In the investment world, each instrument must have a different level of risk and profit opportunities. In a number of investment products, it is not impossible that investors are able to get high yield potential.
But, at the same time, investors must also be prepared for the risk of losses that are no less high when choosing these investment products.
This is only natural because in the investment world there is the principle of excessive chance excessive return.
That is, if you expect high yield opportunities, you must also be prepared to face the risk of loss that is no less high when investing. Of course, every investor has a different psychological condition and risk profile in dealing with the risk of investing.
One example is among investors who are commonly referred to as chance averse aka investments that minimize risk. As the name implies, this type of investment is more directed to low-risk investment options aka conservative in order to minimize losses.
So, for those of you who want to invest but are still afraid to swallow losses and expect stable returns, this investment strategy is worth choosing.
Well, if you want to know more about the understanding of chance averse making an investment, examples, how it works, to the investment strategy, see the following explanation.
Risk Averse Investing
Can also be referred to as conservative investors, by definition chance averse is a type of investor who tends to avoid risk. Generally, this type of investor will choose a low-risk investment instrument option to minimize the chance of loss.
This type of Investor will avoid risk and feel uncomfortable when choosing investment instruments with too high a risk level. They have a low tolerance for risk, and prefer to play it safe when investing by choosing conservative instruments.
In fact, it is willing to do even though the chances of the results obtained are also lower. For example, this type of investor prefers investment instruments such as savings accounts, certain bonds, and certificates of deposit.
The opposite of a chance averse investor is a chance seeking investor, which is an investor who prefers to choose high-risk investment instruments and is able to provide equally large potential benefits. Some examples of instruments commonly chosen by this type of investor are stock mutual funds, mixed mutual funds, and stocks.
Examples Of Risk Averse Investments
Understanding about the types of chance averse investments is basically not that difficult. In fact, if you have more or less understood about how investing works, the term may indirectly have you understood.
For example, you are a person who has just tried and jumped into the world of investing. Because you are still familiar with these financial products and have a low tolerance for risk, you decide to hire the services of a financial advisor to learn about the potential of conservative investments.
Then, the financial advisor advises to put investment capital into a savings account that can provide yields and interest on government bonds. Which, both products are able to provide a fixed level of income or profit.
Through this strategy, you may not get significant returns. However, the risk of experiencing losses can be avoided and the potential for reinvestment capital is also very high.
How Risk Averse Investing Works
After understanding the example above, you must have understood about the workings of chance averse making an investment in general. Basically, the term low-risk investment can apply to any scenario, but it appears regularly in the investment and financial world.
Chance averse investors are investors who want investment opportunities with a low level of risk to reduce potential losses. In order to reduce these risks, this type of investor is willing to get lower profit opportunities.
This type of investment is certainly suitable for investors who avoid the risk of loss and prefer security so that their investment capital can return. Therefore, conservative investors tend to choose instruments in the form of certificates of Deposit, government bonds, and high-yield savings accounts.
At some point, not a few people on their investment journey have a low tolerance for risk. For example, investors who have retired or are approaching this period prefer low-risk instruments, or even no risk at all. In these conditions, they prefer profit or stable income to finance their lives in retirement, and cannot delay the return on assets when their value decreases.
In addition, investors with short-term investment goals, such as saving for a house down payment or wedding costs in a period of under 1 year are also ideally choosing a chance averse investment strategy.
That way, the value of the investment will continue to increase without having to worry about the risk of loss that can occur at any time.
Investment strategy with Risk Averse method
If you intend to invest with the chance averse method, there are several worthy instrument options to choose from. Here are some of them.
Savings account or Savings account
Savings accounts at banks are one option to keep money safe, but still able to provide interest rates close to 1%. In fact, in some banking companies, the promised annual yield chance can reach 2 percent.
Another advantage, customers can access money at any time, guaranteed interest rates but with a value that can change over time.
Money Market Account
This type of account can be understood as a combination of savings and checking accounts, and is able to provide interest at a rate that is generally higher than a savings account.
Money market accounts generally have limits regarding the amount of funds that can be withdrawn each month, and sometimes the minimum balance requirement is higher than ordinary savings.
Not infrequently companies also launch bond products to raise capital to fund a project or business growth. Although there is no guarantee like government bonds, this type of bond still has a low risk as long as you choose a company with an AAA rating from a rating agency.
When holding this rating, the company has a minimum credit risk and has demonstrated its creditworthiness.
Although all stock products certainly have risks, dividend types of stocks can provide safer profits. Dividend stocks are companies that pay dividends to shareholders each year.
Therefore, the provision of dividends is able to help investors in offsetting the risk of loss or increasing the chances of profit obtained.
Certificates Of Deposit
Certificate of deposit is a financial product from a bank that is also suitable to be chosen by chance averse investors. Simply by investing a certain amount of funds and leaving it within a predetermined period, the bank will return the capital along with interest.
Depending on the agreement, the duration of storage on this product can reach 10 years, and tend to be safe because it guarantees a refund. Usually, the interest rate given is also higher than ordinary savings. To be safer, choose a bank that is included as a member of the LPS or the Deposit Insurance Agency.