If you want to add the best low-risk investments to your portfolio, then you need to consider the quality of your stock picks, your portfolio diversification and a broad view of the market
Many investors spend a lot of time worrying about the wrong things when looking for the best low-risk investments. In particular, they worry about things that are unpredictable. Even if they happen, these things may have only an indirect impact on their long-term profits. As a result, they have little time to pay attention to things that have a direct impact on the value of their investments.
For instance, they may mull over every tidbit of economic information that comes out, and how it has changed from a week or month ago. They hope to detect a pattern—a sign of where the economy is headed. Is it due for more growth, say? Or perhaps it’s doomed to plunge into a new recession.
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The best low-risk investments do not follow patterns
Other investors look for patterns or omens in domestic or international politics, or in demographic data, or in the price of gold. This can eat up an awful lot of time.
These investors often feel they can cut their investment risk by selling some or all of their stocks in times of high risk, and buying them back when risk is low. This never works well for long. After all, risk as portrayed in the media, and genuine market risk, are two different things. No matter how you try, it’s hard to pinpoint market turning points, if only because you have to outguess so many other smart people who are trying to do the same thing.
You’ll rarely if ever sell near the top, nor buy back near the bottom. If you could do that with any consistency, you’d “make all the money in the world,” as the saying goes.
If you constantly worry about the “big picture,” you may at times manage to sell at just the right moment to sidestep a serious downturn. But you may only do that after sitting through a series of downturns. The downturn you avoid may turn out to be the last in a series—the “final leg downward,” as short-term traders like to refer to it.
The next big move in the market may be upward. You need to get back in the market or you’ll miss out. Wait too long and you could wind up paying more than prices you got when you sold.
The best low-risk investments: Balancing cyclical risk with the right growth stocks
If you can find a growth stock that has freedom from business cycles, you’re in good shape. Demand periodically dries up in “cyclical” businesses, such as resources and manufacturing. That’s why you need to diversify. Invest in utility, finance and consumer stocks, along with resources and manufacturing shares.
5 more ways to determine the best low-risk investments for your Successful Investor portfolio
Keep stock market trends in perspective. 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.
Be skeptical of companies that mainly grow through acquisitions. 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.
Look for stocks that have ownership of strong brand names and an impeccable reputation. Customers keep coming back to these businesses, and will try their new products.
Keep an eye on a company’s debt. It should be manageable. When bad times hit, debt-heavy companies go broke first. This is one of the best ways you can mitigate risk in your own growth investing strategy.
The best stocks should have the ability to profit from secular trends. These trends outlast ordinary business booms and busts, because they reflect ongoing social change. A growing middle class and rising environmental sentiment are just two examples of secular trends.
Putting the best low-risk investments in your Successful Investor portfolio means safer, high-quality 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.
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. We think investors will profit most—and with the least risk—by buying shares of well-established, dividend-paying stocks with strong growth prospects.
Low-risk investments can be misleading. Have you ever invested in low-risk stocks that ended up being much riskier than originally thought? What led to this added risk?
How much does the level of risk factor into your investment decisions? Do you try to stick with low-risk stocks or do you mix it up?
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Legal Notices and Disclaimers
The contents of this web site and our publications are based upon sources of information believed to be reliable, but no warranty or representation, expressed or implied, is given as to their accuracy or completeness. Any opinion reflects the Successful Investor’s judgment at the date of publication and neither the Successful Investor, nor any of its affiliated companies, nor any of their officers, directors or employees, accepts any responsibility in respect of the information or recommendations contained in the publications or on this web site. Moreover, the information or recommendations are subject to change without notice.
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