How Risky are Stocks

5 Low Risk Investments to Protect and Grow Your Money Fast

Note: Post may contain affiliate links.

Low risk investments you can use to safely grow your wealth without a stock market crash

Stocks have lost 50% of their value in the last two crashes and it WILL happen again. Any money you have invested in the stock market is at risk.

That means having some money in low risk investments can not only help smooth out your returns but also save your sanity when other investors panic.

In this video, I’m revealing five low risk investments every investor needs in their portfolio. Five ways to make your money work for you without the roller-coaster ride in stocks.

We’re building a huge community of people ready to beat debt, make more money and make their money work for them. Subscribe and join the community to create the financial future you deserve. It’s free and you’ll never miss a video.

Join the Let’s Talk Money community on YouTube!

Why You Need Safe Investments from a Stock Crash

We’re in the middle of the longest bull market in history with stocks up over 300% since the financial crisis. If there’s anything guaranteed about this market though is that it won’t last forever.

We see here a chart of the bull and bear markets all the way back to 1956 with average losses in a bull market wiping out 28% of investor portfolios.

Bull Market and Bear Market History
Bull Market and Bear Market History

This is a dangerous time, especially for those of you close to retirement. You don’t want to be like so many investors, set to retire before the housing bubble burst and destroyed their savings.

So what I want to do with this video is share five low risk investments you can use to protect your money while still growing your nest egg. Five investments that won’t tumble the next time a stock market crash hits.

How to Find Low Risk Investments

I’ll cover a few low risk stock picks and show you how to create a stress-free portfolio of stocks. I’m then going to reveal two non-traditional investments because this is really where you money is going to be put to work. These non-stock investments have the potential to earn double-digit returns with half the risk.

First let’s look at how to pick low risk stocks for your portfolio, then I’ll reveal three safe stocks you might consider.

The first thing you need to know is which sectors of the economy tend to be the hardest hit by a recession and stock market crash. This graph is based on ten years through May 2014 so it includes good times and bad for the market.

How Risky are Stocks
How Risky are Stocks?

I’ve included data here for the nine major stock sectors, so related groups of stocks with a common place in the economy like financials, technology and utilities. The red line shows the sector’s beta which is the percentage it tends to change for every 1% change in the overall stock market.

For example, with a beta of 142% for financial companies, you would expect stocks in that sector to move 1.4% for every 1% change in the market, and that’s up or down. If the stock market lost 20% then you’d expect financial stocks to lose 28% which is that 1.4 times 20%.

Another example on the other side here. We see that stocks of utility companies have a beta of just 48%, so we’d expect share prices to move about half that of the market. If the stock market fell by 20%, you’d expect utility stocks to lose just 9.6% which is that .48 times 20%.

This should already give you a great idea of which sectors and stocks are going to offer lower risk in a crash but we have to look at this from that return side as well.

The blue bars here show the annual return for each sector over the same decade. We see that shares of utility companies produced a 10.6% annual return while financials came in with just a 2.7% yearly return.

Now the numbers are a little skewed here because of how that housing bubble hit financial companies but we can still get some great ideas on low risk, high return investments.

So if we look at the sectors with the lowest risk, those that move less than the market in a crash, we see health care, consumer staples and utilities are the sectors we want to be researching further.

This just makes sense though, right? People need health care and electricity even when the economy takes a hit. They still buy toilet paper and food when the stock market crashes. The companies in these sectors have stable revenue and cash flows no matter what the economy does.

Now as you’re looking in these sectors for the best stocks to buy, I would also add dividends and the operating margin as critical fundamentals.

The overall market pays around a 1.9% dividend yield and I’d expect any company in these safety sectors to beat that. Stable revenue and cash flows means these companies can afford to pay out more to investors so I would screen for companies with a 2.5% dividend yield or higher.

Those of you in the nation have heard me talk about the operating margin before but again, this is the single best measure to compare stocks. The operating margin is the percentage of sales left over after a company pays all its business expenses like marketing and administration. What it tells you is how efficient management is at turning sales into profits.

