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Guide to Low Risk Investments (2024)

By Will Ellis
Last Updated on March 23, 2024

Taking any kind of financial risk might make investors uneasy. After all, nobody enjoys the prospect of financial loss. It might be tough to develop money without taking some risk. You’ve undoubtedly felt this yourself if you’ve ever had a savings account (Money Saving Tips Australia).

As a result, you may want to seek lower-risk investments if you want to find a happy medium between the high dangers of the stock markets and the poor growth of cash savings.

Please note that although I may get compensation for any purchases made as a result of clicking on one of our partner links, this will in no way alter our reviews or recommendations. Although we do provide general guidance on investing and saving, we do not provide specific suggestions to individual users. 

A licenced financial advisor is a person to go to if you have questions about whether or not investing is good for you, or if you want help determining which investments might be best.

Table of Contents:

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Money saved in most of these accounts pays less than 1% interest, meaning that with today’s inflation rate of 10.1%, that savings quickly loses buying value.

Moreover, things are just going to get worse from here on out. The Bank of England predicted inflation reaching 13% by year’s end in 2022 and stay over target throughout 2023.

Those who want to invest but are concerned about the large risks connected with stocks and shares may want to explore into lower-risk investing options. Let’s take a moment to think about potential dangers before we dive into the options.

How to Understand Investment Risk Levels

 Some Level of Risk is Unavoidable

The value of assets may rise and fall over time, making it hard to say whether or not an investment will be worth more or less in the future. This ambiguity is the source of investment risk.

Volatility is a major contributor to the danger of investments. Investments with a higher risk of loss see more fluctuations in value. Investments with a reduced risk of loss tend to be less volatile, moving up and down over a smaller range.

Meaning that high-risk investments have the potential for the highest returns, but also the highest levels of uncertainty.

Investment risk also includes the need for ready cash. Investments that are very liquid may be swiftly converted back into cash if the need arises.

To put it another way, it’s more of a hassle to turn an illiquid investment back into cash. Illiquid assets include, for instance, commercial real estate. Imagine the length of time it would take to return your initial investment by selling a storefront or office building.

Levels of risk do differ

Although though every investment has some degree of peril, the levels of risk involved might vary widely. The price of stocks and shares may move rapidly and often, making them a high-risk investment.

Some low-risk investing choices exist if you’re willing to take on a bit more risk than you would with a savings account but don’t want maximum exposure to a select group of shares.

These alternatives to a traditional savings account may help you earn a higher rate of return in a shorter amount of time. You should know that the risk assessment is low, not nonexistent. You might still end up with a negative balance.

Be careful you have a “rainy day” fund established before thinking about low-risk investments. This stash of money might be enough to cover your expenses for three to six months.

OVERALL πŸ’‘: Your money is always at risk in whatever investment you make.

Low-Risk Investment 1 πŸ“• – Gold

Proven Track Record πŸ₯‡

Throughout the course of thousands of years, cultures have recognised gold’s value and historical importance, garnering it broad respect.

Gold has been in human possession for a long time and in numerous forms. Since civilizations and then economies placed value on gold, its price has persisted.

Gold’s role as a reserve currency in times of monetary crisis means it may be used as a safe haven asset regardless of the state of the economy. As compared to other assets like paper money, coins, and so on, gold’s value has remained relatively stable. It’s a way for families to keep their wealth safe and pass it along through the generations.

From ancient times forward, this metal’s unique properties have been appreciated all across the globe. Because of its malleability and its resistance to corrosion, gold is often used in monetary systems.

Substantial flaws in the value of the pound or the dollar

In fact, gold’s price almost tripled between 1998 and 2008.

Using gold as a hedge πŸ¦”

Gold has historically been a superb inflation hedge due to its historical tendency to increase in value when the general price level rises.

Rising inflation over the last 50 years has caused gold prices to surge and stock markets to collapse.

Gold prices, like other commodities, tend to rise when the value of fiat currencies falls owing to inflation. Gold is widely seen as a reliable refuge investment.

Low-Risk Investment 2 πŸ“— – Money Markets

Good ROI with Good Stability 🏎️

An investment in a money market fund often yields a little better rate of return than would be possible with a bank deposit.

Money market funds, in contrast to bond funds (discussed further below) and stock funds, invest primarily in short-term debt. Purchases of this kind are made mostly by governments, banks, and corporations enjoying good credit ratings and solid financial positions. In exchange, a nominal interest rate is applied.

Because of the short time spans involved, money market funds are considered a safe investment with little risk. This is preferable than keeping all of one’s cash in one bank since it provides more security.

If you need a safe place to “park” your money while you work towards a longer-term financial goal, money market funds may be an excellent choice. One such situation is if you know you want to put money into stocks in the near future but aren’t sure exactly which ones.

