What Is the Lowest Risk Investment in the UK?

Summary

  • Volatility in share prices or a sudden crash in the market is what bothers low risk investors
  • Putting money in a savings account is not risk-free, as the purchasing power of money decreases in the long term.
  • Low-risk investment options to consider could be government bonds, FTSE 100 index, among others.

Savings can seem like a less lucrative option when the interest rates are low. Those who have a significant individual savings account (ISA) but earn very little returns on their cash would prefer investing that amount.

But the volatility in share prices or a sudden crash in the market is what bothers low-risk investors. Even if they do not need access to all their money in the short term, they still worry about the uncertainties associated with a market.

                                                                          

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But putting money in a savings account is not risk-free either. While a government guarantee means that the money would not be lost, its value would still be shrinking if we factor inflation. Cash in a savings account that gives poor interest rate means loss of purchasing power in the long term, as inflation is not accounted for. The value of the money in a savings account would fall, while the bank balance might not.

Here is a list of things that investors with a low-risk appetite could consider.

Robo-adviser

A safe way of investing is using a 'robo-adviser.’ These are online investment services that ask an investor a handful of questions, and then a suitable investment basket is allocated to the investor, which is also managed by these platforms on behalf of the investor.

Though still considerably niche, these are becoming increasingly popular.

Milder portfolios would be assigned to low-risk investors. These are portfolios that invest about 40 per cent of their assets in shares and the rest in less volatile options like cash or bonds.

Residential REITs

These are considered to be the best low-risk investments in real estate. Generally, real estate could be a low-risk investment option if an investor sticks to mortgages and residential properties.

But it would be riskier to invest in a single mortgage compared to investing in several mortgages. And real estate investment trusts, or REITs, offer a platform for that. REITs are real estate ETFs that invest in several properties across the US, UK and even beyond.

Also read: Can You Get Rich of Penny Stocks?

FTSE 100 Index

The index track’s London Stock Exchange’s top 100 stocks. They include behemoths like Rolls Royce (LON:RR), Royal Mail (LON:RMG), Tesco (LON:TSCO), and BP (LON:BP). This index exposes an investor to different kinds of industries, thereby cutting their overall risk.

It is considered to be a good low-risk option for investment for beginners. It also contains several dividend stocks, which could be reinvested to make your money grow further.

Also read: How good is gold as an inflation hedge asset?

Government bonds

Treasury bonds work like corporate bonds but with sovereign backing. These bonds pay a fixed interest rate and have a pre-decided payout agreement. It is important to check the credit rating of the issuing government to know that your payment on time is guaranteed. These are considered to be low risk if issued by entities like UK or US governments. Further hedging of risk is possible by investing in ETFs for government bonds.

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