Looking for some safe stocks to invest in? Here’s what the best of them have in common (+ some tips to lower your overall portfolio risk).
What would you think if we told you there are no safe stocks to invest in? What if we said every stock on the market is safe to invest in? The truth is that neither of those statements is entirely true, nor are they altogether false. It’s quite possible that you could invest in a cryptocurrency and get a 12,000% return. It’s possible that you could invest in a blue-chip airline stock with steadily rising dividends only for a pandemic to come along and wipe out years of gains.
No, we aren’t trying to confuse you or scare you away from investing. On the contrary, we believe it’s a great way to increase your wealth and fund a comfortable retirement. It’s vitally important, however, to realize that there are no guarantees in the stock market. That said, some stocks are safer than others. And many of those safe stocks to invest in have similar attributes. Add to that a few strategies that you can employ to make them even safer, and you have the makings of a good portfolio. Think of it like driving. Some roads are safer than others, and you can increase your personal level of safety by wearing a seatbelt and driving defensively. So buckle up, and let’s explore what makes one stock safer than another.
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What the best safe stocks to invest in all have in common
Sorry about that introduction, but we wanted to be clear that anything can happen in the stock market. The only truly safe place to keep your money is in a water-tight, hermetically sealed, rust-proof safe you can drop into a remote section of the Arctic Ocean. But that’s probably not going to get you much of a return. And good luck recovering it.
The reason we invest is that we want our money to grow. No one invests with a plan to lose money. Sure, some stocks will lose money. Some will hit a plateau and sit there for ages. Some stocks will increase exponentially in value. Our goal is to fill our portfolio with that last group while doing what we can to limit our risk. In other words, we’re looking for profitable and safe stocks to invest in. So what do these stocks look like?
- They have low volatility. Volatility is a proxy for risk. More volatile stocks have larger price swings, percentage-wise.
- They’re in steady industries. Consumer staples and utilities tend to be low risk because demand for their products is highly independent of economic conditions. Utilities deliver slow but steady growth, and take advantage of that predictability to pass much of their cash through to investors as regular dividends.
- They pay dividends. Dividends are an indicator of reliability: they mean the company’s business generates predictable income during a variety of economic conditions.
- They are names you know. Not all well-known names are safe stocks to invest in, but many of the safest stocks are names you know. They’re on your grocery store shelves and delivering your packages. They’re the tech you’re using to read this and the electronics you look to for entertainment.
- They have solid fundamentals and charts. If you’re inclined to do some technical analysis, you can learn a lot about almost any stock. But even a cursory look at a 3- or 5-year chart can tell you how a stock has performed, how volatile it may be, and how well it’s doing in relation to the overall market.
Where to find these stocks and how to keep your portfolio safe
Not to toot our own horn too much, but you can find these stocks here on our website or by subscribing to our investing advisories. Another easy way to find them is to look at the list of Dividend Aristocrats and Dividend Kings. These stocks have raised their dividends steadily for at least 25 consecutive years (or 50 consecutive years in the case of Dividend Kings). There are a few stocks in these groups that we might avoid, but generally speaking, almost any of them are safe stocks to invest in.
Finding safe stocks to invest in is only one part of the safety equation. There are also steps you can take to limit the risk in your overall portfolio.
- Diversify across industries, sectors, market caps, and so on.
- Use stop-loss orders. There are entire strategies around this, but the short version is that if a stock is dropping, you sell it before you end up with too much of a loss.
- Don’t be afraid to take some profits now and then.
- Keep some of your portfolio in cash. This gives you the chance to take advantage of opportunities.
- Hold your stocks long-term. There are exceptions to this, obviously, but holding onto your stocks gives them time to work and bring profits.
Don’t forget that it’s also okay to have a little fun here and there. If you have some extra money, take a closer look at the micro-cap stock or the up-and-coming business that sparks your interest. Safer stocks will help you sleep at night, but there’s nothing wrong with some thrilling adventures, too. Just know what you’re getting into.
What is your approach to investing? Do you keep mostly safer stocks in your portfolio or do you take some risks?
