If you want your money to work, you have to invest. You can rely on conservative or risky investments. Both have advantages and disadvantages. In this post, we present three traditional conservative investments.
What are the advantages of conservative investments?
If you rely on conservative investments, then you are primarily concerned with security. An investment is considered conservative if the risk of losses is very low to rather low. So it is an investment that makes you sleep peacefully. Because the likelihood of suffering losses is low. But the low risk, like everything in life, has its price. And the price of conservative investments is the potentially lower return compared to risky investments.
Who are conservative investments suitable for?
The risks of conservative investments are low. Such investments are therefore particularly suitable for people for whom security plays a particularly important role. There are many people who could not sleep well if they put their money into a risky investment. For example in shares, cryptocurrencies or start-up investments.
Whether you are more of a conservative investor or one who is more willing to take risks, can be determined in special investor type tests, which are available online in many forms. Quite a few online brokers even undertake such a test before being admitted to trading in securities. This is a very sensible thing – because nobody does himself a favor if he takes risks that burden you in everyday life. Because potential profits from investments should not be more important to anyone than everyday well-being, which should always come first.
If you have now determined for yourself to what extent you are a conservative or risk-taking investor, you can start thinking about how best to invest your money. Most financial experts recommend a mix of conservative and risky investments that are weighted differently depending on the type. We now take a closer look at some conservative investments.
1. Gold – the precious metal as a classic investment
Gold is an investment that has accompanied modern people since the beginning of civilization. Gold has always been associated with wealth. Those who owned it enjoyed prestige and had a good life. For millennia, gold was a widely accepted means of payment. To date, gold coins are accepted as a means of payment in most countries around the world. And old investment wisdom says that an ounce of gold has been about the value of a good suit across human history. This was the case with the ancient Romans when a tunic was available for an ounce of gold. And today’s price of around 1400 euros per ounce of fine gold is roughly the same as a good tailored suit.
This stable value over millennia is what so-called gold bugs appreciate so much about the precious metal. Of course, gold also has disadvantages. For example, the precious metal is very heavy and can only be transported in large quantities very impractically. Furthermore, people keep saying that gold has lost its high value. When the general gold standard was abolished, which tied monetary currencies to the precious metal. So far, however, the value of gold has proven to be surprisingly stable.
2. Real estate – Man has to live where
Real estate, and both land and buildings of any kind, are a form of possession, similar to gold. They have been with people for thousands of years. A large possession of land and real estate has always been associated with great wealth. This fact is based on the fact that people always have to live somewhere and the land can be used in many ways. This benefit, for buildings in the form of rent, but also for land in the form of forest or pasture, is the real potential of real estate as a conservative investment. The value of real estate has always been extremely effective in protecting against inflation. People who own rental properties can look forward to monthly income. However, these returns are limited compared to progressive or risky investments. Because rents have a fixed value that is based on general market laws. It rises only relatively slowly, but continuously. In comparison, shares can become significantly more expensive within a few weeks or even days – but also cheaper.
3. Bonds – interest-bearing contracts with a limited term
The third major form of conservative investment is bonds. These are contracts that run for a certain term and promise the subscriber a certain, previously set interest rate return. The issuer of the bond is therefore committed to the subscriber. Namely, to repay the price of the bond plus the interest after the agreed term.
Bonds can be issued by companies or even states, for example. The basic principle is that the more secure a bond is, the less interest it receives. So if a stable country like Germany, Switzerland or Austria issues a bond, the subscriber will only get very low returns. Because these are states that have a solid state budget. The risk that these countries will not be able to buy back the bond is classified as very low. In countries that are considered to be few, such as Greece, Italy or, most recently, Turkey, the bonds generate higher interest rates for subscribers. The risk of a state bankruptcy is significantly greater compared to Germany. Nevertheless, bonds are generally a conservative investment. Because the overall yield is quite low, and the risk of default on almost all issuers is also small. A bond from an issuer that investors consider to be too risky has little chance of being subscribed.
As you can see, there is a whole range of interesting investments for conservative investors. So you don’t have to take high risks to make money with investments if you don’t make high returns