Low-Risk Investment 3 πŸ“˜ – Websites

Parking Your Cash in Online Locations πŸ—ΊοΈ

Domains/URLs may develop into substantial passive revenue streams for those who already have a thriving internet company. Take, as an example, Traffic consists of people who have seen these pages. Profits are made when visitors are directed to pages where they may find answers to their problems.

Another option is to put money into established websites.

In spite of fluctuations in the overall economy, certain specialised fields continue to thrive. It draws in affluent buyers even more so if it includes traffic from both the developing and emerging economies.

The IT industry accounts for a significant portion of these. There will always be a need for first-rate internet services that help successful individuals like you to expand your business, whether you’re talking about the greatest web hosting or the most effective trading applications.

Investing in popular, authoritative domain names may provide steady traffic that is resistant to economic fluctuations.

Website owners would do well to learn how to turn domains into long-term investments. Companies of eToro’s stature know well well the value of a strong web presence. Only the best digital PR firms can pull this off.

Low-Risk Investment 4 – Government Bonds πŸ“™ 

Governmental Debt πŸ—½

It’s common knowledge that bonds provide a safer and less volatile investment option than stocks and shares (How to Buy Shares Online in Australia). Think of them as an intermediate step between putting your money in the bank and buying stocks in terms of risk. Like stocks and shares, they may be bought and sold on exchanges.

UK government bonds are known as gilts, whereas in the US they are called Treasuries. Bond purchasers make loans to issuers in exchange for interest payments (the “coupon”) across the bond’s term, plus the principal when it matures.

Bonds are sometimes known as “fixed interest securities” since the interest rate on your investment is guaranteed in advance.

Interest rates on bonds are not standard across the board. Higher interest rates reflect the greater likelihood of losing money on a bond with a higher level of risk.

As compared to corporate debt, government debt from nations like the United Kingdom and the United States (neither of which has ever defaulted on its repayment commitments) is lower risk. That’s not to say it won’t happen. There have been immense issues in the bonds markets. 

S&P, Moody’s, and Fitch are examples of rating organisations that assess and score the creditworthiness of governments and corporations based on the quality of their issued debt.

The Debt Management Office is where you should go to purchase UK gilts. For those who prefer not to deal directly with the government, the Retail Buy and Selling Service allows investors to purchase Gilts via a stockbroker or bank. This would result in costs that would eat into any earnings.

Bond-focused mutual funds and ETFs make it easy to invest in a wide variety of fixed-interest securities, generally using online trading platforms and mobile applications. You may avoid paying taxes on your investment earnings by putting money into bond funds via an ISA that also holds equities and shares.

Low-Risk Investment 5 – Corporate Bonds πŸ“— 

Business Debt 

High-quality corporate bonds from well-known, successful firms often give greater yields than gilts if you’re ready to take on a little more of a risk in exchange.

There is still risk when investing in high-quality corporate bonds, though.

Increases in interest rates. The interest you get from bonds is usually fixed for a certain period of time, limiting the potential return on your investment. If interest rates have increased generally, you may be forced to sell your bonds for less than you originally paid.

The company is no longer in business. While investment-grade bonds are secure, they do not provide the same level of safety as cash in a bank. So, it’s wise to put your attention on bonds issued by the most creditworthy corporations. Despite the higher prices, the additional danger associated with dealing with a less reputable company makes it a poor choice.

It is possible to have exposure to a wide variety of corporate bonds via the funds managed by a variety of investment companies. Corporate bond funds invested via a stocks and shares ISA are eligible for tax-free status once again.

Low-Risk Investment 6 – Annuities πŸ“™

All or a portion of your pension money may be invested in an annuity from an insurance company. They promise a steady flow of money each month or year.

There is no need to purchase an annuity with your pension fund. Sales of annuities were historically low before to the CoVD-19 epidemic. Nevertheless there is data to suggest that sales are on the rise again.

Against the background of unpredictable markets and severe economic circumstances, insurers and financial advisors report increased interest in annuities this year.

Low-Risk Investment 7 – Preference and Ordinary Shares πŸ“— 

The Two Forms of Stocks in a Firm 

Preference and ordinary shares and are the two forms of stock in a firm (What Are Blue-Chip Stocks?). Shares of both types constitute ownership in a company, but holders of preference shares have additional privileges.

This puts you ahead of other shareholders in terms of receiving dividend payments. Dividends are payments made by a corporation to its shareholders, often in the form of cash. The sums owed are covered by the current year’s profits of the firm.

Ordinary dividends cannot be paid out to shareholders before preferred dividends have been distributed.

Investment growth might come via buybacks as well as dividends. Due to the fact that preference equities pay greater dividends. That’s why it costs corporations more than corporate debt. Businesses have recently begun purchasing back preferential shares, generally at a little higher price than shares were sold.

Preferred shareholders also get priority when it comes to securing assets in the case of a company’s insolvency.

