5 Rules to Building Safe Investments for Your Portfolio
We all know that investing is among the surest ways of building wealth. However, it only works if you do it wisely. The good news is that you don’t have to be a genius to create a winning investment portfolio – even when you are a beginner.
While safe investments sound more like an oxymoron (nothing is 100% guaranteed in the investment world), there are several strategies to limit your risk. Yes, doing this will lower your profit. However, it will help ensure potential losses are not devastating.
Today, we take a comprehensive look at the Five rules for building a ‘safe” investment portfolio for smart investors. But first, let’s start by discussing lower-risk investment – including reasons to invest and examples in the current market.
Everything You Need to Know About lower-risk Investment?
With low-risk investment it is all about putting less at stake – either in how significant the investment is to the portfolio or the total amount invested. Equally, there are fewer potential returns on your initial investment.
These low-risk investments help smart investors add more stability to their portfolios. For instance, your lower-risk investment allocation significantly reduces expected losses when stocks experience major declines. Better yet, long-term investors use low-risk investments to get the cash they need to procure stocks after a lengthy bear market, correction, or crash.
Top Five Examples of Lower-Risk Investment
High-yield Savings Accounts
Most people do not view savings accounts as an investment. However, high-yielding options are safe because you never risk losing money. These accounts are government-insured, which means you get compensation if the bank or financial institution fails.
Certificates of Deposit
Unless you prematurely withdraw money, bank CDs offer a safe investment opportunity. However, it helps to shop around when looking for the best offer around. The bank will pay a specified interest rate over a stipulated period if you leave your CD intact until the agreed-upon period elapses.
Treasury Bills, Bonds, Notes, and TIPS
The U.S Treasury offers you the opportunity to invest in a low-risk investment. They issue highly liquid securities – Treasury bills, bonds, notes, and TIPS – that can be sold and bought. Note that some Treasuries investments are negatively yielding, which means they could cost you money in the long run.
If you are looking for a lower-risk investment with guaranteed income and increased financial security, fixed annuities are an excellent choice. Insurance companies will pay a fixed income over a specified period, provided you make an upfront payment. However, annuity contracts can be complex.
Money Market Funds
Mutual fund companies and brokerage firms typically sell grouped pools of short-term bonds and CDs as money market funds. It is a more liquid variation of bank CDs that offers flexibility. Also, you are often allowed to take funds out without being penalized.
Building a ‘Safe’ Investment Portfolio – 5 Must-Follow Rules
Are you looking to build a low-risk investment portfolio? These five simple steps will get you started on your journey to earning generous returns to grow your wealth:
Always Invest in What You Understand
Most investors start running into trouble when they put their money on something they don’t understand. Many people don’t have a great understanding of how to start evaluating returns and potential risks. Making sure you get fully involved in the asset before buying will put you in a much better position. Always take your time to learn about an investment opportunity before buying it.
Focus on the Long Term
Consistently making money on short-term investments is not as simple as it sounds. Although you stand to make a quick profit, you also stand to lose investments quickly. Maximizing your portfolio’s chances of performing well is about looking towards the long run – buying ETFs and stocks to hold on to for an extended period.
Be Keen on the Fees
High investment fees will eat into your profits when dealing with lower-risk investments. Ensure you look into the fees before considering an investment opportunity. Look for low-fee funds with more potential than expensive options. Paying a lot of money for an investment is not worth it when dealing with a ‘safe’ portfolio.
Leverage Favorable Investment Tax Rates
The income you get from stocks is taxed by the U.S government at a favorable rate – as long as you leverage the long-term capital gains rule. Short-term capital gains have a higher tax rate than their long-term counterparts. Holding onto purchased stocks for more than a year will get you more profits since less money goes to the IRS.
Finally, always mix up different assets, even when buying a lower-risk investment. Doing this helps safeguard your portfolio – some investments will always do well, even when others are performing poorly. Diversification is an excellent way of beating the market when investing in stocks.
Check Out Masterworks
Nothing is guaranteed in the investment world. However, you stand to achieve higher levels of stability if you do it right. The first step is looking towards safe investment opportunities. At Masterworks, we are an exclusive community investing in blue-chip art. Ensure you request an invitation today to start diversifying your portfolio, thus increasing your wealth.