Deciding where to invest your hard-earned money can be difficult. There are so many options available, and each carry a level of risk. It is up to investors to determine how much risk they are comfortable with before buying financial products.
Although high-risk investments generally bring higher returns, there is also a much higher chance of losing your money on them. Not everyone likes to gamble, and no one likes losing money! Perhaps you are approaching retirement, or your children will soon be starting university, Or perhaps you simply don’t want to take any chances with your finances. Here we look at three low-risk options that may be suitable for you.
Certificates of Deposit
Certificates of Deposit (CDs) are commonly sold by banks and building societies in the UK, USA and elsewhere. As the name suggests, a CD is a certificate issued by a bank showing that the buyer has deposited money for a set amount of time. In return for doing so, buyers are generally rewarded with higher interest rates than a regular savings account.
Once the deposit has ‘matured’, the investor may withdraw the money or invest it again. Withdrawing cash before the policy matures usually incurs a financial penalty. CDs are considered very low-risk investments.
Government bonds
This is another form of investment which is generally considered a safe bet – depending on which country’s bonds you buy, of course. Bond buyers are essentially lending the government money, and they usually receive interest payments over a fixed term before getting the invested sum back when the bond matures.
UK government bonds are known as gilt-edged securities or gilts, and in the US they are called treasury securities. The British government has never defaulted on a debt, so UK government bonds are considered very low-risk, even if the returns are not always spectacular.
Exchange-traded funds
ETFs are investment funds that are traded on major stock exchanges. They often replicate a share index, and they are highly diversified - thus reducing risk by providing wide exposure.
Many tech-based investment managers advise their clients to invest in ETFs. Specially designed questionnaires help robo-advisors determine their clients’ attitude to risk and ensure that they choose the right investment portfolios. Customers with a higher tolerance will be offered a portfolio of higher-risk ETFs, while others may prefer to opt for a very low-risk approach.
Zen Assets, online investment and portfolio management service operating in the UK, works only with hand-picked ETFs, offering investors the best chance of growth.
At different times in your life, you may want to switch to higher or lower-risk investments. If you are already wealthy, or if you are young with a good salary and few financial commitments, you may feel more justified taking higher risks in the hope of good returns than someone who is approaching retirement and doesn’t want to risk their hard-earned money.
If you want to determine your attitude to risk before investing money, take risk tolerance test. Most of them were designed by wealth management firms and are offered free of charge. For instance, you might be categorised as a ‘smart risk taker’ or a “responsible wealth accumulator”. The first group of investors should feel comfortable taking higher risks with their investments. On the other hand, ‘responsible wealth accumulators’ should stick to low-risk options until their situations change.

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