While debt can comes in a host of different forms and scope, we can only derive income from two main sources: wages and returns on investment. It is only through earning a regular and viable salary that we can develop enough disposable income to invest, however, which in turn means that we are all fairly restricted when it comes to maximising our financial potential. The fact that we also have to earn our investment capital means that we are naturally cautious when it comes to entertaining risk, and this can impact our ability to make substantial gains in the financial market.
With sustained economic growth in the UK likely to improve investor and consumer confidence, however, this outlook is set to change. This does not change the fact that aspiring investors will be striving to identify risk free investment opportunities, as they look to maximise their returns without incurring significant losses along the way. The question that remains is whether there is such thing as a risk free investment, or if this remains an unrealistic ideal that exists only among novice or inexperienced investors.
In order to answer this, it is important to consider the meaning of the word ‘investment’. To many it conjures images of the stock market, and the trading of financial products such as currency, stocks and equities. Investing in these derivatives is fraught with variable levels of risk, as traders are forced to rely on judgement and place their money at the mercy of wider economic factors and market conditions. In addition to this, however, there are alternative investment options which allow you to generate steady returns without placing your hard earned capital at significant risk.
The most common of these is the traditional savings account, which the majority of us possess and invest in on an annual basis. Although these offer relatively low interest rates and levels of return to investors, they have clearly defined terms and are guaranteed to generate some form of return. Similar products include CD’s (certificates of deposit) and bonds, the latter of which are invested in heavily by insurance companies, pension funds and international governments. They are favoured as safe investments because the principal sum always gets repaid, while the return never deviates from its predetermined level.
The Bottom Line for Potential Investors
So while the banking crisis has confirmed that there is in fact no such thing as a risk free investment, there are options that carry little or minimal threat to your principle capital. The downside of these options is that they typically offer a negligible return, so it is important to develop a portfolio that reflects your inherent nature and investment philosophy.
The key to identifying the lowest risk investment options lies with education, and developing your understanding of every single financial market. You can also negate many investment risks by studying real time economic trends and news, so be sure to follow reputable online informational resources such as the Sanlam newsroom.