With the economy facing high inflation and rising interest rates, Investors should prepare for a bumpy ride in the months ahead, so investors must stay disciplined. Building a portfolio that has at least some less-risky assets can be useful in helping you ride out volatility in the market.
The trade-off, of course, is that in lowering risk exposure, investors are likely to earn lower returns over the long run. That may be fine if your goal is to preserve capital and maintain a steady flow of interest income.
Below are some examples of 2022 low-risk investments.
High-yield savings accounts
While not technically an investment, savings accounts offer a modest return on your money. You’ll find the highest-yielding options by searching online, and you can get a bit more yield if you’re willing to check out the rate tables and shop around.
Why invest: A savings account is completely safe in the sense that you’ll never lose money. Most accounts are government-insured up to £85,000 per account type per bank, so you’ll be compensated even if the financial institution fails.
Aldermore currently offers a 4.60% 2 years fixed annual rate for a savings account. Depositing £1,000, £94.12 will be earned in interest at the end of the term. The disadvantage is that money has to stay in the account for the whole term.
Barclays has a special offer for blue rewards members – 5.12% of interest for the first £5,000 deposited. The benefits are monthly interest payments and flexible deposits & withdrawals.
Fixed-rate savings bonds
Fixed-rate savings bonds guarantee a set interest rate over a specified term – most savings accounts pay a fixed amount of interest.
Bonds usually pay interest annually, but some accounts will pay this interest quarterly or monthly. You can often nominate a separate bank account for the interest to be paid into.
Tracker Bonds track a particular index or rate – for example, inflation or Bank of England base rate – over a set period. This could be from six months to five years.
Although the minimum investment for some savings accounts is £1, the minimum deposit is usually £100, with a maximum typically of £1,000,000. Interest rates will sometimes have levels that increase the more you can save in the account.
Structured deposits are sometimes advertised as savings bonds. They often promise higher returns but carry more risk than traditional savings bonds.
Hampshire Trust Bank offers a 4.70% 2 years bond with a minimum investment of £1, but withdrawals are not permitted before maturity.
If you’re looking for growth, consider investment strategies that match your long-term goals. Even higher-risk investments such as stocks have segments (such as dividend stocks) that reduce relative risk while still providing attractive long-term returns. ETFs or REITs can balance the portfolio.
ETFs
Vanguard has a number of exchange-traded funds (ETFs) that are perfect for those seeking low-risk investment income. ETFs, give you the instant diversification that’s almost impossible to achieve by handpicking your own stocks. And the beauty of Vanguard ETFs is that they have some of the lowest fees out there.
Vanguard FTSE All-World UCITS ETF seeks to provide long-term growth of capital by tracking the performance of the Index, a market-capitalisation weighted index of common stocks of large and mid-cap companies in developed and emerging countries.
REITs
Real estate investment trusts (REITs) offer investors high dividends in exchange for tax breaks from the government. The trusts invest in pools of commercial or residential real estate.
Due to the underlying interest in real estate ventures, REITs are prone to swings based on developments in an overall economy, levels of interest rates, and the current state of the real estate market, which is known to flourish or experience depression. The highly fluctuating nature of the real estate market causes REITs to be risky investments.
Although the potential dividends from REITs can be high, there is also pronounced risk in the initial principal investment. REITs that offer the highest dividends of 10% to 15% are also, at times, the riskiest.
Written by Irina Stucere