Most things that are worthwhile in life require at least some amount of risk – and investing is no different! Investment risk is defined as the likelihood of losses relative to the expected return on an investment.
The risk you take on is typically correlated to the amount of return you can expect to earn – but this doesn’t mean you need to make risky investments to be a successful investor.
Understand Your Risk Level
Investment values can fluctuate significantly over the short term — on their way to long-term gains — so it’s advantageous if you can leave your money invested for a longer period.
If you have a longer time horizon until you need the money you’re planning to invest, and if you don’t have pressing, short-term financial goals or obligations that would cause you stress if your portfolio was impacted negatively in a bear market, you typically have a higher risk tolerance level.
With a higher risk tolerance level, you may choose to invest in riskier assets like individual stocks and stock ETFs. These give you the potential to earn above average returns compared to bonds or savings account – but there’s also a chance your investments will fluctuate in value.
If you can tolerate potential short-term loss and uncertainty in exchange for a long-term higher return – your risk tolerance is higher.
MoneyLion offers personalized portfolios that have distinct asset allocations with different balances of risk and return expectations. Choosing the right portfolio that reflects your risk level is key to safeguarding your financial future, and MoneyLion offers a fully managed investment account that recommends the right portfolio for you. And you can adjust it if your needs or risk tolerance changes!
MoneyLion in partnership with Wilshire Associates has developed 7 investment profiles ranging from conservative to aggressive. You can read more about these profiles here.
If you have limited income and large financial obligations like a mortgage, debt payments, or family members who depend on you financially, or you are planning to retire in the coming years – lower-risk investments may be better suited for you. You may want to look into the asset classes below that can potentially provide a healthy return while guarding against significant short-term depreciation.
Don’t want to do the research? You can choose a fully managed portfolio with MoneyLion and let us do the work for you, including picking the right investment mix for your risk tolerance.
Money Market Funds
Money market funds are mutual funds that invest in highly liquid, cash equivalent securities – making them one of the safest investments. The average money market fund increases in value by 1% to 3% a year.
This is a type of debt instrument issued by corporations, municipalities, and other government entities for the purpose of raising capital (aka money). U.S. treasury bonds can be bought online through the Treasury Direct website. Most bonds can also be bought through online brokerage accounts or mutual funds. Bonds will usually need to be held for a minimum of a few years – depending on the type of bond – and investors can usually expect between 5% – 6% returns on long-term bonds.
Exchange-traded funds are investments that can hold a mixture of stocks, bonds, and/or commodities. ETFs are designed to perform in accordance with the underlying index they track, and returns vary according to each different index. ETFs are popular with investors because they make it easier and lower cost to invest in a balanced, diversified portfolio.
If you have fewer pressing financial obligations and can prioritize achieving higher returns over the long term in exchange for tolerating some uncertainty along the way, higher-risk investments can be a way to grow your portfolio more aggressively. You may want to look into these asset classes that could provide you with above-average returns.
As we mentioned above, if you want to skip the research, you can select a MoneyLion portfolio with our help, and we’ll fully manage it for you. We even offer an All Equity aggressive portfolio for the most aggressive investors, right down to a SteadyIncome portfolio for the most conservative.
Equities or stocks
Otherwise known as stocks, equities represent partial ownership of a publicly traded company. The S&P 500 (a stock index) has had a historical average return of 10%. Not bad! But this percentage can differ from year-to-year of course. That’s the point of long-term investing, so you can reap the benefits of the good years and stay cushioned during any down years.
Commodities are basic goods – like oil, gas, metals, grains – that investors can either buy directly or invest in through other vehicles like mutual funds or ETFs. Commodity prices tend to fluctuate based on a number of different factors – typically making them riskier assets.
Real estate investment trusts, or REITs, are companies that own and operate commercial properties such as office buildings, apartment complexes, hotels, and hospitals to name a few. REITs offer investors the chance to invest into the management and development of these properties and typically pay high dividend returns to investors. The average annual return rate of REITs is 12.99%. Although the returns can be impressive, investors have to contend with volatility from real estate prices and interest rates.
How to Protect Your Investments
You cannot eliminate investment risk from your portfolio entirely, but there are numerous things you can do to help mitigate your risk, even for the most volatile assets.
Diversify Your Portfolio
Different assets and industries and geographies react to market conditions in distinct – and even opposing – ways. That’s why you should diversify or spread out your investment dollars across different types of companies, regions, sectors, and assets. This will help ensure that your portfolio will continue to perform even if some sectors or regions struggle.
Research the Company You Intend to Invest With
Before creating an investment account, make sure that the company you invest with is SEC and FINRA regulated like MoneyLion is. Looks for an investment company with low fees and low barriers to entry, such as MoneyLion’s no minimum investment requirement and no asset-based management fees.
Monitor Your Accounts
Make sure to keep track of how your investment is performing – especially in response to market fluctuations. You may find that your risk level is actually different than you had anticipated. Don’t be afraid to make changes. With our managed account, we’ll help you every step of the way.
Understand the Fees
Some investment companies charge you fees if you withdraw your money or rebalance your investment. Understanding the fees will help you keep track of where your money is going.
Use a Fully Managed Investment Account
Letting experts handle your investment account can ease some of your risk and stress. First-time and seasoned investors can all benefit from this aspect as it is your account manager’s job to protect and grow your money. Most of the time, you can simply express your investing comfort zone and your account manager will be able to provide a plan suited for your goals.
Save Some Cash
Make sure to have some cash on hand in the case of an emergency. Investment portfolios perform the best when you hold them for long periods of time. You don’t want to have to compromise your growth by withdrawing your investments early because of something unexpected.
Opening an Investment Account
You don’t need to have expert market knowledge or a lot of money to open an investment account. Even small deposits have the potential to turn into substantial gains with consistency and longevity. With MoneyLion, you can create a personalized portfolio – without trading fees or minimums. Follow the steps below to get started on building your financial future.
Download the MoneyLion App
You can find the download link on the MoneyLion website by clicking here, or download on the App Store or GooglePlay.
Collect Your Documents
You will simply need your Social Security number, a valid US residential address, and a verified phone number to pass identity verification and open an account.
Create an account with MoneyLion and securely link a bank account that you can use to fund your investment account.
You’ll need to confirm your email and personal information before you can deposit funds into your investment account.
Deposit funds into your portfolio and watch your savings grow! Set up Auto Invest to make things even easier.
Get Started on Building Your Financial Future
Growing your investment requires starting early and depositing consistently. MoneyLion’s personalized investment portfolios and personal finance features allow you to do just that.