Can safe investment be also profitable?
If you are looking for information on how to invest without too much risk, you have come to the right place.
In this short article I will explain you what is to be considered “safe” and to what extent. The goal is to find low-risk investments to avoid losing money.
As you already know, low risk and high return do not go together. So let’s see how to reconcile risk and return once and for all.
Ranking of investments from least to most risky
Here is a list of 7 accessible and possibly profitable investments or assets.
The items at the top are the safest and those at the bottom the riskiest:
- Current accounts
- Savings accounts
- Government bonds
- Corporate bonds
- Robo financial advisor
- High-dividend stocks
The list of low-risk investments includes “the mattress”, but it should be “taken with a grain of salt” and here’s why. I use the word “safe investments” for convenience but beware that 100% safety does not exist.
# Current accounts
Lots of people keep uninvested money on the current account.
This is a waste, because that money could be partially invested and generating more money.
Uninvested money produces no income, loses value and does not help the economy to work properly.
I have a hard time calling money sitting in a current account ‘invested money’, but to complete this list of safe investments it was necessary to mention it.
What to look out for when leaving money on the current account?
Be sure to use a trusted and reliable banking entity.
Money left lying in the current account is however protected by the Directive on deposit guarantee schemes.
What does protected money mean?
It means that if you keep less than €100,000 in your account, even if your bank were to fail, you should get your money back.
This protection only applies to current money, not to invested money.
# Savings accounts
By pledging my money for a period of months or years I can access safe investments with limited risks. These are the savings accounts, but beware that they are NOT all the same.
When you activate a safe investment such as a deposit account you could temporarily lose access to your money.
Most common requirements to activate a savings account:
- account ownership
- minimum initial deposit
- to be 18+setting a minimum time horizon
- commitment not to ask for partial or total withdrawals
In short, with deposit accounts (I have had many active at the same time over the past few years) you have easy access to good returns. However, it is necessary to respect certain conditions such as those listed above.
Risks connected to savings accounts:
- Temporarily losing your capital due to bank crash
- Losing all interest for requesting a withdrawal before the due date
- Deposits exceeding €100,000 are not guaranteed beyond that amount
Deposit accounts are always taxed in the country where the citizen pays tax.
# Government Bonds
In my opinion, most Treasury bonds, German bunds, French OATS and most of the fixed interest European debt has the worst risk-return ratio on the planet.
ECB policies are distorting the real risk/reward behind this asset class.
The yields on Bunds (German government bonds) are even negative.
Basically, by investing in some very safe government bonds, I’m paying to invest…
# Corporate bonds
Investing in corporate bonds means receiving interest payments on a debt. In fact, a bond is a type of debt security sold to investors.
Can you explain that to me in plain english?
When I buy a corporate bond I lend money to a company that promises to pay it back with interest.
The company borrows and in return the investor receives a set number of payments. The interest can be fixed or variable.
Now you understand that if the company I have lent money to is solid then I am making a safe investment because the company is unlikely to pay me back and ruin its reputation.
Cool! Where is the problem then?
- Problem 1: Things change. If a crisis comes along a solid company gets into trouble and maybe my debt is not paid or is delayed.
- Problem 2: really solid companies pay little interest on their debt.
How do you invest in safe corporate bonds?
You can get bonds from just any broker.
# Digital advice platforms
If I don’t understand anything about investments but want to solve the problem of investing my money fast and hands-free, this is may be a good solution.
Rather than keeping the money uninvested, it makes sense to invest very cautiously in the financial markets.
The problem with people who want to invest in the stock market is that they imagine they have to buy and sell shares frantically.
Nothing could be further from the truth!
Today, you can delegate your investment in the stock market entirely to authorised companies.
Such investments do not require any knowledge because they are fully automated and supervised by real financial advisers.
Companies offering these services called also “robo-advisors”.
# Money kept under the mattress
Many people keep their money at home. The problem is that if I put 10.000€ under my mattress today, in a year’s time that money will inevitably have lost purchasing power.
So 10.000€ will be able to buy fewer and fewer “things” as time goes by.
What interests me is knowing that cash kept at home is not safe from loss of value.
Cash is the worst investment because it is “an investment” with a sure loss, not just very likely loss.
10.000€ today becomes 9.990€ tomorrow, and so on.
# High-dividend shares
Foreword: high-dividend stocks are not the “quiet & safe” way to invest.
They can take up a slice of your portfolio, but not all of it.
Investing in dividends means being a shareholder in large, stable companies that have been paying large dividends over the years.
By investing in this way, I have to stop worrying about the performance of my stocks on the stock exchange. This is because I will count on keeping the stocks in my portfolio for many years.
Where to buy dividend stocks?
Just any broker will do.
Are Amazon shares a good bet for dividends?
Not at all.
100% safe investments?
