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Low Risk Investments in UK

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You don’t always have to take on a lot of risk in order to invest your money. In fact, some investment strategies involve finding low risk investments that allow your money to grow slowly and steadily over a period of time.

Low risk investments in the UK might not be as exciting as a hot new IPO or a stock that’s getting a lot of attention in the news this second. But low risk high return investments can boost your portfolio over time and remain strong even when the market takes a turn for the worse. For many UK investors, the financial stability that comes from low volatility is an asset unto itself.

In this guide, we’ll highlight 10 low risk investments in the UK. In addition, we’ll review several UK brokers in order to help you get started investing your money today with low risk.

Low Risk Investments in UK

There are many investment options when it comes to low risk investments, but here are our 10 picks:

  1. S&P 500 Index
  2. FTSE 100 Index
  3. Amazon Shares
  4. Legal & General Shares
  5. Corporate Bonds
  6. Government Bonds
  7. Gold
  8. High-interest Savings Account
  9. Residential REITs
  10. Target Date Mutual Funds

Low risk investments are important for both first-time investors and seasoned market experts. These investments play an important role in portfolio diversification, as they expose you to asset classes that don’t always move with the rest of the market. In addition, they ensure that you always have an investment that’s doing well and has strong future performance prospects even if the rest of your portfolio is suffering during a market downturn.

One difficult part of low risk investing in the UK is finding the right assets to invest in. To help you with the process, we’ll review 10 low risk investments you can buy today, taking a look at the past performance and future prospects of each investment.

1. S&P 500 Index

Ask any Wall Street expert what stock to invest in, and the advice they’ll give you is to put your money in the S&P 500. This is the same index fund that every major hedge fund and money manager in the world is trying to beat. These experts charge exorbitant fees, yet they still can’t outperform the fund consistently.

The S&P 500 simply tracks the 500 biggest companies in the US stock market. It includes companies like Amazon, Alphabet, Apple, Facebook, Microsoft, and many other growth stocks. Since the fund tracks so many stocks, it also has low volatility compared to any individual stock. So, you’re protected against an isolated drop in, say, the banking sector thanks to performance in the tech sector.

You can invest in the S&P 500 through almost any UK ETF broker. Just look for an ETF like the SPDR S&P 500 ETF (ticker symbol SPY).SPDR SPY S&P 500 price chart

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2. FTSE 100 Index

The FTSE 100 index is to the UK stock market what the S&P 500 is to the US stock market. This index tracks the 100 biggest stocks on the London Stock Exchange, including enormous companies like BP, Rolls-Royce, Tesco, and Royal Mail. The fund reflects the diversification of the UK economy. You’re exposed to a number of different industries, which lowers your overall risk.

The FTSE 100 hasn’t seen quite the same growth as the S&P 500 in recent years, but it’s still considered a low risk investment for beginners. Notably, this index fund contains a number of dividend stocks, which can be automatically reinvested to grow your money even further.

There are many FTSE 100 index ETFs in the UK, such as the iShares FTSE 100 (ticker symbol ISF).FTSE 100 ETF price chart

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3. Amazon Shares

Investing in individual stock shares is always riskier than investing in a diversified fund. However, Amazon shares are often considered a low risk high yield investment.

Amazon has an enormous moat, and not just in eCommerce. This tech giant controls an overwhelming share of the cloud computing market, which is growing in importance every day. Amazon has been slowly moving into groceries and building out its own delivery services. All of this means that the company’s revenue is diversified, which protects it from a downturn in one business segment.

One thing to note is that Amazon shares are currently priced over £2,300 each. You can use a UK stock broker that offers fractional share investing, such as eToro. That way, you can invest as much or as little as you want in Amazon stock.Amazon shares price chart

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4. Legal & General Shares

Legal & General is a high-yield dividend stock in the UK. The company pays out over 8% each year to investors, and that stream of cash hasn’t been interrupted by the COVID-19 pandemic. Shares of Legal & General have low volatility compared to other stocks in the FTSE 100.

This financial services company offers a wide range of products including mortgages, pensions, life insurance, and investment management. The nice thing for low risk investors is that all of these products are in demand almost regardless of what the stock market is doing. As a result, Legal & General shares will often remain unchanged in value even when the broader FTSE 100 is undergoing major price swings.

You can invest in Legal & General shares through any UK stock broker. Just look for the ticker symbol LGEN. Keep an eye out for brokers like eToro that offer dividend reinvestment so that the payouts from this company are automatically put to use in your account.Legal & General share price chart

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5. Corporate Bonds

Corporate bonds are debt certificates offered by companies. When you buy a corporate bond, you’re essentially giving the company a loan. The company in turn pays out interest on the bond over time and pays back the entire principle of your loan on a specified date in the future.

