Best Low-Risk Investments For 2024

Let's dive in and find out more.

Updated: May 18, 2024
Matt Crabtree

Written By

Matt Crabtree

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Let's face it. As investors, there's never been a time in which we've had to pinch pennies like we are, and it's all thanks to the economic uncertainty in the UK.

However, it's not always as simple as taking a back seat and waiting for the next bull market to go in — investing and trading is a full-time job for some, and the market waits for no one.

Whether it's from the cost of living or you're unsure how to navigate the stock market in its current state of volatility, a low-risk investment option has never seemed so necessary. But before we get started, what exactly makes an investment lower risk, and where can you find them?

Generally speaking, these kinds of investments refer to any broader financial products which have a much lower chance of fluctuating in value (which gives you a worse return on investment money).

When investing, the phrase ‘high risk, high reward’ might spring to mind, but this is the exact opposite of what we’re trying to achieve here. 

Although these investments will typically offer lower returns in comparison to their higher-risk counterparts, they excel in providing much-needed stability to your portfolio. This means any investors trying to protect their capital have much more peace of mind than with the typical investment experience.

So, if your current financial state has you seeking a less ‘rock and roll' approach to investing, we've got you covered. Throughout this article, we'll be exploring various kinds of low-risk investments, from government bonds to index funds, and breaking down their respective pros and cons.

Whether you're a beginner investor with fewer funds to work with or a veteran investor looking for more stability, read on to enter the world of low-risk investing.

Government Backed Savings

When investing in low-risk options, safety and stability should always stay on top of your priority list.

Remember, we're not trying to make life-changing cash overnight — if that's your goal, you're much better suited to the fast-paced world of cryptocurrency or other higher-risk investments. 

Instead, we'll be taking a look at government-backed savings accounts in the UK. As far as safety goes when investing, you're in good bands with this state-backed option, so you can immediately dispel any doubts about being scammed.

The Fundamentals

Whenever you invest in one of these savings accounts, you’ll be happy to know that the UK government has your back in the event of any unforeseen circumstances. For example, if your bank or building society that you’re keeping your money with somehow goes bust, the financial services compensation scheme (FSCS) will ensure you don’t lose your money.

So, up until a certain amount of money (that varies depending on the specific type of account you choose), your savings will be completely backed by the government. This is what makes them such a low-risk option in the investment world, as it's a lot easier to invest your capital with confidence when you know it can't suddenly disappear.

How Do They Compare To Other Investment Vehicles?

In contrast to government-backed savings accounts, let's take a look at how the risk compares with other investment options like stocks and shares. If you're a more seasoned investor, you'll know all about these investment vehicles, but for beginners, it's vital to make a point about their volatility.

The value of these investments can fluctuate widely throughout the time you're holding them, and any changes in the economic climate, political events, or even company performance can have a massive influence on their value.  

As an example, let's consider the stock market. Although you might be able to ride this wave of volatility all the way to the top, it means someone else has ridden it all the way to the bottom.

The point is that for someone to make a successful trade in the stock market, someone else has to fail — and there's no reason why this unfortunate trader can't be you.

This is especially true if you're unequipped with the knowledge and research skills necessary to stay afloat in the market. Any good trader needs to have an edge, and this means having a strong understanding of the market and the company's financials. Naturally, this can be incredibly time-consuming and overwhelming, especially if you're approaching it as a newcomer.

Similarly, mutual funds carry the same risk. Although they can provide higher returns than you'd expect with government-backed saved accounts, the fact that they invest in a range of stocks and shares means they come with an inherent risk.

Assessing Your Options

Now that we've got a clearer understanding of government-backed savings accounts let's take a look at the few different options you have available to you within the UK:

Cash ISAs

Have you ever heard of a Cash ISA? In essence, these are a kind of tax-free savings account that lets you save up to a certain amount every year without paying any tax on the interest you've ever earned — not a bad deal!

These accounts come in all kinds of forms: easy access, fixed term, and regular savers. No two options are the same, so make sure you're researching each of their unique features in order to get the one that best aligns with your needs.

Help to Buy ISAs

A help to buy ISA is a kind of savings account specifically designed for any first time buyers trying to save up a deposit for their first home. When it comes to government subsidies, everyone should look to get involved if they’re trying to save money. 

That’s why the government will add up to 25% to any of your current savings, up to a total of around £3000. These kinds of government backed savings accounts are a lifesaver for any younger investors, as any kind of assistance for getting yourself on the property ladder is definitely worth considering.

National Savings And Investments (NS&I)

Lastly, we have a larger option that offers a range of different savings accounts:

  • Premium Bonds
  • Income Bonds
  • Direct Saver
  • Investment Accounts
  • Money market funds

Of all the options here, premium bonds are perhaps the most famous, and you may have heard their name thrown around before. With these savings, you don't actually earn any interest and are instead entered into a monthly prize draw with the chance of winning prizes of up to a million pounds.

