Conservative investment is a strategic investment wherein capital preservation is prioritised over market return or growth. It strives to protect the value of an investment portfolio value by investing in lower-risk options such as fixed income securities, blue-chip stocks, cash or the equivalents of cash, and the money market. The process by which we spread our investments across the spectrum of the asset such as bonds, money market securities, stocks, or cash is what we know as asset allocation.
We should always keep in mind that there is no conservative investment that is 100% risk-free. The credit goes to the fluctuating economy along with the fluctuating markets. Ergo, it becomes quintessential for us to choose wisely as to where we need to invest in the year 2021 on basis of our long and short-term financial goals. Alongside other factors to be considered are the time frame, our risk-taking tolerance, as well as our current balance in our bank account.
Once we have considered all the above-mentioned factors carefully, deciding the conservation investment mode will not prove to be a challenge; rather it will help us grow our investments on the upward graph. There are certain good rather safer options when it comes to conservative banking which might prove beneficial for us to reach the desired financial goal to build an everlasting wealth bank for the future.
For all of us who are mostly interested in a fixed income, saving bonds are the right call for you in conservative investments. These are the easiest to invest in and come in both cumulative and non-cumulative forms. In cumulative form, the interest is given out on the maturity of the bond. Whereas in non-cumulative, we get paid out every six months in our bank account linked to the bond.
Currently, the highest yielding option for investment for an investor is a savings account. It offers a modest return on the money and is completely safe where the security of money is affirmed.
Mutual funds can be the other option that can be considered well under the conservative investment. It is a trust for investors wherein we can pool our money to buy bonds, stocks, and other kinds of assets. It can make for a good retirement plan for us in terms of long-term investments. This mode helps us get a cheaper and more convenient way to diversify our investment portfolio than losing it all at one point investment scheme.
Corporate funds are the answer for the money that we are not going to need for the coming period of a minimum of 3-4 years. Big companies issue these bonds and are generally considered to be a low-risk investment than stocks.
Similar to the government, multiple corporations also are interested in issuing bonds to raise money via the pool of investors. However, as an investor, we have some relief as we can buy shares of short-term bond funds to escape the risk of loss.
Therefore, a conservative investment portfolio gives us a large gamut of low-risk yet fixed-income investment. A conservative strategy obliges investment in the safest short-term instruments, such as treasury bills and certificates of deposit.
(The writer is managing director at Alankit. Views expressed are personal)
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