Low-Risk Investing for Beginners: 5 Types of Investments Not Related to Stocks and Crypto

The human brain loves a sudden adrenaline rush, but such an alteration in heartbeat cannot invariably be a good idea, especially when it comes to our finances--unless of course gambling is your niche.

And our investment portfolio does not always have to make us feel like we are stuck in a high alert tornado, but rather it can be a pleasant calm breeze of investment that provides us with low-risk returns.

But before we dive into it, there are certain basic terms regarding investing that we should be aware of:

• Liquidity: It is the measure of how quickly a certain asset or investment can be converted into cash without any loss in its value. 
• Risk: In financial terms, the risk is the probability that the expected outcome of an investment can be partially or totally different from its actual outcome, leaving the possibility of either losing a part or all of your invested money.
• Return: A financial return refers to the money gained or lost on any particular investment.
• Inflation: All money has a lifetime, and if we just keep it idle in our bank accounts over time its value decreases and so does its purchasing power. In easier words, 10 bucks in 1950 have the same purchasing power as 120 bucks today in 2022 and this is exactly what inflation is.

With basics being clear, we are now ready for a few investment strategies that are time-proven blueprints of a perfect seatbelt in our life’s uncertain ride:

1. High-return Savings Account

Although a savings account is not an investment technically, it for sure is the safest way to get returns on your money lying idle.

How to invest: All you have to do is OPEN a savings account and let your money reap the interest amount on monthly basis. On average the interest rate of a savings account is around 0.6% but doing a little research and comparison between various banks might get you a little higher interest rate with certain conditions applied.

Liquidity: Very High - because we can withdraw our money anytime we want.

Risk: There is no Risk involved in a savings account, as even if the bank fails, all the saving accounts are already government-insured. So you don’t lose any money.

Return: An average return of 2.75% per annum

2. Bonds

When you buy any bonds, you are basically lending your money on an interest basis to either a company or government. Buying bonds is a medium risk investment where you are paid a fixed interest semi-annually with adjusted inflation.No doubt there are plenty of options to the type of bond you can buy - corporate bonds, municipal bonds, Treasury bonds, agency bonds, but out of all these GOLD bonds are my personal favorite.

2.1 Gold Bonds
It is basically dematerialized gold, which is a very good option for investors who do not want to buy physical gold. Gold historically has an average return of 8 to 10% over time, so it never fails. And the best thing about Bonds is their use as loan collateral and tax benefits.

How to invest: Bonds can be invested in through various online brokers. Gold bonds especially can be bought from government-approved banks.

Liquidity: Medium. The bonds have a maturity period, which sold after that is a profitable deal but if in case you want to sell it before the maturity period ends you can do so by paying the penalty. So in either case you can get your bonds into cash easily.

Risk: Since bonds are government-issued, they are considered a safe investment, but do make sure that the redemption price of your bond is greater than your purchase price. That generally can be checked with a little market analysis before selling them.

Return: It varies based on the type of bond you buy, for gold bonds, it is usually an annual interest of 2.5%

3. Certificate of Deposit [CD’s ] / Fixed Deposit [FD]

If you are looking for a safe investment that gives a return higher than a savings account but risk lower than stocks, then this is your pal. A certificate of deposit is a great option for people who either have a sum of money that they don’t have any use of currently or can deposit a fixed amount of money every month till the maturity period ends. The only drawback is you have to pay a penalty if you take your money out early. There’s a solution for that as well you can either choose short-term CD’s or no penalty CDs.

How to invest: It's as easy as selecting a financial Instrument you trust. You then talk to a manager, make sure you understand the terms, and get your CD/FD  account up and running. 

Liquidity: Medium. Since CD’s have a maturity period.

Risk: CD’s are risk-free, loss-proof investments unless you withdraw funds early. In that case, you will lose all the interest you earned and in some cases might as well have to pay a penalty.

Return: It again varies from bank to bank. On average you get around 5.30% to 5.40% interest.

4. REITs

Not all of us have the money and time to invest in good real estate properties and even if we do, only a fraction of us would want to put effort into maintaining it. This is where REITS (Real Estate Investment Trusts) come into the picture.

It is perfect for people who want to invest in real estate without wanting to invest a huge sum of money at once while also generating a passive income.

Sounds too good to be true?

But it is true.

REITs are, in simple terms, mutual funds of real estate where we pay a small amount, say 100 bucks, to the trust manager and in exchange the manager buys us a share in real estate at prime locations that in actual only some can afford.

However, by investing in REITs we get to be the owner of a share that actually either has potential or is currently generating good returns in the form of rental income. REITs remove all the extra efforts of first finding a property, buying it and getting it registered under your name, then finding tenants, and lastly maintaining it. So, in REITS all you have to do is simply just INVEST.

How to invest: There are various REITS Organisations/Companies/Trusts available. When selecting a particular trust make sure you do a thorough analysis of what kind of real estate you are willing to invest in and which of the trust’s portfolio matches your needs.

Liquidity: High - they cannot be sold readily in the open market.

Risk: Moderate, usually it's pretty safe as a professional team of a trust handles all the risk factors of a particular property. Also, according to India government restrictions, 80% of the amount needs to be invested into commercial real estate that would generate income through rent.

Return: The trust has to pay the dividend to all the investors semi-annually. Reasonably the returns are around 5 to 6% which can of course be even higher based on your investment. There's an added benefit of Capital appreciation of around 5 to 8% over the years i.e. if the value of the property increase, so does the value of your invested unit which when sold later will be very profitable.

5. Fixed Annuities

It is again not exactly an investment instrument but still a great way to earn money over a period of time. An annuity is basically a contract with an insurance company, where we pay an amount of money upfront in exchange for income paid back to us in small fixed payouts over a period of time.

This is a very smart way of securing your future, especially retirement. So you either give the insurance company a lump sum of money or pay them annually a fixed amount, say, for 10 years in exchange for being paid premiums once it has matured along with interest benefits. Although you can find a lot of different types of fixed annuities with a lot of added benefits, which you should compare and take wisely according to your investment plans. 

How to invest: Can either be purchased online or offline in banks, but make sure you compare and weigh all your options. 

Liquidity: Low. Since it's a fixed contract, you only start getting the money once the payout period starts.

Risk: Low as it provides a guaranteed income with good returns, making you financially secure especially during the times you are not working or earning money.

Return: The return is purely based on the types of Annuities you choose.

Investing in annuities gives an added benefit of a good credit score, tax exemption advantage, a stress-free retirement and even helps you while taking out a loan. And when all fail in life, and you run out of money - you still have a mattress to fall on.

Conclusion 

Congratulations if you made it here without dozing off.

It is often mistaken that holding on to cash is better than investing. But it's the contrary: it makes money lose its value by continuous depreciation due to Inflation. These might not be the best Investment strategies with the highest returns, but these surely are a way to preserve your capital without getting depreciated in its value.