Investors are often categorised into two types based on their risk tolerance.
Aggressive investors have a higher risk tolerance, more willing to take chances on the possibility of better, bigger returns. Conservative investors, on the other hand, are more likely to seek investments with sure, but often smaller, returns.
This doesn’t mean that conservative investors should have no strategiesIn this blog, we’ll be discussing 5 investment strategies that are particularly well-suited for conservative investors.
By spreading out your investments in a mix of aggressive and conservative assets like mutual bonds, stocks, term deposits, and REIT’s, you’re protecting yourself from possible drastic market changes.
If stocks crash, you still have your safety net of other investments to fall back on.
It’s particularly important to have a term deposit account as part of your diversification as it holds your money safely and is always guaranteed to perform better than regular savings accounts. Its interest rates may not defeat inflation but it certainly gives your money a better chance to grow.
Low-Cost Index Funds
Investing in low-cost index funds is very similar to diversification. Because the fund tracks a broad market index, it provides exposure to a diversified range of companies, reducing the impact of any single company’s performance on the overall portfolio.
Additionally, because the fund is passively managed, it is generally less volatile than actively managed funds and can provide a steady, long-term return that is suitable for conservative investors.
It’s understandable to stay liquid during bear markets.
However, that’s not the case with this investment strategy. Dollar-cost averaging (DCA) is a strategy that involves regularly investing a fixed amount of money regardless of current market conditions. This is a good option for conservative investors as it helps reduce the risk of buying stocks at a high price.
Bond laddering is an investment strategy that involves investing in a series of bonds with different maturity dates. Not only are bonds low-risk, following this strategy also guarantees conservative investors a steady stream of income as each bond matures at a different rate.
Additionally, by laddering bonds with different maturities, you can reduce the risk of interest rate fluctuations, which is beneficial for conservative investors.
Risk management is a strategy that both conservative and aggressive investors can benefit from.
It starts with identifying potential risks that may affect your investments. Once the risks have been identified, they can be assessed to determine the likelihood and potential impact of each one. Afterwards, steps are taken in order to avoid or mitigate each risk.
These 5 investment strategies can help conservative investors make informed decisions when navigating the market.
From diversification and investing in low-cost index funds to dollar-cost averaging and risk management, these strategies can help you minimise risk and maximise returns, so you can feel confident about your investments no matter what the market is doing.
By implementing these strategies, you’ll be better prepared to achieve your financial goals and sleep well at night.