For every investor desirous of aggressively building their investment portfolio by trading in a riskier class of financial instruments, there are equally as many, if not more, who are risk-averse. Whether you?re just starting out in investing and still making your way through the learning curve or whether you?re approaching the end of your career and are investing to bolster?and protect?your retirement funds, there?s many legitimate reasons that could prompt you to invest in a conservative manner, and equally legitimate methods of doing so in a way better-suited to your personal risk profile.
If your appetite for risk is minimal, then any discussion of low-risk investing will obviously begin with an axiomatic statement: to avoid risk, avoid risky investments. Investing in low-risk stocks is the inverse of the well-known maxim that says that if you want high gains, you must take high risks; instead, the investor with a low risk appetite should take smaller gains, investing over the longer term. Cumulatively, however, these gains can be significant, and retail investors should always remember: in stock trading, not losing is the same as winning. Risk-averse retail investors have no reason to even consider engaging in such aggressive activities as forex trading or day trading, or any kind of trading that involves relatively quick asset flips; to the contrary, the key to successful low-risk trading, and the common thread that binds most successful low-risk investment strategies, is patience. Low-risk investments are always long-term, making low-risk investing a strategy for the patient, because profits are taken slowly and are built on consistent, incremental growth.
In other words, if you?re looking for investment opportunities that will provide you with high yields and aggressive growth, you are not a low-risk investor; if, however, you? are willing to be in it for the long-term, then investing in low-risk stocks is a slow-and-steady strategy that if properly researched and ?implemented should serve you well.
Because low-risk is still risk, proper research is, as always, of paramount importance. Look for a stock that?s solid and that trades actively. Start by researching Fortune 500 and S&P 500 companies, cross-referencing to highlight issuers who appear on both lists. Of these companies, look for ones that trade on the NASDAQ or higher, including the New York Stock Exchange and the American Stock Exchange. ?Stability is one of the hallmarks of long-term growth: by virtue of their listing on these more prestigious exchanges with their higher listing requirements and standards, it?s a given that these companies have already built a foundation strong enough to see them through the long-term. That?s step one to achieving safe and low-risk status.
Next, you should examine the value of the companies you?ve found that meet your criteria so far. The larger the value, the more likely it is that the company is stable; increased stability provides the company with a buffer of sorts that will offer a measure of insulation through periods of market volatility. One widely-accepted measure of a company?s value and stability is its market capitalization, which is generally understood to be a measure of what the company is worth. Market cap is calculated by multiplying the company?s share price by the total number of shares outstanding, leading to a resulting very large number. What level of market cap should you look for in order to feel confident that an investment into the company?s stock carries minimum risk? It?s up to you, so long as you have the frame-of-reference to understand that the higher the market cap, the larger and less volatile the issuer?indicators that that the stock will fit into your low-risk profile. Many stable, blue-chip issuers enjoy a market cap of upwards of $500 million.
Trading volume is also an excellent indicator of a company?s volatility, or lack thereof. Companies whose shares regularly trade at a high average daily volume are generally considered to be less risky than those with low average trading volume, because the ability to consistently see shares changing hands over extended periods of time is a manifestation of continued investor interest in the stock. In other words, if there are always willing buyers, confidence in the stock?and in its issuer?is high. If this activity is maintained over the long-term, it?s a sure bet that the stock can be considered to be low-risk.
By now, your short list of potential investment candidates should be manageable, yet should have enough names left to merit further investigation. Once a stock has passed muster in terms of volume and value, it?s time to look at some other indicators of financial strength, longevity and solidity so that you can whittle your list and begin making your low-risk stock picks.
Some of these additional indicators are based on the company?s stock, and stock performance over time, while yet others focus on the company?s fundamental business and sales, examining? trends in sales growth or decline in the company?s industry and comparing the company?s own performance to these industry standards.
Stock performance-specific indicators that can be of great value when seeking to identify issuers whose stock can be considered to be of low risk. 
For example, a low price-earnings ratio as compared to other companies competing in the same industry can be legitimately interpreted as demonstrating that the stock has very little room to fall in any significant manner; while this, of course, implies no promise that the stock price will rise, it?s a good bet that the stock will quickly stabilize if the markets take a dive, lowering the risk of your holdings take a disproportionate hit in value should the worst happen. Another indicator of stability, and thus lowered risk, is return on equity, which measures how efficiently company management turns shareholder money into profits. Filter your short list of investment candidates by applying these stock performance-related tests to reduce your results. Then, compare these candidates? historical performance against that of their competitors during periods of market downturn, and eliminate those that failed to remain at least on par with industry averages. By now, you should have created a list of stable and dependable candidates in whom you can invest with confidence?but you are still not finished.
No investment decision should be made without also examining the company?s fundamental business. Is the company focused on one primary business segment, or is it diversified in its operations? Are sales or revenue in keeping with industry trends? Does it have healthy prospects for growth, or occupy an expanding business segment? What about company management? How much cash does the company maintain on its balance sheet to guard against a prolonged rainy day, or to re-invest in continued healthy growth? The answers to these types of queries are easy to locate through reading the company?s filings, and should by all means influence your buying decisions.
While conventional wisdom propounds that the healthiest investment portfolios are those that are diversified in a logical and profitable manner, it?s understandable that more conservative or bearish investors would prefer to invest for the long-term in equities that are of lower risk. If you perform the sort of methodical analysis outlined above, you?re sure to arrive at a list of candidates perfectly suited to your risk profile, and you?ll sleep better at night in the knowledge that your capital is slowly yet methodically increasing.
For any further information, please do not hesitate to contact us.
Source: http://www.pennystocks123.com/market-advice/investing-in-low-risk-stocks.html
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