a great way to invest in real estate without owning property.

Here are a few examples of high dividend stocks to look into (numbers and % based on Jan 2022):

Dynex Capital (NYSE: DX) - dividend yield of 9.88%

Exxon Mobil (NYSE: XOM) - dividend yield of 4.68%

Unilever (NYSE: UL) - dividend yield of 3.97%

AT&T (NYSE: T) - dividend yield of 8.16%

Enterprise Products Partners (NYSE:EPD) - dividend yield of 7.87%

Unsure of how to get started in investing? Read our guide on how to start investing in stocks.

Investment Strategy #5: High interest savings account

This is technically not a stock market investment, it is simply transferring your savings account to an online bank that offers high interest rate on savings accounts. This is by far my favorite way to grow wealth, since you're pretty much getting FREE money at zero risk.

Banks like Ally Financial, Varo and Goldman Sachs' Marcus offer high interest savings accounts for clients. It is completely free to open up an account and most banks do not require a minimum deposit to start earning interest (please of course read up on the fine print of any bank you decide to go with). What's great is that the annual percentage yield (APY) that you will earn is so much higher compared to other well-established competitors like Chase, Citibank or Bank of America. Typically, these traditional banks have a brick & mortar presence and I don't need to tell is expensive! Hence, these online-only banks have lower costs because they don't have physical locations and are able to pass back a higher APY to consumers.

Want to talk more strategy? Book a 1 hour personal finance strategy session where we develop a personalized plan just for you!

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