7 Low Volatility Investments to Consider
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The first half of 2022 has been incredibly rough for most investors. When you see your portfolio value fall off a cliff, it’s natural to start looking for low volatility investments that are less likely to experience the monumental ups and downs that tend to happen with the stock market.
In this article, we’ll look at some specific investment opportunities that may help to add some stability to your portfolio by minimizing or at least limiting the volatility.
Low Volatility Investments
The information in this article should not be considered investment advice. If you’re looking for personalized guidance, please seek assistance from a financial professional.
1. Dividend Stocks
When publicly traded companies generate a profit, they can either reinvest the money (which is common with growth stocks), they can share the profits with investors in the form of dividends, or they can do a little of both.
The dividend is usually paid out quarterly, but some companies pay monthly or even yearly dividends. Many investors view these stocks as a way to receive regular income, but they can also help to reduce the volatility in your portfolio.
One reason for this is that dividend stocks tend to be less vulnerable to economic downturns than other stocks. This is because companies that pay dividends tend to be mature and well-established, with strong balance sheets and solid cash flow. These characteristics enable them to weather economic storms better than newer or more speculative companies.
Another reason why dividend stocks may be considered low volatility stocks is that they tend to attract a different type of investor than growth stocks. Dividend investors are often more interested in stability and income than capital gains, so they’re less likely to sell their shares during market downturns.
Dividend stocks are also popular with long-term investors who have a buy-and-hold mentality. These investors aren’t usually rattled by short-term drops. Instead, they may see a drop in the stock price as an opportunity to buy more shares.
Of course, no investment is completely immune to market volatility, and dividend stocks will still go down in value at times. However, they may offer a bit more stability than other types of stock market investments if you’re interested in low volatility investing.
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Investing in farmland can be a way to diversify your portfolio and reduce volatility. Farmland is a real asset, which means it’s not as prone to the same type of price swings that you see with stocks and other financial assets.
Another reason why investing in farmland may offer stability is that it’s not as impacted by economic cycles. For example, if there’s an economic recession, people may cut back on their spending on non-essential items, but they’ll still need to buy food. This demand for agricultural products can help to insulate farmers and investors from economic downturns.
While the demand for food never decreases, the availability of farmland is steadily decreasing. This is due to factors such as urbanization and the conversion of farmland to other uses. The limited supply of farmland means that it may appreciate in value over time, which can provide a source of stability and growth for your portfolio.
Of course, there are still some risks associated with investing in farmland. For example, bad weather can damage crops and adversely impact the value of the land. Also, the value of the land can go down for any number of reasons. However, these types of risks are more localized than the risks associated with stocks, which means they may not have as big of an impact on your portfolio.
Investing in farmland can be challenging because most people don’t have the means to go out and buy a farm. However, platforms like AcreTrader and FarmTogether are making farmland more accessible to accredited investors. They’re crowdfunding platforms where you can buy an ownership interest in an income-generating farm.
With AcreTrader or FarmTogether, you’ll receive quarterly or annual dividends from the rental income, and eventually, the land will be sold (hopefully for a profit). When the property is sold, shareholders receive their portion.
AcreTrader is a crowdfunding platform that allows you to invest in farmland. You'll earn dividends from rental income as well as appreciation when the property is sold (usually a few years later),
- Low volatility
- Low correlation to the stock market
- Inflation hedge
- Attractive long-term returns
- For accredited investors only
3. Fine Wine
Fine wine is probably not the first type of investment that comes not mind, but it has an impressive track record that makes it an alternative asset worth considering.
The value of fine wine is less impacted by economic cycles than many other types of investments. This is because people will still buy wine even during economic downturns. Most people who are buying expensive wine aren’t the ones who are being hit hard when the stock market drops. Their portfolio may suffer a drop as well, but these are typically high-net-worth individuals who maintain their lifestyle even when the stock market is down.
Although wine can be an excellent investment, the average person doesn’t know enough to pick a winner. However, platforms like Vinovest and Vint have been created to make investing in fine wine more accessible.
Vinovest allows any investor (not just accredited investors) to start with as little as $1,000. Vinovest will then select the wines and construct your portfolio for you. They’ll handle everything from shipping to storing to insuring the wine. They’ll also recommend when they think it’s the ideal time to sell the wine for maximum returns.
Vint is a similar platform that’s also open to both accredited and non-accredited investors. With Vint, you’ll buy shares in a collection of wine and rare spirits, and you can start with as little as $100. Like Vinovest, Vint handles all of the buying, shipping, and storing so it’s a hands-free investment.
If you’re attempting to create a low volatility strategy with your portfolio, Vinovest and Vint could be appropriate options.
Looking for an alternative investment with the potential for strong returns? How about an investment that has low correlation to the stock market? Vinovest makes fine wine investments accessible to anyone.
- Adds diversification to your portfolio
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- Fine wine has returned 10.6% per year over the last 30 years
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4. Low Volatility ETFs and Mutual Funds
If you’re not interested in picking individual stocks or alternative assets, you can invest in low volatility ETFs and mutual funds. These are collections of assets that have been constructed with the goal of minimizing volatility.
