Low risk investing: how to invest at low risk?

Risk and return are inextricably linked. Fortunately, there are sufficient investment products with a relatively low risk with which you can still achieve a good result. In this article we discuss the best investment options for the investor who wants to avoid risk as much as possible.

How can you invest at low risk?

When you start investing, there is always a risk. The level of this risk varies greatly per investment product. There is always a chance that you will lose (part of) your investment. It is therefore important to only invest with money you can afford to lose in the long term. In this way you avoid getting into financial problems due to your investment behaviour.

Do you want to practice investing first? In that case, you can try out the possibilities completely free of charge with a demo. Use the button below to immediately open a demo with a reliable party:

What are the best low-risk investments?

  • Stable shares: with stable stocks you can even build up an income.
  • Investment fund: invest in a selection of shares and achieve a stable return.
  • Bonds: Investing in loans is often less risky than investing in equities.
  • Savings account: you can find high-interest rate savings accounts on the internet.

Stable shares

Equities have the reputation of being risky. This is certainly the case when you invest in growth stocks with an uncertain future. For example, many technology companies have never made a profit: investors buy the stocks in the hope that the company will have green figures in the future. Not all shares are very risky: by investing in stable shares of larger companies you can build up an income with a lower risk.

Investors who want to avoid risks as much as possible often opt for stocks that pay out a high dividend. Even when the stock price drops, you still receive a nice annual dividend. If you want to invest in shares at a lower risk, it is wise to buy the shares for the long term. A buy & hold strategy is the least risky, as the return on stocks has always been positive in the long term. However, you should be patient and not sell your shares when the market is in a dip.

Do you want to know at which brokers you can buy shares against low fees? Then take a look at our overview of best brokers:

Investing in an ETF

Another low-risk form of investment is ETFs. An ETF is an exchange-traded fund that passively tracks a particular market. An ETF can, for example, follow the price movements of the AEX or Dow Jones. By buying an ETF, you benefit from the price movements of the underlying index without having to select stocks yourself.

You can achieve a good return with an investment in an ETF. It is smart to apply the principle of cost-dollar averaging. You then periodically pay a fixed amount into a selection of ETFs. By buying in periodically, you avoid investing all your money at the top, which reduces the volatility of your results.

If you regularly buy an ETF, it is wise to do so at a broker with low fees. With DEGIRO you do not pay transaction fees on the funds which are included in the core fund, which makes this the ideal party to invest in ETFs. Use the button below to directly open an account with DEGIRO:

Investing in bonds

Bonds, and government bonds in particular, are also low-risk. A bond is issued by another party. As an investor, you receive interest on the bond and at the end of the term you get your investment back. However, it is important to pay attention to the creditworthiness of the issuing party: if the company behind the bond goes bankrupt, you still lose your entire investment.

Whether investing in bonds is profitable depends very much on interest rates. When interest rates are very low, the return on bonds drops sharply. If the interest rate rises suddenly, the value of your bond may decrease. This is not necessarily a problem: at the end of the term, you will still get your original deposit back.

Savings at a higher interest rate

Saving is actually also a way of investing: after all, you also receive a return on it. The problem with saving these days is that most banks no longer offer you any interest. As a result, you lose money, as inflation and taxes shrink your assets.

Savings accounts with higher interest rates can still be found abroad. Because these accounts are also part of the deposit guarantee system, you don’t have to worry that your money will just disappear when the bank goes bankrupt. This makes it possible to save money at most banks with little risk. On the Raisin website you can see a nice overview of the different banks and the interest rates at which you can open an account. Use the button to compare the possibilities:

How can you further limit investment risks?

Do you want to invest at the lowest possible risk? In that case, it is wise to reduce your investment risks as much as possible. In this part of the article we will discuss how you can still invest successfully with little risk.

Being prepared is half the work

Still, many investors dive into the deep end without being able to swim. Start by drawing up a clear plan. A good investment plan will at least indicate what the ultimate goal is and how much time you have to achieve this goal. It is also important to clearly indicate within the plan what kind of risks you are prepared to take.

