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What are some of the best low-risk investments?

Focusing on low-risk investments doesn’t necessarily mean giving up great returns. Risk is everywhere, and investors are constantly trying to reduce it. Learn about different measures of risk to better evaluate the best low-risk investments, through our shortlisted list of 30 stocks and ETFs that have low-risk statistics but are also high-yield investments.

Remember that past performance is not a reliable indicator of future results.

What is investment risk?

In finance, investment risk​ is the variability between average and expected returns. For example, a bond that pays 2% every year can be considered low risk because the returns don’t vary. In contrast, a stock that returns 5% one year, 30% the second year and 10% the next year is riskier because the returns varied quite significantly.

To an investor, risk is typically associated with losing money. The stock above may not look so risky since it has tended to go up. Indeed, a stock that loses 2% every year has low variability. Therefore, the stock may be low risk, but that doesn’t mean it’s a wise investment.

Investors do consider variability in returns as a risk measure. However, they should also consider the risk and reward of their investments: What do they expect to make versus what they could lose?

Diversification is also an important part of risk control. The more assets that are held within a portfolio, the less impact any single one should have. If a company goes bankrupt but the position is only a small part of the portfolio, that event may have little negative impact on the portfolio.

What are the different measures of investment risk?

Low-risk investments are assessed using several metrics. These metrics measure the movement or variability of returns over time and can include:

  • Beta, which measures how much a stock price moves in relation to an index, such as the S&P 500, and in which direction. For example, a beta of 1.0 means that the stock tends to move with the S&P 500. A beta of 2.0 means it has twice as much variance. A beta of -1.0 means the stock moves with similar volatility as the S&P 500 but in the opposite direction.

  • Standard deviation, which measures how much returns tend to fluctuate from the average yield. Stocks that produce returns that are near the average are considered less risky than stocks that have returns that fluctuate wildly.

  • Sharpe ratio, a metric which takes the stock’s return and then reduces it by the risk-free return (such as investing in US or UK government bonds). It then divides the result by the stock’s standard deviation. A Sharpe ratio above 1.0 means the reward justifies the risk. A ratio above 3.0 is extremely good, while a Sharpe ratio below 1.0 means excessive risk was taken to get the return.

Top 10 low-risk stocks

Low-risk stocks typically have a competitive advantage within their respective industry, steady earnings growth, and a strong financial position. Stocks that are part of a major index, such as the S&P 500 or FTSE 100, have most of these traits.

The S&P 500 return over the last 10 years is 327%, based on Yahoo Finance data. Below are some of the best high-yield low-risk stocks that have produced much higher returns than the S&P 500 with similar or lower risk. This list will focus on stocks with a beta of near 1.0 or below and that have had strong stock price performance over the last 10 years.

As always, past performance is not indicative of future performance, so please do your own due diligence before investing. The following data is sourced from Yahoo Finance.

  1. Netflix (NFLX) is an online entertainment streaming company that has a beta of 0.81 and a 10-year return of more than 5,400%.
  2. Adobe (ADBE) is a software and hardware provider that has a beta of 1.05 and a 10-year return of more than 2,200%.
  3. Pool (POOL) is a swimming pool supplies company that has a beta of 0.87. Its stock price has seen long-term steady growth, with a more than 2,100% return over the last 10-years.
  4. MSCI (MSCI) provides benchmarks for ETFs and other assets. It has a beta of 0.95 and a 10-year return of more than 2,000%.
  5. Old Dominion Freight Line (ODFL) is a trucking company with a 1.05 beta and a 2,000% stock return over the last 10 years.
  6. Domino’s Pizza (DPZ) is one of the lowest beta stocks on the list, at 0.53. Despite this, it boasts a more than 1,700% return over the last 10 years.
  7. IDEXX Laboratories (IDXX) distributes products for livestock and pets. It’s been a steady riser, generating a more than 1,600% price gain in 10 years, with a beta of 0.93.
  8. Tyler Technologies (TYL) is another lower beta stock, at 0.66. This company provides software for cities, schools, and the court system. It has a 1,600% return over 10 years.
  9. Microsoft (MSFT) is one of the biggest companies in the world and is known as the provider of the Windows operating system. It has a beta of 0.86 and a more than 1,400% 10-year return.
  10. Copart (CPRT) hosts online auctions for vehicles from insurance and rental companies. It has a beta of 1.04 and a more than 1,300% 10-year return.

There are risks in all stocks. A stock may have a low standard deviation, but that doesn’t mean that can’t change in the future. And a stock that has a good Sharpe ratio or low beta could still fall. You should develop investing strategies for handling both the ups and downs of the market. Alternatively, opt for a passive investing strategy​, such as a buy-and-hold approach.