One thing about bonds is that you know exactly what you’re getting ahead of time. A corporate bond comes with a stated interest rate, which is your annual rate of return.

Corporate bonds are also graded by credit rating agencies, so you can evaluate the risk that a company will default on its bond payments before you invest. Companies with a credit rating of B+ or better are generally considered low risk investments. The higher the credit rating, the lower your return, so consider investing in B+ or A-rated corporate bonds if you want a low risk high return investment.

Note that you can also invest in bond ETFs. Just like stock ETFs, these give you exposure to a wide range of bonds in a single investment. This diversification further reduces your investing risk.Pimco Corporate Bond ETF price chart

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6. Government Bonds

Government bonds, or treasury bonds, work just like corporate bonds. The difference is that treasuries are backed by governments. You can invest in a bond from the UK or US governments, for example, as well as from your local township.

Just as for corporate bonds, government bonds pay out a fixed interest rate and have a preset payout term. You should always check the credit rating of the issuing government to ensure that you’re going to be paid back on time. In general, treasury bonds are considered very low-risk if they come from a national entity like the US or UK governments.

If you want to hedge your risk even further, consider investing in an ETF of government bonds. eToro offers the iShares 20+ Year Treasury Bond ETF (ticker symbol TLT), which invests in a variety of long-term bonds from the US government.iShares US Treasury Bonds ETF price chart

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7. Gold

Gold is a low risk alternative investment to offset any holdings you have in the stock market. Generally, when the stock market falls, the value of gold rises. Historically, the value of gold has gone up over the long-term. This safe investment asset is used by many financial advisors, especially if your portfolio mainly consists of stocks and bonds.

There are several ways to invest in gold. The direct way is to buy physical gold, but this isn’t always a practical solution. Not only do you have to store the gold safely, but you typically need to pay a sales commission to sell it for cash.

A better solution is to buy gold using contracts for difference (CFDs), which give you exposure to the price of gold without actually owning physical gold. UK CFD brokers like eToro enable you to buy gold CFDs with no commission. You can also invest in an ETF like the SPDR Gold Trust ETF (GLD), which is fully backed by physical gold.Gold price chart

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8. High-interest Savings Account

Putting your money in a savings account is one of the safest investments you can make. With savings accounts, you receive consistent interest payments on your investment and your deposit is guaranteed by the UK government. So, there’s absolutely no risk of losing money.

Another benefit to savings accounts is that you have the option to withdraw your money as cash at any time. Many investors use savings accounts as temporary stores to hold money in between investments, but they can also be valuable as long-term investments themselves.

The return you can expect from a savings account depends a lot on interest rates. When the national interest rate is high, your bank will pay you a higher interest rate to keep your money in a savings account. When rates are low, however, savings accounts may not outpace inflation. Look for fee-free high-yield or high-interest savings accounts, which payout is higher than average interest rates.

9. Residential REITs

Investing in real estate can be relatively low risk if you stick to residential properties and mortgages. People will always want to buy homes, after all, and the vast majority of people can be counted on to pay back their mortgages on schedule.

Once again, diversification is key. It’s a lot riskier to invest in a single mortgage than it is to invest in thousands of mortgages. That’s where REITs, or real estate investment trusts, come into play. These are essentially ETFs for real estate, which invests in thousands of properties and mortgages in the UK, US, and elsewhere.

For a simple, low risk real estate investment, check out the iShares Core US REIT, available through eToro under the ticker symbol USRT.US REIT ETF price chart

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10. Target Date Mutual Funds

If you’re looking for a low risk investment to help you meet your retirement goals, consider a target-date mutual fund. These funds are similar to ETFs in that they give you exposure to a wide range of assets, including low risk stocks, bonds, and real estate. However, mutual funds are actively managed. This typically brings higher fund fees, but it also means that your fund can respond as market conditions change over time.

What’s especially nice about target-date mutual funds is that they account for how your investing needs change over time. As you get closer to retirement, for example, you want to be invested with assets that have low volatility. Target date mutual funds will slowly shift from more aggressive to lower risk investments as you approach retirement, giving you a blend of low risk and high performance.

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Platforms to Invest in Low Risk Investments UK

In order to get started with low risk investing, you’ll need the right brokerage by your side. UK brokers offer commission-free investing and a wide range of assets to help you diversify your investment portfolio. Look for investing tools that can assist you in choosing low risk investments for your needs.

With that in mind, let’s take a closer look at three platforms for low risk investing in the UK:

1. eToro

eToro is a fully commission-free broker that offers an enormous range of assets. This broker offers more than 800 US and UK stocks, including shares of Amazon and Legal & General. We especially like that you can buy shares outright and hold them for the long term, whereas many other online brokers in the UK only offer CFD trading.