No investment can ever be 100% safe. Never.
It is important to understand this concept before proceeding.
100% safe investments?
It is important to understand this concept before proceeding.
There are riskier and less risky investments, but the word ‘safe’ should always be used with caution in these cases.
Don’t be fooled! If they offer you an investment with a high return but zero risk, it’s definitely a scam. Learning to invest D-I-Y can help to avoid scams.
If you’re in your twenties and you’re googling “safe investments”, I think you’ve asked the wrong question today. Young people should focus on taking advantage of compound interest as soon as possible.
The 100% safe investment nonsense
I hate to talk about safe investments.
Nothing is safe and everything changes. So if something was safe yesterday it may not be safe tomorrow.
I mean investing is a process, not a one click action.
Wanting to invest in safe assets leads to low returns. Always.
Low returns are not suitable for those in the early stages of their financial lives. They are suitable for those who are close to retirement and those who already have good capital to protect.
Investing in gold is considered safe, even if it is not really that safe.
⏸ How safe is gold?
You’ve been taught that gold is a safe haven, right? A safe investment, no?
So it’s safe to invest in gold, right?
Not so much.
Gold is suitable for protecting large amounts of capital, not small portfolios.
In addition, investing in gold is suitable for those who plan to invest for the long term to diversify their portfolios.
You need to know that there are many ways to invest in gold and some of them are bad!
Video of safe investments on Youtube
Here is a Youtube video about safe investments.
It is focused on safe investments in the US but it makes sense also for european investors.
Useful video with simple language.
Are Bitcoins a safe way to invest?
In my opinion no, in the sense that if I want to trade Bitcoins I will certainly lose money. Also, Bitcoins don’t have returns, they are just a currency.
The only way I like to think about Bitcoin is the buy and hold (and hope) strategy.
What do you mean?
Let me explain. Someone who invested in Bitcoin 10 years ago (and didn’t sell) became a millionaire.
Now, if I wanted to do the same I could do this:
Decide a reasonable amount to change from euros into Bitcoin, then:
- Open an account with an easy-to-use broker
- Deposit the amount I want
- Convert it to Bitcoin
- Forget it for 5/10 years
With this simple process I can ensure that if Bitcoin continues to rise in value at a rapid pace I will be a millionaire in 5/10 years from now (…maybe).
Don’t call it an investment. This is more of a gamble than anything else.
In terms of security Bitcoins can be described as quite safe because they are based on reliable technology and are a limited asset. The probability of waking up a millionaire remains hard to predict (I’ll keep you posted if you want).
Real estate crowdfunding is not very safe, right?
Let’s make it clear right now, real estate crowdfunding cannot be considered a low-risk investment.
So what’s it doing on a list of safe investments?
I’ll tell you right now!
The first reason is that the very high return that this type of real estate investment promises in relation to risk makes it extremely attractive. So the risk/return ratio, especially in the case of crowdfunding that has real estate as loan collateral is excellent.
The second reason is diversification.
Real estate crowdfunding is one of the most accessible of online investments today, all you have to do is get informed and in a few clicks you are up and running.
Those who invest 100% in the stock market will suffer more volatility than those who keep 10% in real estate crowdfunding (and even in certain peer to peer lending tools).
Of course, one should not be lured by the very high returns. You can only allocate a small percentage of your savings in this way and only in the long term.
▶️ Action plan
Investing in something safe is not difficult, we have seen that.
Especially long-term investors have a big advantage, time is on their side.
There are not many safe and profitable investments, so I have to wake up to find a solution.
For me, the most logical solution is to diversify, so lower the risk by spreading over multiple assets.
A good overall plan can be this (but don’t take this as advice, it’s not):
- I will definitely keep 6/12 months of liquidity in an emergency fund
- Open a high-yield (guaranteed) deposit account
- I should invest for the long term in something automatic that does not require me to know anything about it
- I will research how to get safe stocks with good dividends
- I can add ETFs like this Vanguard Total Bond to my low-risk portfolio
It is important not to focus on just one type of investment!
❌ So I avoid:
- Keep everything on one current account
- Leaving too much money uninvested
- Putting everything in government bonds
- Stuffing my mattress with money
- Thinking about investing when I still have debts to pay
- Stop saving
Now it’s your turn…where do you keep your savings?
What are your safest and most profitable investments?
Can you name an investment with 100% guaranteed income?
Safe investments FAQ
ETFs or money market funds. These are safe short term bonds. Alternatively a deposit account with a 6 month maturity.
Try asking a more intelligent question. “There is no such thing as risk-free.
You can buy global ETFs at the bank which are not too volatile. However, it is best to find an inexpensive broker because banks charge a lot for investments.
A mix of high-yield deposit accounts, robo-advisors and bond ETFs can provide long-term security and peace of mind.
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