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Navigating Investment Risk in a Volatile Market

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With volatility up in 2023, it's time to go low with investment risk.

a person sitting at a desk with a laptop and financial documents scattered around. the person looks concerned and is holding their head in their hands.

Investing always involves some degree of risk, but in a volatile market, the risk can be much higher. With geopolitical tensions and economic uncertainties, it can be difficult to know where to put your money without risk significant losses. However, there are options for risk-averse investors who want to protect their principal while still earning a return.

One of the safest investment options is a savings account or certificate of deposit (CD) at a reputable bank. These options offer a guaranteed return and FDIC insurance, which means your money is protected up to $250,000. While the returns may be lower than other investment options, the peace of mind that comes with knowing your money is safe can be priceless.

Another low-risk investment option is a bond fund. Bonds are generally considered less risk than stocks, as they offer a fixed rate of return and are typically less volatile. Bond funds invest in a diversified portfolio of bonds, which can help to spread out the risk. However, it's important to note that not all bond funds are created equal, and some may be risk than others. It's important to do your research and choose a bond fund that aligns with your risk tolerance.

Exchange-traded funds (ETFs) are another low-risk investment option that can provide diversification and stability. ETFs are similar to mutual funds but are traded on an exchange like individual stocks. They offer exposure to a wide range of assets, such as stocks, bonds, and commodities, which can help to spread out the risk. Additionally, ETFs often have lower fees than mutual funds, making them a more cost-effective investment option.

For those looking for slightly higher returns with still relatively low risk, dividend-paying stocks can be a good option. Dividend-paying stocks offer regular income in the form of dividends, which can provide a steady stream of cash flow. Additionally, many dividend-paying stocks are established, well-known companies with a track record of stability and growth.

Real estate investment trusts (REITs) are another option for low-risk investors looking for higher returns. REITs invest in income-generating real estate properties, such as office buildings, apartment complexes, and shopping centers. They offer a steady stream of income and can provide diversification to a portfolio. However, it's important to note that REITs can be affected by changes in interest rates and economic conditions, which can impact their overall performance.

It's important to remember that even low-risk investments come with some degree of risk. While the risk may be lower than other investment options, there is still the potential for losses. It's important to choose investments that align with your risk tolerance and investment goals, and to diversify your portfolio to spread out the risk.

Geopolitical tensions and economic uncertainties can also impact investment risk. For example, tensions between the US and China are causing concerns about the global economy and foreign direct investment. It's important to stay up-to-date on global events and how they may impact your investments.

In addition to geopolitical risk, companies are also starting to raise alarms about anti-ESG sentiment as a new business risk. Citi, Valero, and ADT are among the companies warning shareholders about the potential impact of anti-environmental, social, and governance sentiment on their business.

Investors should also pay attention to Federal Reserve policy, as changes in interest rates can impact the performance of their investments. For most of 2022, investors were focused on the direction of Federal Reserve policy, and this trend is likely to continue in the coming years.

Finally, it's important to consider the risk of investing in specific regions or industries. An expert panel hosted by CII discussed the risk of investing in China and what it means for retirement plan investment selection. Additionally, a program has been put in place to address the risk of outbound US investment in areas with sensitive technology potentially harmful to national security.

In conclusion, investing in a volatile market can be challenging, but there are options for risk-averse investors who want to protect their principal while still earning a return. Low-risk investments such as savings accounts, bond funds, ETFs, dividend-paying stocks, and REITs can provide stability and diversification to a portfolio. However, it's important to stay up-to-date on global events, Federal Reserve policy, and specific investment risk in order to make informed investment decisions.

Ticker: C, VLO, ADT

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