What are some alternative investments that are low risk?
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yorkiesteve
1 year ago
Expert Financial Adviser Answer
Dr David Carter FPFS
answered 1 year ago
Oh dear, I don't think there is a good answer for this. The only investments that a responsible adviser would say are low risk are deposit accounts, which are hardly suitable for long-term savings and and are certainly not alternative. Gilt funds and corporate bond funds are regarded as pretty low in risk, too, but they are also mainstream.
Other investments which might be thought of alternative could include direct purchase of artworks, or fine whisky, for example, but these are certainly not low risk. There is a market known as the Alternative Investment Market (or AIM) which a stockmarket for specialist funds. The link at the end will take you to some more information about this. However, with investment in such things as oil prospecting, or loans to third world economies, although large gains can be made by investing there, the potential for large losses makes AIM investments high risk, in my view.
I'll be interested to know if any other contributors have additional thoughts on this interesting question.
Look at this link: http://www.londonstockexchange.com/companies-and-advisors/aim/aim/aim.htm
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Other investments which might be thought of alternative could include direct purchase of artworks, or fine whisky, for example, but these are certainly not low risk. There is a market known as the Alternative Investment Market (or AIM) which a stockmarket for specialist funds. The link at the end will take you to some more information about this. However, with investment in such things as oil prospecting, or loans to third world economies, although large gains can be made by investing there, the potential for large losses makes AIM investments high risk, in my view.
I'll be interested to know if any other contributors have additional thoughts on this interesting question.
Look at this link: http://www.londonstockexchange.com/companies-and-advisors/aim/aim/aim.htm
Expert Financial Adviser Answer
Tim Warner
answered 1 year ago
I guess it depends on an alternative to what? NS&I premium bonds are extremely low risk, the average return is no better than a typical deposit account but you could be the lucky one.
Everything is relative, a deposit account is very low risk (but can still reduce in real terms due to inflation)
Corporate Bonds and Gilts are riskier than a deposit account, but not as risky as an equity based investment ie share based.
A property was generally considered a low risk investment, but look what happened to their values over the last couple of years.
There are certain investments available which come with guarantees, it may be that you are certain to get your original investment back at a specific date in the future or that you are guaranteed a certain level of return. Be very careful with these however as they can contain "get out clauses". Also there will be a cost to the guarantee which means you will not get the same expected levels of return as you would if you invested directly.
A good independent adviser will be able to help you find something suitable, that won't leave you panicing when you see the next stock market tumble (which will happen at some point).
One final note of caution if you see something promising a 10% return with no risk etc, remember the old saying "if it sounds to good to be true.....it probably is"
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Everything is relative, a deposit account is very low risk (but can still reduce in real terms due to inflation)
Corporate Bonds and Gilts are riskier than a deposit account, but not as risky as an equity based investment ie share based.
A property was generally considered a low risk investment, but look what happened to their values over the last couple of years.
There are certain investments available which come with guarantees, it may be that you are certain to get your original investment back at a specific date in the future or that you are guaranteed a certain level of return. Be very careful with these however as they can contain "get out clauses". Also there will be a cost to the guarantee which means you will not get the same expected levels of return as you would if you invested directly.
A good independent adviser will be able to help you find something suitable, that won't leave you panicing when you see the next stock market tumble (which will happen at some point).
One final note of caution if you see something promising a 10% return with no risk etc, remember the old saying "if it sounds to good to be true.....it probably is"
NeilBenson
answered 1 year ago
I'm not an economics professor, but I read a book this year by John Kay, celebrated British economist and professor, "The Long and Short of It" (http://www.amazon.co.uk/Long-Short-Investment-Normally-Intelligent/dp/0954809327).
His book changed my attitude toward risk. Please read his book for a more accurate assessment of risk, but the advice I took away was: diversify! Instead of investing £100 in an alternative asset, try and invest £1 in 100 alternative assets. As long as the assets are un-related (i.e. not all oil companies drilling in the Falklands) then you'll have much lower risk and potentially greater rewards. However, you need to balance this with the trading costs of making each investment.
So instead of a couple of low risk actively managed mutual funds, my ISA now contains about a dozen or more higher risk alternative assets such as different commodity ETFs (agricultural, metals, timber, etc.), frontier ETFs, small company ETFs, etc. I sell if any investment loses 20% or gains more than 50%. My IFA-advised and cautiously managed SIPP beat the FTSE by 10%, but my ISA beat the FTSE by 20% this year.
But I'm not an IFA so please take advice from a registered, regulated professional before trying this at home. And make sure you've read Kay's book so you can an informed discussion with your IFA about risk.
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His book changed my attitude toward risk. Please read his book for a more accurate assessment of risk, but the advice I took away was: diversify! Instead of investing £100 in an alternative asset, try and invest £1 in 100 alternative assets. As long as the assets are un-related (i.e. not all oil companies drilling in the Falklands) then you'll have much lower risk and potentially greater rewards. However, you need to balance this with the trading costs of making each investment.
So instead of a couple of low risk actively managed mutual funds, my ISA now contains about a dozen or more higher risk alternative assets such as different commodity ETFs (agricultural, metals, timber, etc.), frontier ETFs, small company ETFs, etc. I sell if any investment loses 20% or gains more than 50%. My IFA-advised and cautiously managed SIPP beat the FTSE by 10%, but my ISA beat the FTSE by 20% this year.
But I'm not an IFA so please take advice from a registered, regulated professional before trying this at home. And make sure you've read Kay's book so you can an informed discussion with your IFA about risk.
Expert Financial Adviser Answer
Darren Smith
answered 1 year ago
To pick up on what Tim says, corporate bonds are not always lower risk than shares.
you could be comparing a corporate bond based on an emerging market economy with a UK bluechip share like (for example) Tesco.
Risk is generally very subjective.
If you are an "adventurous" investor you might consider corporate bonds and gilts to be high risk as they are less likely to help you achieve your investment goals.
The key with risk, is that once you have defined your risk parameters, that you should seek to control risk to maximise your returns within your band.
the aim is that if you were in a room of like minded people that you would want to be taking on average less risk than them but getting better returns.
put a cautious investor in a room of adventurous investors and once they have taken in the returns that can be potentially achieved they will probably faint when they learn of the required risk and likewise reverse the scenario and the adventurous investor in a cautious room will probably yawn.....
its all about relativity....
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you could be comparing a corporate bond based on an emerging market economy with a UK bluechip share like (for example) Tesco.
Risk is generally very subjective.
If you are an "adventurous" investor you might consider corporate bonds and gilts to be high risk as they are less likely to help you achieve your investment goals.
The key with risk, is that once you have defined your risk parameters, that you should seek to control risk to maximise your returns within your band.
the aim is that if you were in a room of like minded people that you would want to be taking on average less risk than them but getting better returns.
put a cautious investor in a room of adventurous investors and once they have taken in the returns that can be potentially achieved they will probably faint when they learn of the required risk and likewise reverse the scenario and the adventurous investor in a cautious room will probably yawn.....
its all about relativity....