By comparing that operating margin for different companies in the same sector, competing companies, you get a sense for which are the best of breed in that group. You get a feel for which companies are managed best and are better able to convert sales into profits.

Find the best managed companies in the lowest risk sectors and you’ve got the making of a stress-free portfolio.

3 Stock Picks for Safe Investments

Now I want to reveal three stocks I found using these criteria, those safety sectors with high dividends and operating margin. First though, I also want to invite you to a free webinar I’m giving on how to put together your own personalized investing strategy. This is something I developed working with private wealth clients and I’m sharing how to do it in this webinar.

Get a $50 cash back bonus when you open an ETrade account! Use the investing site I’ve trusted since 1999!

Our first safety stock here is CenturyLink, ticker CTL, with a massive dividend yield of 7.8% in the telecom space.

Now we didn’t see the telecom sector in that chart but it’s also one of the lowest risk you’ll find. You’re not going to ditch your cell plan when the economy slows down. In fact, looking at these safety sectors, I know a few people I think would forego healthcare and electricity before they gave up their smartphone.

Beyond just that idea of safety, I think the pure-play telecom carriers could be in for a wave of cash flow as 5G ramps up. They’ve already made much of the investment in the new technology and we’re just getting into the revenue side of the picture.

CenturyLink has a sector-leading 18% operating margin and, versus something like an AT&T which competes in all kinds of sectors, CenturyLink is a pure-play telecom company. They’ve got one of the best fiber networks and aren’t quite as burdened with debt as some of the other carriers.

Our next low risk stock is Exelon Corporation, ticker EXC, and its 3.1% dividend yield.

Exelon is the nation’s largest utility company and produces in both the traditional regulated utility market as well as in nuclear power. That means profits tend to be smoothed out compared to utilities that only produce from single source types.

Among utility companies, Exelon is one of the best positioned for earnings now on that traditional power & gas segment but also in the future with its nuclear segment.

You’ll notice that I’ve tried to diversify our low risk stock picks across different sectors. That’s important because even though these sectors may historically be less risky than the market, you never know how the next crash will affect parts of the economy.

So with that in mind, our third pick is from consumer staples with Conagra Brands, ticker CAG, and its 3.1% dividend yield.

Those of you in the bowtie nation will recognize Conagra from our 2019 Dividend Portfolio challenge. We added the shares to the portfolio in February and it’s been one of the best investments with a 43% return in 10 months.

Conagra is a leader in packaged foods with 92% of its sales in the United States, something that should protect it as the global economy slows. The company also has some very strong brands in the budget-friendly space like Healthy Choice and Banquet that will support sales if a recession hits in the U.S.

Conagra books an industry-leading operating margin of 17% which is more than twice that of its closest competitor Tyson Foods. The company is only paying out 42% of its income to that dividend so lots of room here for growth or more cash flow.

Two Low Risk Investments Out of the Ordinary

Now I want to reveal those two non-traditional, low-risk investments and how to look at these to protect your money. I know we love talking stocks here on the channel but it’s just as important to have some of your money outside the market with that crash comes.

If we look back on that chart of sector volatility, even those three safest stock sectors; utilities, consumer staples and health care, even these three have an average beta of 60% on the market.

That means if the stock market crashes 50% like it did in 2000 and 2009, you could still be looking at a loss of 30% in these low risk sectors.

Having some of your money in these non-traditional investments means you have another source to grow your nest egg during any market.

Picking these two low-risk investment ideas, I looked at two factors. One was low capital and limited downside. I wanted to find investment ideas that anyone could start with no money and that it wouldn’t cost you anything even in the worst-case scenario.

Of course, I also wanted to see a high potential for returns. A low-risk investment with limited downside isn’t worth much if there isn’t the potential for a solid return, so I looked at different business models and investments that provided both.

low risk tax lien investing

Our first non-traditional investment is one of my favorites, tax-lien investing.

This is one of the highest-return passive investments you can make and big piece of my real estate investing strategy. So anyone that owns their home knows the county collects taxes on every property in the district. If those taxes aren’t paid, a lien is put on the property and it can’t be sold until everything’s caught up.

