Virtually every investment, from stocks to certificates of deposit, carries some level of risk that you will lose your money. Even keeping your assets in cash has a downside — inflation can slowly eat away at your spending power, making your money worth less and less over time. However, if you want to protect your assets while still investing them in hopes of growth, there are several strategies you can pursue that limit your risk of loss. Don't forget, though: any investment that says it is 100 percent safe is bound to be a scam, according to Caspian Trading, an investment firm.
While no stock is truly safe from loss when it comes to long-term holdings, "value" stocks not only offer less risk to investors, but they apparently also offer the chance at greater returns than so-called "growth" stocks, according to an MSN Money article. The cliche is that value stocks are for "widows and orphans," because they provide reliable but unspectacular profits through slow-and-steady growth and regular dividends. But a study of the best performers from 1963 to 2007 found that the stocks with the highest risk actually produced the lowest returns, and vice-versa. Investors looking for reliability also can look to the "blue chips," stocks of large companies that are industry leaders and unlikely to crash into bankruptcy or other fiscal disaster.
Mutual funds invest in a number of stocks and other financial vehicles at once, which inherently makes them less volatile than individual stocks. However, they are certainly vulnerable to an extent to the same things that plague the investments that make them up, including market crashes. However, buying into value-oriented mutual funds that have a conservative investment philosophy can be about as safe as a market vehicle gets. For instance, some "income" funds will invest heavily in corporate bonds, which are low-risk, low-reward vehicles that offer stability along with measured growth. As with safer "value" stocks, these funds may trail growth-oriented funds in the short-term, but they are likely to prove quite reliable in the long haul.
Bonds represent debt issued by a municipality, company or even the federal government. As with most investments, there are various levels of risk, but investors may find their safest options in these vehicles, as they usually pay a guaranteed interest rate. The key, of course, is finding ones that outstrip inflation, which is not always the case with the safest bonds. For instance, Treasury securities issued by the federal government can see their yield rise and fall like the markets, but the government is unlikely to default on the debt. On the other hand, some bonds such as the so-called "junk" corporate bonds have higher potential gains but also higher risks.
Certificates of deposit offer a way to have the safety of cash while still seeing some sort of growth. When you buy a CD from a bank, you must hold it for a set amount of time, at the end of which you can cash it out for more than what you paid. You can "ladder" a series of CDs so you are continually reinvesting the profit in longer-term CDs, earning an additional profit on those as time goes by. What makes this investment even safer is that most bank-issued CDs are insured by the Federal Deposit Insurance Corp., so you can recoup your money — up to a certain level — if the bank fails.
- Thinkstock Images/Comstock/Getty Images
- Value Stock Vs. Growth Stock Long-Term Return
- The Disadvantages of Bonds Compared to Stocks
- 7 Categories to Classify Stocks
- What Criteria Are Used to Invest in Stock?
- Money Market Vs Certificates of Deposit
- What Are Some Safe Fixed-Income Assets?
- The Advantages of Commodity Investments
- How to Balance a Portfolio That Is Heavy on Real Estate