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11.06.2020
Investments with minimum risk. Are there risk-free investments?

Trading on the exchange is directly related to risks. However, not every investor, especially when it comes to beginners, is ready to constantly keep abreast and monitor the optimal moment to close the deal. There are conservative exchange players who are ready to make transactions only if the risk of losing invested funds is minimum. Such investments are called investments with minimum risks, and today we would like to talk about them.

RISK-FREE INVESTMENTS DO NOT EXIST

Though there is a term “risk-free investments” in the stock exchange vocabulary, there is no real method of investing funds without the risk of losing them partially or completely. This concept usually refers to assets that minimize the likelihood of losing one's own investments, but it is virtually impossible to reduce it to zero.

The reasons for this lie in the list of standard investment risks: too many factors directly or indirectly affect the possibility of their occurrence. They include:

·  Economic risks depend on the state of the economy;

·  technological risks relate mainly to manufacturers and are associated with the reliability of equipment and the complexity of technological processes.

·  social risks are associated with the social environment (strikes, implementation of various social programs, etc.);

·  legal risks may arise when new laws or amendments to existing ones are adopted;

·  political risks depend on the foreign policy situation and the situation inside the country;

·  environmental risks can be caused by epidemics, industrial accidents and environmental pollution.

·  Investment risks can be divided into two groups:

·  system risks (economic, market) are associated with external factors; investors cannot influence them;

·  non-system risks (commercial) are associated with the investee - from the competence of company management to competition in the industry.

INVESTMENTS WITH MINIMUM RISKS

Despite all of the above, exchange-traded instruments in which you can invest your funds with minimum risk still exist. Moreover, they can all be profitable.

Let’s see at a few examples of such investments.

Government securities

The safest type of investments are securities issued by the state, for which the return on investment guarantee almost always works. That is, even if it is not possible to make profit from such an investment, your own funds will be returned in full. Exceptions and the main sources of risk in this case are only default and high inflation in the country.

In the United States, such securities primarily include T-bills, due to which the term “risk-free investment” appeared.

Preferred stocks

Despite their name, preferred stocks have some features of bonds. In particular, they are traded as ordinary shares, but have a fixed dividend rate. In this case, profit is paid regularly, on a quarter or month basis.

Some preferred stocks can also provide a number of additional advantages, for example:

·  increased dividends, if financial situation in the company is good,

·  conversion to a larger number of common stocks,

·  priority return on invested funds in case of liquidation of the issuing company.

Commodity stocks

Since steel, precious metals and a number of other commodities are always in demand, their stocks are one of the most stable, but have a higher risk level.

Mutual investment funds

Mutual investment funds have a greater risk level than the above-mentioned investment options. Their advantages include a wide range of various mutual funds to choose from: from securities to real estate and commodity market funds and diversified funds, including several sectors at once;

HOW TO CONTROL INVESTMENT RISKS

Since absolutely any investment carries certain risks, when choosing them, we recommend that you always be guided by the following list of tips to finally minimize the likelihood of losing investments:

·  You should not invest in companies more than 1/5 of available funds. This is especially true for the least stable companies related to small businesses and startups.

·  Diversification of investments is the main guarantee of security. Try not to invest a significant part of the funds in the shares of one issuer or in one type of exchange asset.

·  Always pre-think the feasibility of investments, try to consider unforeseen circumstances and plan alternatives.

·  Invest in the industry or company that is most understandable to you in order to more objectively assess the situation.

·  When investing in a new industry, try to learn as much as you can about it yourself.

·  If you don’t have enough experience, do not neglect additional services, such as robotic assistants or trust management provided by a broker.