3 investment strategies when you’re afraid of risk

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There was a time in my life when I was hesitant to buy stocks for one big reason: I was afraid of losing money. These days, that’s not a problem. Although the value of my portfolio may fluctuate (sometimes wildly) on a frequent basis, I don’t plan on cashing out my investments anytime soon. As such, any loss I see in the short term is just a loss on paper (or, more accurately, on screen).

However, not everyone has the same risk tolerance, and if yours is low enough, you might be worried about buying stocks. If so, here are some investment choices worth considering.

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1. S&P 500 Index Funds

Index funds are passively managed funds that have a simple objective: to perform as well as the benchmark indices to which they are linked. During this time, the S&P500 is an index composed of the 500 largest publicly traded stocks.

If you buy shares of an S&P 500 index fund, you are actually investing in the broader stock market. In fact, when you hear things like “stocks fell today” or “stocks rose,” usually “stocks” are referring to the performance of the S&P 500 itself.

The advantage of S&P 500 index funds is that you get instant diversification in your portfolio. It’s a good thing to have, because you never know when a segment of the market might take a noticeable hit. And S&P 500 index funds also take a lot of the guesswork out of investing, so if you’re nervous about manual stock picking, this will get you through it.

2. Dividend shares

Dividend stocks give you two ways to make money. First, like all stocks, their value can increase over time. But you’ll also have the opportunity to enjoy regular dividend payouts, which can help offset some of the risk you’re taking on by investing in the first place.

Companies that have a history of paying dividends tend to do so even when market conditions deteriorate. So if you stock up on dividend-paying stocks and the market crashes, you’ll likely continue to see those payouts coming in, helping to offset other potential losses you might be considering.

3. Fractions of shares

Fractional shares allow you to buy part of a stock if a full stock is financially out of reach or too expensive for your liking. The advantage of buying them is that you will be able to load on a wider range of stocks, which will allow you to have more diversity in your portfolio.

Buying fractional shares also reduces the risk of being hurt financially if just one business you own fails. Imagine there is a company you want to invest in that is trading at $1,000 a share right now. If you buy a full stock and the value of that company’s shares dips to 50% of its current value, you could end up with a loss of $500. But if you decide to buy a quarter share of this stock, you will only suffer a loss of $125.

Do what helps you sleep at night

There is no sense in assembling an investment portfolio that causes you constant stress. In fact, if you go this route, you may be more likely to react when market conditions deteriorate and sell stocks in a panic, thus digging yourself into a hole.

All of these investment choices are a good bet for risk averse. And even if your risk appetite is quite healthy, it’s worth checking it out too.

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