One popular low volatility ETF is the iShares MSCI Minimum Volatility Factor ETF (USMV). This ETF tracks the MSCI USA Minimum Volatility Index, which consists of U.S. large and mid-cap stocks with low volatility. The expense ratio for this ETF is just 0.15%, which fee-conscious investors are sure to love.
Another option is the Invesco S&P 500 Low Volatility ETF (SPLV). This fund tracks the S&P 500 Low Volatility Index, which consists of the 100 least volatile stocks in the S&P 500. The expense ratio is a bit higher at 0.25%, but it’s still quite reasonable.
An example of a low volatility mutual fund is Vanguard’s LifeStrategy Income Fund. The fund is 80% bonds and 20% stocks, so the impact of drops in the stock market will be limited. This conservative mutual fund won’t provide long-term investors with maximum growth, but it will help to limit the wild swings that you may want to avoid.
These are just a few of the low volatility ETFs and mutual funds available. Adding low volatility funds like this to your portfolio may help to add some stability at the expense of potentially sacrificing higher returns.
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If you’re looking for an investment that has low volatility and the potential for high returns, you should consider investing in real estate. Real estate crowdfunding platform Fundrise makes it easy for investors to get started with as little as $10.
With Fundrise, you’ll be investing in a diversified portfolio of commercial real estate. This includes apartments, office buildings, retail space, warehouses, and more. The properties are all located throughout the U.S., providing diversification in terms of location.
Of course, the real estate values can and do drop. However, Fundrise has an impressive track record to date with 21 consecutive quarters of positive returns for investors (as of June 2022). For example, in the first quarter of 2022, Fundrise investors gained an average of 3.59% while public REITs lost an average of 5.29% and the S&P 500 lost 4.60%.
And unlike publicly-traded REITs, the value of your Fundrise investment will not change daily. If you don’t like seeing the value of an investment go up or down every single day, you may appreciate Fundrise.
While there’s no guarantee that Fundrise will be able to continue the trend of quarters with positive returns, the historical Fundrise returns may convince some investors to give it a shot.
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Bonds are loans that investors make to governments or corporations. The borrower agrees to pay interest on the loan and to repay the principal at a specified date.
Investors often use low risk bonds as a way to diversify their portfolios and reduce volatility. This is because bonds tend to move in the opposite direction of stocks. When stock prices fall, bond prices usually rise (and vice versa). However, the ups and downs of bonds are typically much smaller than the peaks and valleys experienced by the stock market.
Of course, bonds are not without risk. The issuer of the bond may default on the loan, meaning that the investor will not get their money back. However, this is relatively rare, and it’s far more likely to happen with corporate bonds than government bonds.
Investing in bonds can be a great way to reduce volatility in your portfolio. However, you should keep in mind that bonds may not provide the same high returns as stocks or other assets.
A certificate of deposit (CD) is a type of savings account that has a fixed interest rate and a fixed term. CD terms typically range from one month to five years.
The advantages of CDs are that they are low-risk and relatively easy to understand. The main downside is that they tend to have lower interest rates than other types of investments.
However, if you’re looking for an investment with low volatility, CDs can be a good option. This is because you know exactly how much interest you’ll earn on your investment and when you’ll get your money back.
Moreover, CDs are FDIC insured, meaning that your money is protected if the bank fails.
Frequently Asked Questions
Volatility is a measure of how much an asset’s price changes over time. A volatile asset is one that experiences large price swings, while a less volatile asset experiences smaller price swings.
There is no guaranteed way to avoid losses due to volatility. However, you can diversify your portfolio by investing in a variety of assets, including both stocks and bonds. In addition to asset allocation, you can also limit your exposure to volatile assets by investing only a small portion of your portfolio in them.
There is no guaranteed way to achieve low volatility. However, you can try to invest in assets that have a history of being less volatile than others. This includes assets such as bonds and CDs. You can also diversify your portfolio to help reduce the overall volatility of your investments.
There are many factors that can make a stock volatile. These include the company’s financial stability, the overall health of the economy, industry trends, and political instability. Volatile stocks may also be more likely to experience sudden price changes due to news events or analyst recommendations.
Yes, there can be benefits to investing in volatile assets. These include the potential for higher returns and the opportunity to buy assets at a discount when prices are down. However, you should also be aware of the risks associated with volatile assets, such as the possibility of losing money in the short term.
It depends. Low volatility can be good for stocks if it indicates that the company is financially stable and the overall market is healthy. However, low volatility can also be a sign that the stock is unlikely to experience a significant gain. Higher volatility stocks may produce a higher total return.
ETFs can be less volatile than stocks, but they can also be more volatile. It depends on the specific ETF and the underlying assets it holds. For example, an ETF that tracks a broad stock market index is likely to be less volatile than a single stock. However, an ETF that focuses on a small group of stocks or a specific sector may be more volatile.
Final Thoughts on Low Volatility Investments
Low volatility investments can be a good way to reduce risk in your portfolio. However, you should keep in mind that these investments may not provide the same high returns as more volatile assets.
When choosing any investment strategy, it’s important to carefully research the risks and rewards before making a decision. This is especially true for volatile assets such as stocks. However, by diversifying your portfolio and investing in a variety of assets, you can help mitigate the risks associated with volatility.
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