Well the county needs cash to fix that pothole on Elm so it’s going to sell the lien to an investor at an auction. The investor buys the lien and collects an interest rate plus the lien amount over a period of years.

What’s great about these is that the county collects those back taxes and passes the amount owed on the lien directly to the investor. If the lien isn’t paid, you might pick up the property for pennies on the dollar.

Twenty-nine states sell tax liens while others sell the deed outright and some to a mix approach. We’ll look at the process for liens because that’s the lowest risk and a great investment.

How to Invest in Tax Liens by State
How to Invest in Tax Liens by State

Understand also that you don’t need to be a resident of that state to buy tax liens. In fact, I used to go to Cook County in Chicago and Fulton in Georgia all the time to buy liens.

The interest rate you collect on liens ranges from 10% to as high as 36% in some states and the time owners have to redeem the liens can go as long as four years. That means you could lock in that interest rate for years.

Tax liens work in a couple of different ways depending on the county. If a property owner falls behind on taxes, the county puts the lien on the property and puts it on the list for an annual auction. Now you have to register for these auctions and grab a list of properties, sometimes months in advance so make sure you’re planning ahead.

When you get to the auction, it will either be a bid down on the rate or a bid up on the price. So each property will be called and investors will bid the rate on the lien down or they’ll bid the cost of the lien up. Both processes are basically the same and just mean you’ll get a lower rate than the maximum allowed but you’re still looking at 12% or higher for most liens.

While you’re looking at this list of lien properties, you might want to focus only on the residential or commercial properties, no undeveloped land. Anything with a building on it or especially if it has a mortgage, there’s a 90% or better chance someone is going to pay those back taxes rather than let you have it for just the price of the lien.

Again, once you own that lien, the county is going to collect back taxes and pass them on to you with interest. If the taxes keep going unpaid, a new lien will be put on each year so you want to make sure you have enough to buy these other liens or you’ll have to share ownership with other investors. If the owner never pays the taxes, you can foreclose on the property after the redemption period which is two or three years in most states.

Going back to our criteria, these are relatively low cost investments. Taxes on residential property are usually a few grand or less. You’ll never lose your money because you either get paid back plus interest or you get to take the property.

The return on these is very high and it’s low risk because the vast majority, especially those liens on residential property are almost always redeemed.

There are some downsides to lien investing that I want you to know, just so you don’t think this is all rainbows and unicorns. First is that there’s no market to sell your lien investments, so you better be ready to hold these until they’re paid or you own the property. Again, you also need to make sure the subsequent taxes are paid or you’ll have other investors with claims to the deed. Finally, make sure you only bid on properties you would be fine taking. It’s rare to foreclose on a property because the bank usually redeems these pretty quickly but the parcels of raw land are sometimes abandoned so check that auction list when you get it.

low risk business ideas

Our next non-traditional, low risk investment is going to be to start an online business and maybe you’re not thinking this sounds much like an investment but hear me out.

I got a question last week asking what stocks I would buy if I only had $1,000 a year to invest. The problem here is that even on a solid 8% annual return, a grand a year is only going to grow to just over $100,000 over 30 years. That’s not a bad chunk of change but it’s not going to help you retire.

Instead, if you don’t have much to invest, you need to start looking for investments that will make your money go further. So remember, one of the criteria for these investments was low startup costs and limited downside.

You can literally start an online business with a website for less than $3 a month. That’s how much it costs for hosting with a special deal I negotiated with Blue Host. You might spend a little more on extras but you can easily do it on $20 or less a month.

Get that special negotiated deal and get your website up in 15 minutes – just $3 a month with Blue Host

For example, I spend fifteen-hundred a month to run my four websites and this YouTube channel, all to produce over ten grand in income.

So we’ve got a low-cost, limited risk business idea that can make you many times that investment and we’re talking owning a website, selling things online, publishing books, so many different business ideas here.

Don't avoid these kind of non-traditional low risk investments to grow your money. They might not be as easy or as fast as stock market investments but they can produce triple-digit returns and higher, all while being much safer investments than putting your money in the stock market.

Sharing is caring!

Leave a Reply

Your email address will not be published.

Scroll to Top