This investment platform also has a selection of over 450 ETFs. You can invest in index funds or sector-specific stock ETFs, as well as dozens of ETFs for corporate and government bonds. eToro even offers several dozen different REITs, including a handful that focus on low risk residential mortgages. Additionally, eToro also offers an Islamic account that gives you access to Halal investments out there.

Another benefit to eToro is that you can automate your investments using its copy portfolios feature. With this high-quality tool, you can set all or a portion of your portfolio to copy the positions of a professional investor. This is a way to put your money in the hands of a more experienced investor, without the fees you would typically pay for a financial advisor or money manager.

eToro is licensed by the Financial Conduct Authority (FCA), so it’s a very safe and secure investment platform.

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2. IG

If you want to invest for retirement with low risk, it’s worth considering IG. This venerable UK broker offers a stocks and shares ISA (individual savings account) in addition to a general investing account. That means that you can invest up to £20,000 per year and pay no capital gains tax on your investment profits. As a long term investment, that can add up to a huge amount in savings that you can then reinvest in the low risk investments.

IG is somewhat more expensive than either eToro or Plus500. Unfortunately, IG charges a commission for share dealing that can be up to £8 per trade for UK shares and ETFs and £10 per trade for US shares and ETFs. This slightly increases your investment risk, since you need to see a bigger profit from your investments to make up for your commission payments.

Still, it’s hard to argue with IG’s selection of assets. You can access thousands of ETFs from the US and UK through this broker, including hundreds of REITs. IG also allows you to invest in individual corporate and government bonds in addition to bond ETFs. This broker also carries a range of mutual funds, including target-date funds designed specifically for retirement investing.

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What are Low Risk Investments?

Low risk investments keep your financial risk to a minimum. That means that the amount you could lose under normal market conditions is small compared to other types of investments.

There isn’t a strict definition of what constitutes ‘low risk,’ as this depends on your tolerance for financial losses. However, low risk investments in the UK are typically those that have a small downside compared to, say, investing in individual stocks.

When you buy shares, for example, you could lose 20% or more of your investment if the company runs into trouble or the market crashes. With a low risk investment, you might expect to lose 10% or less even if the market tumbles.

Keep in mind that low risk doesn’t mean no risk. In some rare cases, low risk investments can end up losing more money than investments that look riskier. For example, it is possible that the US government defaults on its treasury bond payments, leaving you with a significant financial loss. However, this is considered low risk because the US government has never before defaulted on debt payments, and such an event seems unlikely.

How to Choose Low Risk Investments

Choosing low risk investment for your portfolio comes down to a few different considerations.

First, it’s important to think about what type of risk-reward balance you want. For example, buying shares of Amazon is certainly riskier than putting your money in a high-interest savings account. But the potential return on your investment is much higher if you buy shares of Amazon as opposed to putting your money in the bank. It’s up to you to decide whether you’re okay with that added risk for potentially higher returns.

Another thing to consider is what’s already in your portfolio. If your portfolio is filled with stocks, you might be able to reduce your financial risk through diversification. You can invest in assets like bonds, gold, or real estate – all of which move independently from the stock market – to reduce the amount of risk you face from a stock market crash.

Finally, think about the costs associated with any investment. Individual stocks don’t have any ongoing fees, but ETFs and mutual funds typically charge management fees that apply regardless of whether the fund is gaining or losing value. Similarly, REITs often charge high fees and some may require a lock-up period in which you are not allowed to withdraw your money. These fees can be justified if the fund performs well and manages risk carefully, but you should recognize that they exist and think about whether they are worthwhile.

Conclusion

Low risk investments can help you grow your wealth over time while limiting your potential losses in the event of a market downturn. Low risk doesn’t have to mean low reward, either. Many low risk investments offer returns comparable to higher risk assets, and diversified portfolios can be much more effective than single investments for long-term investors.

FAQs

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Michael Graw author check sign Pro Investor

Michael Graw is a freelance journalist based in Bellingham, Washington. He covers finance, trading, and technology. His work has been published on numerous high-profile websites that cover the intersection of markets, global news, and emerging tech. In addition to covering financial markets, Michael’s work focuses on science, the environment, and global change. He holds a Ph.D. in Oceanography from Oregon State University and worked with environmental non-profits across the US to bridge the gap between scientific research and coastal communities. Michael’s science journalism has been featured in high-profile online publications such as Salon and Pacific Standardas well as numerous print magazines over the course of his six-year career as a writer. He has also won accolades as a photographer and videographer for his work covering communities on both coasts of the US. Other publications Michael has written for include TechRadar, Tom’s Guide, StockApps, and LearnBonds.

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