The best part? The winnings are entirely tax free!

Moving forward, income bonds are another option that generally has better interest rates than easy-access savings accounts but at the cost of reduced flexibility. Lastly, direct savers are a more well rounded option, providing simplicity and fairly competitive interest rates. 

Pitfalls

Though we've been making a strong case for government-backed savings accounts, it would be irresponsible to leave out their own drawbacks and limitations, despite how minor they are in comparison to other investment options. 

We’ve already touched on this, but for one, you can typically expect fairly low interest rates on some of the accounts. In addition, some of these accounts have restrictions on the amount of money you keep saving or how long you can keep it there, so it’s vital to ensure this won’t be a problem for you when investing.

Corporate Bonds

Traditional investments like the stock market are always going to come with a risk of volatility, making even the supposedly “safe” investments carry significant risks.

So, other than government backed savings accounts, where else can you put your money without exposing yourself too much? Enter corporate bonds.

These are a fairly low-risk option when it comes to investments, and they are known for their flexibility and predictability when it comes to their income stream. Naturally, this gives them a huge appeal for the risk averse investor that's looking at diversification options for their portfolio.

Throughout this next section, we’ll be breaking down all there is to know about corporate bonds and why they may be worth adding to your investment portfolio. Let’s begin!

What Exactly Are Corporate Bonds?

Corporate bonds are essentially a type of loan that a company will issue when they’re trying to boost their funding. Although companies can raise funds in a few different ways, this method gives investors an opportunity to get involved — lending them money for a specified time with the promise of returning it at a fixed interest rate. 

Though it’ll always depend on the specific corporate bond, this interest rate is usually higher than what you might expect from a savings account or government bond, making them a solid choice for anyone seeking a steady passive income.

So, how do these investments actually work? Basically, whenever you invest in a corporate bond, you become a creditor of whatever company you chose. As a result, you’ll be entitled to receive regular interest payments from the company, which usually get paid out every six months or so.

When your contract expires after your bond matures, the company will then repay the face value of the bond to you, i.e. the initial amount you invested. The only difference is that you've been pocketing the money earned from interest along the way. 

The company receives the funding necessary to expand/cover its expenses, and you receive your money back plus a nice amount of interest.

All things considered, it's a win-win situation for everyone involved.

Benefits

Low Investment Risk ✔️

When it comes to low-risk investments, you're typically in safe hands with a corporate bond.

As mentioned, these investments let you earn interest over a fixed period of time before receiving your initial capital back. This means the only real risk is if you’ve invested more capital than you can afford to be without, as you can’t get your money back before the end of the fixed rate term.

Furthermore, up until a certain amount, the FSCS will protect you if your company goes bust, so you don’t have to worry about walking out empty handed.

Security ✔️

Since these bonds are always backed by the issuing company, they’re widely considered far less risky than stocks or shares. Again, in the unlikely event that your company somehow goes bankrupt, bondholders are often paid back before any stockholders.

Flexibility ✔️

Lastly, the choice is normally up to you when it comes to choosing your maturity options. That means you can select a variety of different lengths, from short and intermediate terms all the way to a long-term bond — it all depends on your specific investment strategy.

Obviously, this can be a huge benefit for anyone looking to receive some interest on their money without having it tied up for too long. Not to mention how it promotes a more diversified investment portfolio.

Drawbacks

Low Return On Investment ❌️

Similarly to government backed savings accounts, you're in the wrong place if you're looking for a substantial return on investment. Remember, with low risk comes low reward, so you can close those open tabs for second-hand Lamborghinis.

If that’s where your investment goals lie, you might be better off exploring the stock market and its high reward opportunities.

Interest Rates ❌️

Lastly, interest rate risk is something all investors should consider before getting involved with a corporate bond. Essentially, if interest rates end up rising, the actual value of your bonds could decrease. On the other hand, an inverse effect is still possible, in which your bond’s value rises as interest rates fall.

Property Investment Trusts

You've probably heard of these investment trusts under the name REIT, and they're basically just companies that own and manage a portfolio of income generating properties for you.

Think of mutual funds but with a focus on the real estate market instead.

In addition, these kinds of properties aren’t just limited to one kind of sector or location, with most REITs covering properties anywhere from industrial to commercial.

Essentially, whenever you invest in a property investment trust, you're indirectly becoming part owner of the properties included in their portfolio. There are a few ways you can get involved, but the most common way of doing this is by purchasing shares in the company, which then get traded on the stock market.

