It’s really impossible to find an investment that has no risks. Even those that have guaranteed principal are not without risks. However, there is such a thing as low-risk investments.
If you want to invest but don’t want to take on too much risks, here are some of the best investments for you.
A preferred stock is basically a hybrid security. You can trade it like stocks, but you it also serves the functions similar to a bond.
These assets pay dividends and the dividend rate is usually at or around 2% higher than those from certificates of deposit or treasuries.
The following are some types of preferred stock:
Cumulative Preferred Stocks – these stocks accumulate the dividends that the issuing company fails to pay. When the company manages to get in better financial shape, it pays all outstanding dividends to the stockholder.
Participating Preferred Stocks -these stocks let shareholders receive bigger dividends if the company is doing well.
Convertible Preferred Stocks – as the name suggests, the stockholder may convert these preferred stocks into a number of shares of common stocks.
Similar to preferred stocks, utility stocks usually have stable prices. At the same time, they pay around 2% to 3% above treasury securities.
The following are some of the unique characteristics of utility stocks:
Utility stocks are generally common stocks so they also come with voting rights
They are graded by rating agencies just like bonds and preferred stock
Fully liquid; you can sell them any time without incurring penalties
They carry a slightly higher market risk than preferred stocks
Perhaps the most important feature of utility stocks is that they are noncyclical. This means that their prices do no rise and fall with the economic cycle.
When the economy expands, cyclical stocks typically perform better than noncyclical stocks. When the economy contracts, cyclical stocks also decline. Noncyclical stocks, on the other hand, typically fare better, since they don’t depend on economic expansion or contraction.
That’s because these stocks come from companies that manufacture or produce things that consumers need no matter what their economic condition is.
Money Market Funds
Money market funds are considered by many as the safest investment available out there. In a nutshell, money market funds are like mutual funds and they comprise of liquid financial assets that have short maturities and high credit ratings.
Among these assets are certificates of deposit and US Treasury bills.
A money market fund provides you with regular income as you try to protect your principal investment. Similar to mutual funds, you own shares.
But unlike them, a money market fund tries to keep their net asset value (NAV) at $1 per share. You then receive the interest on your investment as a dividend.
Fixed annuities typically come from insurance companies. This investment has low risk because the insurance company is usually bound by contract to pay you a fixed interest rate.
A fixed annuity is basically a certificate of deposit except that the accumulated interest is tax-deferred.
The risk in this investment is that you can lose it if ever the insurance company ever goes out of business.
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