Top 10 low-risk stocks in the UK

These are some of the best-performing low-risk stocks listed on the London Stock Exchange (LSE). Each stock has a beta near 1.0 or less, and this list only features stocks that are held in the FTSE 100 as these companies are also generally financially stable with strong earnings potential.

Given that this list is sourced from just 100 stocks, it considers only 5-year returns. For reference, the Xtrackers FTSE 100 ETF (XDUK) had a total return of circa 29% over the last five years. Below are some of the best high-yield, low-risk investments.

The following data is taken from Hargreaves Lansdown and Yahoo Finance. Past performance is not indicative of future performance.

  1. Ocado Group (OCDO) is up 590% over the last five years, with a beta of 0.43. The company is an online groceries retailer.
  2. Scottish Mortgage Investment Trust (SMT) boasts a 5-year return of 380% and a beta of 0.59. This is an equity mutual fund that invests in growth stocks.
  3. Spirax-Sarco Engineering (SPX) has a 0.43 beta and a 5-year return of 310%. The company is an engineering firm focusing on steam systems and electrical heating.
  4. Segro (SGRO) has a beta of 0.53 and a 5-year return of more than 270%. The company operates as a real estate investment trust (REIT).
  5. Croda International (CRDA) has a 5-year return of near 220% and a beta of 0.55. The company creates and sells speciality chemicals.
  6. Halma (HLMA) has a beta of 0.38 and a 5-year return of more than 210%. The company provides safety equipment.
  7. Rentokil Initial (RTO) has a beta of 0.39 and a 5-year return near 200%. The company’s offerings include pest control, sanitary products, uniforms, and décor.
  8. Ferguson (FERG) has a beta of 0.98 and a 5-year return near 200%. The company distributes heating and plumbing products.
  9. London Stock Exchange Group (LSEG) has a beta of 0.3 and a 5-year return near 160%. The company runs stock exchanges.
  10. Experian (EXPN) has the lowest beta on the list at 0.28 and a return of 150% over the last five years. The company operates in credit reporting and marketing.

The list of top stocks will change over time. Learn how to invest in stocks​ so that over time you’ll know what to look for in order to find solid companies and quality investments.

Top 10 low-risk ETFs

These are ETFs that are listed around the world on various exchanges that have a combination of at least a 5-year uptrend, top returns over the last 10 years, and low betas. Leveraged or inverse funds have been excluded.

The following data is taken from Stock Rover and Yahoo Finance. Past performance is not indicative of future performance.

  1. iShares S&P/TSX Capped Information Technology ETF (XIT.TO) has a beta of 0.78 and a 10-year return of close to 800%. The fund tracks Canadian technology stocks.
  2. iShares Expanding Tech-Software Sector ETF (IGV) has a beta of 1.02 and a 10-year return of more than 650%. Note that the Invesco QQQ Trust (QQQ) has nearly the exact same statistics.
  3. iShares US Medical Devices ETF (IHI) has one of the lower betas on the list at 0.8% while still racking up a nearly 600% return over the last 10-years. The fund invests in medical device companies.
  4. Fidelity Nasdaq Composite Index ETF (ONEQ) has a beta of 1.06 and a return of 550% over the last 10 years.
  5. Liberty All Star Equity Fund (USA) focuses on primarily large-cap value and growth stocks. The fund also has a beta of 1.06 and 10-year returns of 550%.
  6. First Trust Cloud Computing ETF (SKYY) invests in companies involved with cloud-based applications. The fund has a beta of 1.04 and a 10-year return of 550%.
  7. iShares Russell Top 200 Growth ETF (IWY) has the same beta as the S&P 500 (1.0), but it has seen stronger price performance. The fund focuses on small-cap growth stocks and has seen a more than 500% return over the last 10-years.
  8. Schwab US Large-Cap Growth ETF (SCHG) focuses on large-cap stocks that are growing. The fund has a beta of 1.02 and a 500% 10-year return.
  9. Vanguard Mega Cap Growth Index ETF (MGK) only invests in big companies that are growing. The fund has a beta of 1.02 and a 10-year return of 500%.
  10. To round out the list with a lower volatility name, the iShares US Healthcare Providers ETF (IHF) has a beta of 0.85 and still managed to return more than 400% over the last 10 years.


What is considered the safest investment?

Bonds issued by stable governments – such as the UK or US, for example – are considered some of the safest investments. These include US treasuries or UK gilts. Since there is little risk of these governments defaulting, they are low risk and low return investments (relative to stocks).

What should I invest in during retirement?

As someone nears retirement, and into retirement, they may choose to allocate more of the portfolio to lower-risk investments, such as bonds, with less allocated to stocks, which can be seen as a more risk-averse portfolio. Someone who is younger may choose to place more capital in stocks than bonds, as they have a longer time horizon to ride out the volatility.

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