Looking for the best low-risk stocks for your portfolio? Here’s how to do it

low risk investments

Finding the best low-risk stocks includes zeroing in on factors like hidden assets, as well as a history of profits, dividends, and industry dominance

The best low-risk stocks typically make for safer investments. And for conservative investors, that means focusing on investing in high-quality stocks—including those that offer hidden value, or hidden assets.

These assets include long-time real estate holdings that are worth much more than their balance-sheet values (usually original cost minus depreciation). Under-used brand names are another good example. When they are developed in-house, they won’t show any balance-sheet value. Another key hidden asset—one of our favourites—is research spending. Companies write off their research outlays in the year in which they spend the money, but benefits such as new or better products may only materialize years in the future.


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Invest in well-established companies to add some of the best low-risk stocks to your portfolio

Instead of moving between extremes of risk, we continue to think investors will profit most—and with the least risk—by buying shares of well-established companies with strong business prospects and strong positions in healthy industries. That’s not to say that there won’t be surprises that affect every company in a particular industry. But well-established, safety-conscious stocks have the asset size and the financial clout—including sound balance sheets and strong cash flow—to weather market downturns or changing industry conditions. You can get our advice on investment issues, plus buy/sell/hold advice on stocks you may be considering buying in our Successful Investor newsletter.

Keep stock market trends in perspective to help find—and hold—the most stable and best low-risk stocks

It pays to keep in mind that the stock market often anticipates trends—but no trend lasts forever. As well, stocks sometimes put on lengthy downturns due to business and economic problems—but the downturns typically go into reverse long before the problems get resolved.

Take a broad view when looking for the best low-risk stocks and you’ll make smarter investing decisions

When we’re looking for the best investments to recommend in our newsletters and investment services, we start by putting all the important information we know about a company into perspective.

But things are never quite so simple. Your stock pick’s latest earnings may reflect unusually favourable or unfavourable conditions. This can make the company look safer or riskier than it really is. In addition, the company may put the funds it borrowed to immediately profitable use, increasing its earnings and its ability to pay interest. It may plan to sell assets to reduce debt, or cut costs to increase earnings.

Be skeptical of companies that mainly grow through acquisitions to find the best low-risk stocks for your portfolio

Making acquisitions can speed up a company’s growth, but it also adds risk that can undermine a conservative, safe-investing approach. Great acquisitions are rare finds. Many acquisitions come with hidden problems or risks, or they turn out to have been over-priced. Despite the risks, some acquisitions turn out hugely profitable. So, your safe investing strategy shouldn’t automatically discount companies that have grown through acquisitions. Just keep the risks in mind, and avoid companies that seem unaware of them.

Focus on dividend-paying investments to find the best low-risk stocks

At TSI Network we feel that stocks that have been paying dividends for over 10 years are some of the safest investments you can make. Dividends are a sign of quality and a company’s financial health. Types of stocks that we consider to be safer investments include Canadian banks and utilities.

We also look for Canadian dividend stocks that have industry prominence, if not dominance. Our reasoning, besides brand recognition, is that major companies can influence legislation, industry trends, etc. to suit themselves. Minor firms can’t do that.

There are also a host of other key indicators to determine if a stock is a safer investment, like management integrity, its growth prospects and its stock price in relation to its sales, earnings, cash flow and so on.

For a true measure of stability, follow our Successful Investor approach and focus on those companies that have maintained or raised their dividends during an economic or stock-market downturn. Again, we think investors will profit most—and with the least risk—by buying shares of well-established, dividend-paying stocks with strong growth prospects.

Use our three-part Successful Investor approach to find the best low-risk stocks for your diversified portfolio

  1. Hold mostly high-quality, dividend-paying stocks.
  2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
  3. Downplay or stay out of stocks in the broker/media limelight.

Some investors use apps for recommendations on low-risk investments. How do you feel about this strategy?

Do you think creating a portfolio comprised only of low-risk stocks is a good investment strategy, or do you feel like there’s a better way to construct a portfolio?

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