Many savers just starting in finance are wondering where to invest money without risk to increase their capital
There is no winter without rain. No Christmas bells without grapes. Nor investment without risk. Therefore, where to invest money without risk is very simple: nowhere.
Despite this, mitigating the level of danger has been. It continues to be one of the main priorities of thousands of investors, from the most novice investors, who usually leap into this world without much knowledge, to the most veteran ones, who see their retirement date getting closer and closer and do not want to put their assets at risk.
It is important to remember that it will never be possible to completely extinguish risk. Risk is inherent in any investment and will always be a decisive component.
However, certain products with a much lower-than-average risk level and high-security guarantees seduce people into considering where to invest money without risk. And, although in the financial sphere, it is not advisable to talk about certainties, these vehicles allow savers to enjoy profits with the peace of mind that, barring a serious unforeseen event, they will not lose their money.
So, where can you invest money without risk?
In search of fixed-income
Generally, investment products are divided into two broad categories: equities and bonds. And the difference is not trivial.
Equities are full of uncertainties. Countless factors influence the value of assets, which can plummet from one day to the next, exposing the investor to substantial losses. Profits, moreover, depend on when the products are put up for sale and the price the buyer is willing to pay.
Fixed income, on the other hand, provides investors with valuable security. They know in advance the duration of the transaction and the returns they will obtain: extremely useful information that allows them to make better decisions and optimize their investment strategies.
For this reason, most people wondering where to invest money without risk tend to put their capital in fixed-income-based investment vehicles. A much safer option that is not subject to the ups and downs of the market and does not jeopardize their assets.
Lower yields… but greater liquidity
Savers looking for where to invest money without risk should not only be familiar with the fixed-income and variable-income binomial. They must also understand how the trinomial of yield, liquidity and, of course, risk works.
These three elements relate to each other like a seesaw. When one goes up, the others go down. And vice versa.
Suppose, for example, we are faced with a product with very low liquidity. As it is not going to be easy to convert it into cash, the risk increases significantly. To counteract this rise, the yield also increases, aiming to encourage investment and offer more advantages to savers.
With this in mind, what assets should people wondering where to invest money without risk look for?
The decrease in risk level leads to a reduction in profitability since it is no longer necessary to captivate investors with juicy interest rates. Also, since it is a safe product, its liquidity will not be greatly reduced.
In short, any saver who wants a mechanism for investing money without risk will have to be willing to sacrifice part of the return. But is this the case in all cases?
There is always an exception that proves the rule. Alternative financing mechanisms such as factoring have landed to turn the tables and establish new game rules. There are already platforms where it is possible to enjoy high returns without assuming a high level of risk, as we will see below.
The importance of diversification
The answer to questions such as where to invest money without risk is not written in the singular. If you want to minimize the risk, the best thing to do is to diversify. In short, to design an investment portfolio that includes all asset classes.
This diversification can go further by incorporating companies and institutions from different sectors and countries. But what is the real purpose of this strategy?
It is common for a stock to plummet in the market or never recover. This is a particularly frequent situation when betting on equities. A good diversification strategy helps to cushion this collapse in the investment portfolio.
If the saver has staked everything on a single card and it falls, he may face considerable losses, shaking his economic stability. Putting all your eggs in one basket is a risky move that can go very well but also go very badly.
Conversely, if the investment portfolio comprises dozens of products, many of which are on an upward trend, the downturn’s impact could be mitigated, preventing the investor from getting into real trouble. The bottom line could still be positive.
The most popular products where to invest money without risk
People looking for risk-free investment assets tend to turn to some of the most common conventional products, such as real estate, guaranteed investment funds, bank fixed-term deposits or interest-bearing accounts and government bonds. However, these alternatives have several drawbacks that are essential to bear in mind.
To begin with, although many sources point to real estate investment as a safe option, it does involve certain risks. Indeed, homes and premises do not tend to depreciate over time, but their liquidity is very low, and there is always the risk of not finding a tenant or buyer. In addition, their barriers to entry are very high, as they are not an affordable option for many citizens.
Guaranteed investment funds are another of the most common products among those wondering where to invest money without risk. Their level of risk is significantly lower than that of conventional mutual funds since they assure the investor the return of the initial capital at the end of the term, together with a certain interest rate, which can be agreed upon in advance. However, heavy penalties will have to be paid if the money is withdrawn before the maturity date.
Bank fixed-term deposits and interest-bearing accounts are two products created to reward savings since they provide interest to those who deposit money. However, the profits obtained are usually very small and, in many cases, are insufficient to offset the effect of inflation. In addition, in deposits, the money is blocked for some time, and the investor would have to face a penalty if he/she wishes to withdraw it early.
Finally, mention should be made of another of the most popular products among people looking for a place to invest money without risk: government bonds, guaranteed by governments. For example, Letras del Tesoro and Bonos or Obligaciones del Estado are issued in Spain. The former has a term of less than one year, the latter lasts between two and five years, and the latter can be up to three decades.
But, as the general investment rules warn and the previous products confirm, the high guarantees of this alternative directly impact its profitability, which is not very significant compared to other assets.
Security: a vital issue in Inversa Invoice Market
The popularization of alternative financing mechanisms has completely opened the doors of the financial system. Over the last few years, the vehicles available have multiplied, giving people greater freedom of choice.
Factoring is one of them. Through this method, savers finance businesses’ outstanding invoices by lending them the amount they need in exchange for a certain interest rate. This kind of operation usually works in the short term, so they are a good option for those looking to invest money without risk and want to make a profit in a couple of months.
Now, how do you invest in factoring? Through platforms such as Inversa Invoice Market. An extensive invoice marketplace that focuses on the real economy and ethical investment.
The conditions of many of the operations speak for themselves. In the first ten months of 2023, the average return reached 10.39 %, a figure well above that of most investment products on the market.
But this does not mean that security has turned its back on. The bills are thoroughly audited, and each one is given a certain level of risk to help investors find one that suits their requirements. In addition, many are insured, providing an extra wall of protection.
This alternative financing platform has managed to maintain security without sacrificing profitability. And so, it becomes an alternative to be taken into account for all those looking for where to invest money without risk and enjoy substantial profits.