No-Risk Investing

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That's in addition to the dividend income that you receive. Though they may bounce some in the short run, the combination of dividend income and capital gains can provide impressive long-term investment results.

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Dividend-paying stocks are not totally risk-free, of course, but they tend to be far less risky than other stocks. Part of that is because they tend to be better known, better established companies. Not only have they been around longer than most other companies, but they also usually have a long history of paying dividends. High dividends also provide a strong measure of protection from price fluctuations during bear markets.

While the market may hammer growth stocks, dividend stocks are less vulnerable to deep declines precisely because of the dividend. That's at least partially because dividend paying stocks become more popular with investors during bear markets, since capital gains are harder to come by.

Risks of Investing in Bonds

In addition, a generous dividend makes it easier for an investor to hold a stock through a declining market. Also, as bear markets drop stock prices in general, the yield on a dividend stock goes up. That makes the stock more attractive to new investors, and can make dividend-paying stocks among the best performers early in a new bull market.

In addition, if a company is forced to reduce dividends, it must first kill the dividend to the common stock before the preferred stock making them an appealing option for part of your income portfolio. Preferred stocks are just what the name implies: stocks with a preference ahead of common stocks.

For example, when a company declares a dividend, preferred stockholders must be paid ahead of common stockholders. Preferred stocks are practically a hybrid between common stocks and bonds. This is because preferred stocks have more predictable dividend income. For example, a preferred stock generally has a certain dividend level, while common stock dividends will only be paid upon declaration by the Board of Directors — which can also decide to either reduce or even eliminate the dividends of common stock. Preferred stock status is even more important when a company has fallen on bad times, and particularly when there is a possibility liquidation.

Stockholders in general are a paid only after bondholders and other creditors of the company are paid. But preferred stockholders will be paid ahead of common stockholders. In fact, should a company suspended its dividend entirely, preferred shareholders are entitled to receive dividend payments in arrears before common stockholders begin receiving any. Naturally, dividend yield will be important for preferred stocks. Generally speaking, preferred stocks pay higher dividend yields than their common stock brethren. Once again, this is not an investment recommendation, but an example.

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This is largely the result of the financial meltdown a few years ago, when banks became very hesitant to make personal loans , particularly to individuals and small businesses. From an investment standpoint, P2P has provided welcome interest rate relief from the near zero interest rates that have existed at least since The net result has been people coming to online lending platforms and securing loans for various purposes. But on the back end, those loans are being funded by individual investors. The two parties "meet" on P2P sites, and agree to work out loan terms.

Understanding Investment Risk

The entire process is streamlined and seamless. Borrowers can make application for loans anonymously, while investors can choose from hundreds of different loans to add to their portfolios. Borrowers end up paying lower interest rates than they would at banks, while investors receive earnings that are many times higher than what they can get in certificates of deposit or money market funds at those same banks.

These investments are not entirely risk-free. However, when you invest through a P2P platform you don't invest in whole loans, but rather in small slivers of those loans. This kind of diversification greatly minimizes the impact of a default associated with any given loan. In addition, P2P investment platforms enable you to choose the criteria that you will use to determine which loans you will participate in. For example, you can decide that you do not want to invest in loans to borrowers below certain minimum credit score levels. Or, you can set the criteria based on a certain minimum debt-to-income ratio, or even loan term or type.


There are several P2P investment platforms available on the web right now, and more are arriving each year. But the two biggest by far are Lending Club and Prosper. If you are looking for an investment with a solid high return, low risk, and predictable yields, you should look into these two P2P lenders. There is a lot of well-deserved hesitation when it comes to investing in annuities. This is in part because of the high fees associated with some of them , in addition to the fact that many annuities have been over-hyped and promoted as the answer to everyone's needs, regardless of what those needs might be.

But the reality is that annuities can be an excellent high return, low-risk investment if they are offered by a knowledgeable financial advisor, and will work well within the investor's investment needs and risk profile. Annuities are complex financial instruments, and work best for more sophisticated investors.

They are based on an annuity contract, which can contain numerous provisions that the investor needs to have a thorough understanding of. Annuities are investment contracts that are made through an insurance company.

You are turning your investment principal over to the company, and they are providing you with a guaranteed return at a stated rate. The return can be either fixed "fixed annuity" or variable "variable annuity". Depending upon the specific type of annuity, the rate of return may be determined by the performance of the stock market. As a general rule, the higher the guaranteed return, the higher the risk on the annuity will be.

Though annuities are not FDIC-insured like bank investments are, they are backed by the issuing insurance company, and often by another insurance company that provides additional insurance on the contract. On balance, these are relatively safe investments that can provide above average returns on your money. Real estate investment trusts, commonly known as REITs, are something like mutual funds that invest in real estate.

The funds are typically invested in commercial real estate, including office buildings, retail shopping centers, and large apartment complexes. A REIT can be invested in a single property, or in dozens of various real estate developments. The latter provides diversity, which can include different types of properties, located in various geographic areas. Risk is any uncertainty with respect to your investments that has the potential to negatively affect your financial welfare.

For example, your investment value might rise or fall because of market conditions market risk. Corporate decisions, such as whether to expand into a new area of business or merge with another company, can affect the value of your investments business risk. If you own an international investment, events within that country can affect your investment political risk and currency risk, to name two.

There are other types of risk. How easy or hard it is to cash out of an investment when you need to is called liquidity risk. Another risk factor is tied to how many or how few investments you hold. Generally speaking, the more financial eggs you have in one basket, say all your money in a single stock, the greater risk you take concentration risk.

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In short, risk is the possibility that a negative financial outcome that matters to you might occur. Risk and Reward. The level of risk associated with a particular investment or asset class typically correlates with the level of return the investment might achieve. The rationale behind this relationship is that investors willing to take on risky investments and potentially lose money should be rewarded for their risk.

In the context of investing, reward is the possibility of higher returns. Historically, stocks have enjoyed the most robust average annual returns over the long term just over 10 percent per year , followed by corporate bonds around 6 percent annually , Treasury bonds 5.

Where can I find no-risk investments?

The tradeoff is that with this higher return comes greater risk: as an asset class, stocks are riskier than corporate bonds, and corporate bonds are riskier than Treasury bonds or bank savings products. Although stocks have historically provided a higher return than bonds and cash investments albeit, at a higher level of risk , it is not always the case that stocks outperform bonds or that bonds are lower risk than stocks. Both stocks and bonds involve risk, and their returns and risk levels can vary depending on the prevailing market and economic conditions and the manner in which they are used.

So, even though target-date funds are generally designed to become more conservative as the target date approaches, investment risk exists throughout the lifespan of the fund. Averages and Volatility. While historic averages over long periods can guide decision-making about risk, it can be difficult to predict and impossible to know whether, given your specific circumstances and with your particular goals and needs, the historical averages will play in your favor.

The timing of both the purchase and sale of an investment are key determinants of your investment return along with fees. If you buy a stock or stock mutual fund when the market is hot and prices are high, you will have greater losses if the price drops for any reason compared with an investor who bought at a lower price. That means your average annualized returns will be less than theirs, and it will take you longer to recover.

Investors should also understand that holding a portfolio of stocks even for an extended period of time can result in negative returns.