Low risk investments during COVID – 19. The world is feeling the effects of the Covid-19 pandemic and the market disruptions caused by this deadly disease could be far worse than the 2008 financial crisis. But the low-risk investments could be your financial savior.
Financial analysts are predicting that if the 2008 financial crisis was a financial heart attack, then the coronavirus crash might only equate to a full-body seizure. But what does this prediction tell us? Well, life is full of risks and business investments and consumer confidence can take a huge hit within a blink of an eye! It’s always easy to forget all these when the market is soaring.
But like almost everything in life, what goes up can also come down and market disruptions like the one the world is currently witnessing will occasionally rear its head. As such, it’s always wise to be prepared for the eventuality of market disruptions and there’s no better way than investing in low-risk investments.
Investing when there’s a crisis or market disruption is without a doubt, a risky affair. In most cases, the timeline and scope of market recovery are unknown and trying to pick up from the financial hit is largely a matter of luck. However, those who are able to overcome fear and anxiety to invest during the market disruption may reap big during recovery. This is where choosing the best low-risk investments comes into play.
The Truth about Low-Risk Investments
Honestly speaking, low-risk investments are a great way to preserve capital, which is the most important thing during a market disruption. On the other hand, low-risk investments do not generally promise huge returns on your investments. This is something that you have to settle for during market disruption unless you want to risk it all.
As an investor, you ought to understand that stuffing cash in a safe back at home isn’t a sound strategy. This is because it’s a lot riskier and inflation will significantly reduce its value over the long term. With that in mind, here are some reasons why low-risk investments are the best during market disruptions.
– Low-risk investments always come with low fees. This is something that you certainly want since the future returns are uncertain and you do not want investment costs that will take a huge bite out of your portfolio.
– Low-risk investments are easily accessible as they generally do not last for years. They’re, therefore, ideal if you are planning to access your returns on investments as soon as possible.
– They’re great if you want to create an emergency fund that you can access to cater for unforeseen events such as health issues and unexpected job loss in the near future.
– They give you the perfect opportunity to continue making small but regular contributions to your investments even during the crisis.
– Low-risk investments offer a perfect platform to diversify your portfolio, which puts you in a much better position to endure market disruptions.
Best Low-Risk Investments
It’s essential to note that the world of low-risk investments is not very sexy given that you won’t get over-the-roof returns on your investments. However, they’re an attractive way to cushion from financial losses that are generally widespread during a crisis. That being said, here are the best low-risk investments to consider.
Conservative Investment Portfolios
Investment portfolios usually range from aggressive to conservative portfolios. While aggressive investment portfolios such as stocks tend to be volatile, conservative portfolios such as bonds and P2P lending are typically less volatile. As an investor, you’re probably looking to play it safe during market disruptions and going for conservative portfolios such as ViVentor is the way to go. Conservative portfolios not only offer ample diversification avenues but are also a great way to maximize your upside while minimizing risks.
Money Market Funds
These are generally low-risk mutual funds that allow you to invest in high-quality, short-term government and corporate bonds. Money market funds are a safe way to park your capital. The only downside is that they’re not guaranteed by the government the way Guaranteed Investment Certificates (GICs) and savings accounts are guaranteed in the event that the bank collapses.
The idea here is that money market funds have management expense ratios. This essentially means that the investment returns may not increase much above the cost of holding them. So if the market disruption is not that bad and the banks are unlikely to collapse, money market funds could be an ideal option of parking your money.
High-Interest Savings Accounts
Savings accounts are one of the safest low-risk investments that you can take advantage of during market disruptions. In addition to having the guarantee of getting your money bank in case of a collapse, savings accounts offer interest rates although they are pretty small. There are, however, newer players in the financial industry that have disrupted the savings accounts market by offering interest rates as high as 2% per annum. Again, savings accounts give you the option of liquidating and withdrawing your funds at any time without penalties.
Guaranteed Investment Certificates (GICs)
Also known as term deposits, GICs are almost similar to savings accounts but aren’t as liquid. GICs, however, offer higher interest rates than savings accounts since they require investors to commit to a specific period of time, usually known as the term.
The term may be as short as a few months and as long as several years. Needless to say, the longer the term, the higher the interest rates and vice versa and you’ll be able to access your investment capital and the interest at the end of the term. Keep in mind that withdrawing before the end of the term may lead to loss of interest or you may have to pay an early withdrawal penalty. With that in mind, this is a low-risk investment that’s only ideal if you’re very patient.
In the same way governments issue bonds to cover various obligations, companies can also offer corporate bonds to cover a variety of obligations such as capital improvements, business expansion or even to pay dividends to shareholders.
Corporate bonds are generally categorized based on their maturity dates. Short term corporate bonds usually mature in less than three years; medium terms may mature in four to ten years while long term corporate bonds may take more than ten years.
It’s always advisable to target short term corporate bonds as they’re less risky than both medium and long term corporate bonds. Again, you should go for short term corporate bonds with minimum BBB ratings. Although short term corporate bonds may not pay that much, they offer the lowest possible risks and are an ideal option for low-risk investments.
Real Estate Investment Trusts (REITs)
One of the best ways to diversify in low-risk investments is by investing in real estate. Regrettably, owning an investment property requires lots of capital, hands-on participation, and a lot of time. So the best way to avoid the hassles that come with direct real estate ownership is by targeting REITs.
REITs are like mutual funds that give investors the chance to hold portfolios in real estate. They’re generally meant for commercial properties, retail shopping centers, and large apartment complexes. In essence, REITs are an excellent way to diversify your investment portfolios in real estate.
Investing during a crisis or market disruptions is unquestionably a risky undertaking. In most cases, there are a lot of uncertainties that could probably lead to a loss of investments. As such, it’s always a great idea to invest in low-risk investments that can cushion you from losing your funds while giving you a greater chance of reaping during the disruption or when things turn back to normalcy.