Low-Risk Investment 8 – Blue-Chip Stocks πŸ”΅ 

Getting Paid Dividends

If you’re looking for a larger income in a low interest rate situation, many regular stocks are also a pretty secure alternative.

These funds seek to capitalise on the dividend payments made by firms in order to provide a consistent (and ideally rising) stream of income for its investors.

The FTSE 100 is an index of the 100 largest publicly traded firms in the United Kingdom. The stocks of these companies are typical targets because of their long track records of financial stability and competitive dividend payments.

In 2020, businesses throughout the globe reduced dividend payments to shareholders in order to save money in case the epidemic spread.

Low-Risk Investment 9 – Index Funds πŸ“• 

The Value of Index Funds πŸ—‚οΈ

Those who invest in index tracker funds may get exposure to a wide range of stocks at a cheap cost. They are trying to mimic the success of popular stock market indexes like the FT-SE 100 in the United Kingdom or the S&P 500 in the United States (and many on the ASX for Australia). 

Mutual funds that track an index may own shares in hundreds or even thousands of businesses. This kind of diversification substantially lessens the danger of an investment while yet providing the opportunity for increased dividend or interest rates.

Takeaway πŸ“š 🀠

Because of the ups and downs that occur in the value of investments over time, it is hard to say whether or not an investment will be worth more or less in the future. Investment risk is the phrase used to characterise this kind of hazard.

Volatility is a kind of investment risk. The value of any investment might rise or fall over time. Investments considered to have a higher risk of loss tend to fluctuate by larger margins. Investments with a reduced risk of loss tend to be more stable and have less extreme price swings, or volatility.

Investing in risky assets may provide the highest returns, but only if you’re willing to stomach the accompanying uncertainty.

Liquidity, or the ease with which an investment may be sold, is another element of investing risk. For fast cash in an emergency, it’s best to put your money into an investment that’s easy to sell. It may not always be able to turn your investment into cash if it is in a less liquid asset, such as a storefront.


Common Questions About Low-Risk Investments in Australia…

1. Why do most people put their money into investments rather than savings?

So why is it that most individuals choose to put their money into investments rather than savings?

The term “investment” (10 “Best” Investment Apps) refers to the practice of purchasing assets with the expectation that their value will increase or that they will provide an income, and both saving and investing may play an important part in achieving one’s financial goals.

Yet, the present low interest rates mean that cash savings accounts have almost little growth potential. So, the rate at which your savings increase will be directly proportional to the amount you put into them. It’s possible that your interest earnings won’t even cover the cost of inflation.

For this reason, some individuals are eschewing the safety and stability of bank deposits in favour of a diversified portfolio of stocks, bonds, and other assets that may provide better returns and have more growth potential than cash savings alone. But, doing so exposes you to a greater possibility of loss, since the value of your assets may fall, resulting in a return that is lower than the initial outlay.

2. What are the highest and lowest risk investments overall?

There is a wide range of risk associated with different investments. Equity investments, often known as stocks or shares, are commonplace. Because to the volatility of their price, they are classified as high-risk investments. Crypto falls into the same bin. 

Lower-risk investments include things like UK corporate and government bonds, which are types of Fixed-Interest Assets. Corporate and government bonds are both types of debt instruments issued by governments and corporations respectively. Investors in both bonds get interest payments and, at the conclusion of the bonds’ terms, the bonds’ face value in full.

3. Is there a way to maximise profits with little exposure to risk?

As a risk-free investment is unlikely to provide a significant return, the purpose of risk management in investing is not to minimise all risk. Instead, you should try to maximise your profits without exposing yourself to more danger than you are comfortable with.

A fund targeting lesser risk may, for instance, focus mostly on fixed income investments while yet maintaining some exposure to stocks. The fund’s potential for growth and your potential return on investment would be reduced if stocks were not included.

Investors employ diversification to lower their overall risk exposure while still taking part in certain higher-risk ventures.

4. In what ways does risk relate to diversification?

It would be an unorthodox and risky strategy to put all of your money into a single equities, or the shares of a single firm.

Instead, capital is dispersed over several stocks and equities spanning numerous sectors, geographies, and companies.

Mutual funds often hold a mix of shares, bonds, cash, and other assets to satisfy the needs of its investors, who vary in their desire for gain and tolerance for risk.

5. What role does time play in the risk-level of an investment?

Another critical consideration in risk management is the time horizon of your investment.

The value of your portfolio, like the value of any investment, may grow in some months and decline in others; this is a natural and expected part of investing. Yet, in time, the value should rise. If you’re investing for the long haul, you may safely ignore temporary price drops since you’ll eventually recoup your initial investment and more.

But, short-term volatility will be an issue if you want access to your funds promptly. You can lose money if you sell your assets too soon after they decline in value. 

Investing may not be a good idea if you require access to your money within the next five years.

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