Personal Investing

3 Investing Strategies When You're Scared of Risk

5 Minute Read

There was a time in my life when I shied away from buying stocks for one big reason -- I was scared to lose money. These days, that's not a concern. While my portfolio value can and does fluctuate (sometimes wildly) on a frequent basis, I'm not planning to cash out my investments anytime soon. As such, any loss I see in the near term is merely a loss on paper (or, more accurately, on screen).

But still, not everyone has the same tolerance for risk, and if yours is fairly low, you may be worried about buying stocks. If that's the case, here are a few investment choices worth looking at.

1. S&P 500 index funds

Index funds are passively managed funds that have a simple goal -- to perform as well as the benchmarks they're tied to. Meanwhile, the S&P 500 is an index that's comprised of the 500 largest publicly traded stocks.

If you buy shares of an S&P 500 index fund, what you're effectively doing is investing in the broad stock market. In fact, when you hear things like "stocks crashed today" or "stocks went higher," usually, "stocks" refers to the performance of the S&P 500 itself.

The great thing about S&P 500 index funds is that you get instant diversification in your portfolio. That's a good thing to have, because you never know when one segment of the market might take a notable hit. And S&P 500 index funds also take much of the guesswork out of investing, so if you're nervous about hand-picking stocks, this gets you out of it.

2. Dividend stocks

Dividend stocks give you two opportunities to make money. First, like all stocks, their value can rise over time. But you'll also have a chance to enjoy regular dividend payments, which can help offset some of the risk you take on by investing in the first place.

Companies in the habit of paying dividends tend to do so even when market conditions decline. So if you load up on dividend stocks and the market crashes, you'll likely continue to see those payments come in, thereby helping to offset other potential losses you may be looking at.

3. Fractional shares

Fractional shares allow you to buy a portion of a share of stock if a full share is out of reach financially or too expensive for your taste. The upside of buying them is that you'll get a chance to load up on a wider range of stocks, thereby lending to more diversity in your portfolio.

Buying fractional shares also lowers the risk of getting hurt financially if a single company you own tanks. Imagine there's a company you want to invest in that's trading at $1,000 a share right now. If you buy a full share and that company's stock values plunges to 50% of its current value, you could end up with a $500 loss. But if you decide to buy a quarter of a share of that stock, you'd only be looking at a $125 loss.

Do what helps you sleep at night

There's no sense in assembling an investment portfolio that causes you constant stress. In fact, if you go that route, you may be more likely to react when market conditions decline and sell off stocks in a panic, thereby digging yourself into a hole.

All of these investment choices are worth considering for the risk-averse. And even if your appetite for risk is fairly healthy, it pays to give them a look as well.

 

This article was written by Maurie Backman from The Motley Fool and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to legal@industrydive.com.

 

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