Invest money you can afford to lose

It is important to only invest with money you can afford to lose. Too many investors step in blindly and then find out they need that money for a repair. This is unwise: by investing with money you cannot afford to lose, you risk having to sell your investment at an unfavourable time.

Apply risk diversification

One of the best ways to reduce the risks of your investments is to apply risk diversification in a smart way. You can apply risk diversification in different ways:

  • Investment products: invest your money in different investment products.
  • Time: invest your money at different times to avoid bad timing.
  • Sectors: invest your money in different industries.
  • Regions: invest your money in other, interesting regions.

When your risks are spread over many investment products, you reduce the chance that you will immediately lose a large part of your capital in the event of bad news.

Invest periodically

If you want to invest at low risk, it is wise to invest periodically. The stock exchanges are constantly moving up and down, which makes it difficult to determine a good entry moment. If you invest a fixed amount every month, you step in at both the favourable and the unfavourable moments.

Avoid complicated products

It is never advisable to invest in investment products that you do not understand. Complex financial products can yield very high returns. However, if you have little experience, it is not advisable to start investing in these.

Take your time

The greatest risk of any investor is the investor himself. Due to impatience, investors lose huge sums of money every year. When the market is not doing so well, it is often best to wait. When you have more time, the risk of your investments automatically decreases.

Reduce your loss by using a stop loss

The first step in low-risk investing is to reduce your loss. You can do this with online brokers by using a stop loss. A stop loss is a value to which you automatically close an investment; as a result, you cannot lose more than you want to risk, and you invest with a lower risk.

You can also reduce your loss by using the option to short sell. The market usually moves alternately up and down; when you short sell, you achieve a positive return when the price falls. This allows you to achieve good results even during an economic crisis. This reduces your risk during, for example, an economic risk.

You can use these possibilities at an online broker. Are you curious what the best online brokers are to invest with?  Then compare the best brokers with each other:

Can you also invest without risk?

Investing completely without risk  is not really possible. However, you can try investing without risk by opening a demo account with a broker.

Ultimately, it is wise to invest with as little risk as possible. You can do this by ensuring a good relationship between the risks and the potential return. Suppose for every $5 profit you make $5 loss, you then have to make the right decision in more than 50% of the cases. There must be a better way!

You further reduce your risk by maintaining that for every potential loss of $5 you make a profit of $10. That way, you have to be right in less than half of the cases to still make a lot of money with your investments. You can apply this method of investing by using orders, it is crucial that the moments when you take your loss and take your profit are linked to certain technical levels. You can read more about this in our tutorial.

Relationship between risk and return

Ultimately, risk and return are linked. For example, the risk of a share is usually higher than the risk of a (government) bond. This is due to the fact that the results of a share depend on the company’s results, which in turn are often linked to the economic situation within a country.

In the case of bonds, however, these are loans that are repaid, unless the company really can no longer do so. The price of a bond still changes per period and is often linked to the average interest rate; however, if you wait until maturity, you automatically get your money back at the end of the term.

If you want to achieve a high return with investing, you will have to take more risks.

Systematic risk investing

It is possible to systematically limit the risk of your investments. You can do this by spreading out your investment; for example, you can invest part of your money in gold, part in a holiday home, part in bonds and part in stocks. By doing so, you can also make a distinction between short-term and long-term investments.

By systematically dealing with your investment risk, you can ensure that you achieve a lower level of risk and therefore better results on the stock market.

Try trading risk free?


Alex Mostert Avatar
Over Alex Mostert

When I was 16, I secretly bought my first stock. Since that ‘proud moment’ I have been managing trading.info for over 10 years. It is my goal to educate people about financial freedom. After my studies business administration and psychology, I decided to put all my time in developing this website. Since I love to travel, I work from all over the world. Click here to read more about trading.info! Don’t hesitate to leave a comment under this article.

Leave a Reply

Your email address will not be published. Required fields are marked *