In a volatile investment climate, even experienced IPO and futures traders get burned. But investors who stick to treasury bonds and certificates of deposit may miss out on the tail end of the largest economic expansion in history.
Every investor has to balance potential risks and returns. Fortunately, there are a few investments that offer hearty dividends with relatively little downside potential. These are our top three picks for minimizing risk and maximizing returns in uncertain times:
ValueWalk's Raul Panganiban with Maurits Pot, Founder and CEO of Dawn Global. Before this he was Partner at Kingsway Capital, a frontier market specialist with over 2 billion AUM. In the interview, we discuss his approach to investing and why investors should look into frontier and emerging markets. Q2 2021 hedge fund letters, conferences and Read More
Real estate has long been considered one of the safest ways to build wealth. Real estate investors realize that people will always need a place to live and a place to do business.
Although real estate has outpaced equities in both the U.S. and globally in recent years, sinking six figures into a single asset isn’t a smart investment strategy. Aside from buying physical property, there are two places you’ll find strong returns with limited risk in the real estate sector:
Real Estate Investment Trusts
A REIT is an income-generating company that owns and operates real estate. REITs make their money by buying, selling or renting properties. One investment trust can operate all the same type of real estate (apartment homes, for example), or it can diversify into different sectors, such as healthcare or general office space.
REIT qualifications are tightly regulated. The federal government ensures that trusts generate income and disperse 90% of that income to their shareholders on a regular basis. This financial oversight affords some security to the investor.
Real estate investment crowdfunding might not sound so secure, but crowdfunded assets are uncorrelated with the stock market — and in that sense, even more stable than REITs.
REI crowdfunding can be broken into two categories: equity investing, or buying shares in real estate for asset appreciation or rental income; and debt investing, which describes loaning money to developers who repay you with interest.
REI crowdfunding requires little capital, but investors still face two primary risks: First, sponsors may be fraudulent, but top crowdfunding sites vet opportunities before posting them. Second, most REI crowdfunding investments are unsecured, meaning investors lose their money if the platform fails. By sticking to larger REI sites, investors can minimize this risk.
2. Exchange-Traded Funds
Billionaire Warren Buffett’s perennial favorite investment is exchange traded funds. Why ETFs? Because they’re traded like stocks, yet they’re far less risky than individual equities; they track the market like mutual funds, but their management fees are much lower.
Many brokers offer commission-free trades on ETFs. Many popular investing apps let investors purchase fractional shares, meaning that investors can diversify their holdings by sinking just a few dollars into each.
Most EFTs pay out dividends quarterly, and some EFTs allow automatic reinvestment of dividends. ETFs in emerging markets tend to be riskier than other options. To play it safe, look to ETFs that mirror the Barclay’s U.S. Aggregate Bond Index. The index has delivered gains almost every year, and funds that track it consistently show positive returns.
3. American Depository Receipts
For investors who have an interest in international pursuits, American Depository Receipts (ADRs) are a smart choice. An ADR is issued by an American bank or broker to represent shares of a foreign company. Any foreign securities traded in the U.S. financial markets are marked by ADRs.
Although some ADRs are riskier than others, it doesn’t take much research into global events to make decent bets. Canada’s marijuana market is all but certain to grow, and investors who get in on the ground floor will benefit the most. Betting on British companies on the eve of Brexit, though, probably isn’t such a smart idea.
ADRs are important for diversification because they provide exposure to companies outside of the American market. If the U.S. enters a recession tomorrow, you don’t want to be caught holding only U.S. equities and treasury bonds.
The greatest risk ADRs face is currency risk. Although ADRs are traded in U.S. dollars, they still face the currency risk of local markets. Choose ADRs in countries with currencies that are appreciating compared to the U.S. dollar, which can mitigate losses due to poor company performance.
Investing is an opportunity, not a promise. There’s no guarantee you’ll get your money back, much less make a profit.
With that said, there are historically high-yielding investments that trends suggest will continue to perform. Rare as it is to get the best of both worlds, these three categories prove it’s possible