After this, the trust's management team is responsible for all the day-to-day management of the properties, which means taking care of things maintenance, tenant acquisition, and rental income collection — all the things you’d normally have to do yourself if you were the landlord.

In this way, REITs have a slight edge compared to owning the property yourself, as all the worst and most time-consuming parts of being a landlord aren’t your problem anymore.

Like a few of the examples we've already covered, all property investment trusts in the UK have to be regulated by the FCA. Furthermore, in order for a company to actually qualify as a REIT, it has to meet certain criteria, like distributing at least 90% of its taxable income as dividends back to the shareholders.

Obviously, that's not ideal for the company, but it's thanks to these regulations that investors like us have a transparent experience when investing, and the REITs are always held accountable for their actions.

Benefits Of Investing In Property Investment Trusts

Like all the options on this list, the main selling point of these investments is the incredibly low risk involved. Unlike direct property investment, all the properties selected within the trust are spread across a range of different locations and sectors, meaning there's far less impact on any one property in their portfolio.

Not only that but these properties are obviously scrutinised heavily before investment to assess their profitability. This means rather than having to do all the leg work yourself by becoming an expert on property economics; you can leave it up to the professionals instead.

Naturally, this professional management comes with all the expertise and resources needed to handle any issues that may arise.

Next up, it’s worth talking about the reliability factor of these investment trusts. Every time a tenant makes a rental payment in one of the properties in their portfolio, you, as the shareholder, receive income off of this as dividends.

People are always going to need places to live, and whether it’s the same tenant making payments or a new one, the revolving door of rental properties is about as stable of an income source as they come.

Types Of Property Investment Trusts

When we're looking at the various kinds of property investment trusts in the UK, there are two main sectors that take priority — commercial and residential. 

The former option, Commercial property investment trusts, invest in more commercial properties like offices, retail spaces, and warehouses. Similarly to their residential counterparts, these kinds of investments make their money off the rental income from their tenants.

Generally speaking, these kinds of investment trusts can actually be more profitable, as the income generated from the tenant plays an additional role.

On the flip side, the investment trust will have to handle all the additional stress and expenses with commercial properties, so it’s not always as black and white as assuming these properties are the right choice for you.

Moving on, let’s take a look at Residential property investment trusts. As implied by the name, these investment trusts focus solely on places people live, like apartments, houses, or any other kind of domicile. These kinds of investment trusts are much more common than industrial or commercial investment trusts as they typically require a lot less work on the management team’s behalf. 

Drawbacks & Limitations

Unfortunately, like all the investment options on our list, nothing comes without its own set of problems or things that can go wrong along the way. 

Starting with their market fluctuations, these property investment trusts can take a serious knock to their profitability at any time of market instability. This can cause the value of their shares to decrease, as fewer people are keen to make property investments when their current financial state is in jeopardy.

Additionally, while the shares from your property investment trust may be a lot easier to sell than if you owned the property yourself, the liquidity from these investments can’t compare to other options like stocks and bonds.

As a result, you might find it a lot less streamlined when trying to sell your shares, which might defeat the purpose of your overall investment strategy.

This also makes them slightly riskier than the other investments in this article, as there's no guarantee of making your money back when you need it the most.

Precious Metals

For a more left-field but nonetheless, low-risk investment, have you ever considered precious metals? These generally cover a broad variety of valuable metals, each with its own uses. Take jewellery, for example — precious metals like gold and silver are often the most common component of watches, necklaces, etc. 

Throughout history, rare precious metals have always been used as a store of value and currency, mostly thanks to their durability and scarcity.

Still, while these are certainly lower-risk investments, you'll need to do some research to truly work out if this asset class is right for you.

Pros

Low Risk ✔️

Precious metals are fairly unique in that they're valuable in their own right — not dependent on any external factors like stocks and bonds. Although you can still lose money if you were to sell during a dip, these metals have a proven record of holding their value, with the independence from companies/governments playing a big role. 

Inflation Hedge ✔️

As mentioned, precious metals are considered among many retail investors to be a store of value, which actually makes them an effective hedge against any potential inflation in the future. When the value of a country's currency falls, the price of these assets tends to rise. 

In essence, these assets aren’t subject to any of the same volatile fluctuations as currency or any other kind of investment, so you can minimise how much risk you’re actually taking on.

Cons

No Income ❌️

Unlike more traditional investments, precious metals don’t inherently generate money. While you can hold them until a profitable time to sell, they can’t produce any money along the way like the real estate or stock markets — each providing you with rental income and dividends for holding the asset.

Related Guides:

FAQs

What Are The Best Low-Risk Investments For 2024?

What Is A Money Market Fund?

What Are Retail Investor Accounts?

Are Dividend-Paying Stocks Worth Considering?

Are Low-Risk Investments Suitable For Everyone?

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