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8 Tips to Invest Without Too Much Risk

Get 8 investment tips to help you build wealth even if you hate risk.

By
Laura Adams, MBA,
January 31, 2012
Episode #208

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8 Tips to Invest Without Too Much RiskIf you can’t stand the thought of losing money, you might be afraid to invest it. After all, the losses many people took in the recent financial crisis were scary. But you also know that keeping your money totally safe in a savings account or a CD that only earns 1% or 2% a year could be financial suicide.

A podcast listener I’ll call Jenny asked me what she should do with her money. She’s 28 years old, has worked really hard to sock away $100,000 in a savings account, but is disappointed with the terrible interest rate she’s getting. Jenny said, “The investment market kind of scares me. What’s the best way to get the highest return on my money without a high risk?” In this article I’ll answer Jenny’s question and give you tips to grow your money even if you hate the thought of taking investment risk.

What Investments Should You Buy?

When you get down to the heart of investing, there are two ways to make money: You can be an owner or a loaner. In other words, you can own assets that you expect to increase in value or you can loan money for a specified return. Stocks, real estate, gold coins, artwork, or your own business are all examples of investments you might own with the expectation that their value will appreciate over time. Investments where you loan money include buying bonds or making private loans to individuals or companies.

There are many ways to invest money outside of the financial markets. However, becoming a real estate investor or starting your own business requires a certain amount of expertise, time, and money—not to mention that selling those investments could take years. So, for most people, the financial markets offer the most convenient and economical way to put aside small amounts of money on a consistent basis.

8 Tips to Invest Without Too Much Risk

Consider these 8 tips to grow your money while keeping it as safe as possible:

Investment Tip #1: Outpace Inflation

For your long-term financial goals, like retirement or paying for a child’s education, inflation can really spoil things. Historically, it’s been about 3%, which means that if you’re only making 2% in a bank account or CD, your money is actually losing purchasing power. For most people, investing some amount of money in stocks or stock funds is the best way to keep up with inflation. Since stocks can go up or down in value at any time, they are the riskiest investments—but they also offer the highest potential returns and have consistently outpaced inflation since the 1940s.

Investment Tip #2: Diversify

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