Investing can be a little scary for most people – especially if your expendable income is limited. As you know, all investments have an element of risk; however, it’s wise to seek out those opportunities that will minimize your risk while earning decent returns.
The true key to making an investment safe is by investing in a time-tested “top dog” where the return on investment is moderate to high.
Consider these types of investments for your portfolio:
1. Bonds. Bonds are a safer investment than stocks. This is because a stock is an investment without a guaranteed return, while a bond is similar to a loan and has a promised return, plus interest.
- There is a difference between promised and guaranteed. No investment can be guaranteed but with bonds, you know what to expect. Look for investments with a low probability of default (the chance that the company would close its doors or file bankruptcy).
- Bonds are generally paid back to you by the end of the year. However, the terms can be different for each agreement.
- The larger the bond, the larger the profit. But remember, you’re always going to make more money on a higher interest bond. So, you may be better off investing your funds in one high interest bond rather than two lower interest bonds.
2. Stocks. As mentioned, stocks can be risky but, in order to earn a high return, some level of risk must be involved. You can minimize your risks by choosing one of the safer stocks (such as constantly thriving defensive stocks) to invest in.
- Companies, such as Pepsi (PEP), McDonalds (MCD), The Procter & Gamble Company (PG), Johnson & Johnson (JNJ) and Wal-Mart Stores Inc. (WMT) are some of the safer choices in the stock market. These companies also place a high value on shareholder satisfaction.
- Investing in defensive stocks, which are reliable and have proven their longevity and profitability, allows you a small blanket of security that you wouldn’t get investing in the newest, hottest companies, which can tank at any moment.
- Keep in mind, when investing in stocks, there are no 100% safe choices, but you can minimize your risk by buying stocks of a time-tested and profitable company. Or spread out your risk by investing in profitable, long-standing mutual funds where your return is based on a portion of a whole portfolio of stocks.
- Stocks are a better choice for your long-term financial planning goals. If you’re a cautious investor, look for a long-standing solid company to invest in.
3. Multi-family real estate. Now is a great time to invest in a multi-family dwelling. Due to the housing meltdown, there are many multi-family units priced to move quickly.
- A multi-family dwelling is a safer investment than a single-family home because you’re able to retain more tenants. Therefore, if one tenant decides to leave at the end of their lease, you still have other tenants set up in other units that are still generating income.
- Multi-family dwellings are more profitable than single-family homes. For example, if you have three 2-bedroom units renting for $700 each per month, you’re bringing in $2,100 per month. As opposed to the one, smaller income from just one tenant.
Developing an investment strategy takes patience and an honest assessment of your risk tolerance. Real estate investing has always been a popular investment. Owning a fully occupied multi-unit rental property guarantees a monthly return provided you budget for maintenance and other contingencies.
Bonds are safe, but they have the lowest return. However, a few hidden gems in the market offer high interest rates. Stocks offer a higher return but the return isn’t guaranteed and you expose yourself to greater risk.
A smart strategy is to spread your risk and return through a diversified portfolio of investments, some with lower risk and others with moderate risk. Only go for high-risk investments if you have money to burn! This strategy will let you enjoy consistently positive returns throughout the years.