StashAway’s Guide to Low-Risk Investing

01 June 2024

10 minute read

Whether you're a seasoned investor seeking to protect your hard-earned assets against inflation, or a newcomer looking to build a solid financial foundation, low-risk investing is a way to achieve your financial goals with peace of mind. 

The universe of low-risk investing is diverse and goes far beyond traditional fixed deposits, offering a range of options to suit different preferences and objectives. From money market funds that get your cash working harder, to US Treasuries which can offer a hedge against currency risk, there's something here for everyone.

In this guide, we'll dive deep into low-risk investing, exploring its key advantages, the various options available, and practical strategies for incorporating low-risk assets into your portfolio.

Key takeaways 

  • Low-risk investing is a way to get your money working harder for you at a level of risk that you’re comfortable with. Choosing not to invest comes with its own set of costs, including the risk that inflation is eroding the value of your cash.
  • Low-risk investing primarily involves fixed income assets, due to their ability to generate consistent returns and preserve capital. There are a variety of fixed income options that can generate higher returns than savings accounts or fixed deposits, without significantly increasing risk.
  • StashAway’s diverse range of low-risk investing options allow you to fine-tune your investment portfolio to your desired risk tolerance, expected returns, and time horizon.
  • Low-risk investing can be used as a springboard for your investing journey, or as a way to reduce overall portfolio volatility. It can also be used as part of a hands-free strategy to incorporate higher-risk assets, while managing overall risk.

Investing doesn’t have to be risky 

It's natural to approach investing with a bit of caution, especially when starting out. After all, the common belief that "it's too risky" can be a major deterrent. While it's true that all investments come with some level of risk, there are strategies to minimise that risk to a level that’s comfortable for you.

The first thing to keep in mind: investing is a marathon, not a sprint. For those taking their first steps, low-risk investing can be an excellent starting point. That means investing in assets that prioritise stability, allowing your money to grow steadily over the long term. You want to keep your money working for you, in the background, while you carry on with peace of mind.

It's important to recognise that choosing not to invest also comes with its own set of risks. Leaving your money idle in a savings account means you’re not tapping in the long-term growth potential of other assets. Plus, there’s the constant risk of inflation eroding the value of your cash over time.

Plus, there’s the constant risk of inflation. Globally, the average inflation rate for the past 20 years stands at around 4%. If you’d kept your cash in a savings account at an interest rate of 2% for that period, the value of your cash would have fallen 2% on average each year.

What is low-risk investing? 

At its core, low-risk investing is about growing your wealth over the long-term, safely and consistently. It's an attractive choice for those who want peace of mind.

This means a focus on fixed income assets, for their ability to generate consistent returns and preserve capital. These securities typically pay a fixed rate of coupons to investors, with the principal returned upon maturity. Generally, the types of fixed income assets available to retail investors include:

  1. Fixed deposits: The lowest-risk option available, besides traditional savings accounts. However, returns may struggle to outpace inflation, which slowly reduces the value of your money.
  2. Money market funds: In general, a money market fund invests in short-term debt securities that mature in a month or less. Because of the lower duration of these assets, money market funds are less exposed to interest rate fluctuations.
  3. Government bonds: Governments issue a variety of debt denominated in their own currencies, which are generally considered to be very safe investments. A few examples include Singapore Savings Bonds (SSBs), which are fully backed by the Singapore government, and US Treasuries (T-bonds, T-notes, and T-bills). Bonds come with different maturity periods, ranging from those that mature in less than a year to a decade or more.
  4. Corporate bonds: While typically riskier than government-issued debt, corporate bonds offer the potential for higher returns. Not all corporate bonds are available to retail investors, with some having minimum subscription amounts. However, bond ETFs can include corporate bonds in their portfolios, and are more easily tradable on exchanges.

Here’s a visualisation of volatility, for different investments over time. As you go up the scale, you also unlock greater potential for returns.

StashAway’s universe of low-risk investing 

To get you started, we’ve prepared a list of our low and ultra-low-risk investing options. While these all aim to grow your wealth steadily, keep in mind that they each have their own strengths. Some may offer greater returns at the cost of higher volatility, while others may fit better in a longer time horizon.

Our General Investing portfolios can be a great starting point – they’re a mix of diversified assets that can be adjusted to fit your risk appetite. Equities give more room for growth, while gold provides additional diversification. Using our ERAA® investing framework, they’re positioned to keep your selected risk level constant while maximising long-term returns. Plus, their fees are simple and transparent, ranging from 0.2% to 0.8% p.a. (reducing as you accumulate more assets).

Over the past two or so years of heightened market volatility, they’ve outperformed their benchmarks by about 5.6 percentage points on average as of end-March 2024.

For low-risk investing, we recommend an SRI level (StashAway Risk Index) between 6.5% to 12%, where a higher SRI level portfolio allocates more to equities. Essentially, the SRI level refers to a 99% chance that the portfolio will not decline by more than 6.5% to 12% respectively.

StashAway’s low-risk options

Underlying investmentsReturns(rolling 12-month) 
General Investing (SRI 6.5%)5.7% equities, 90.2% fixed income, 3.1% gold, 1.0% cash6.3%
General Investing (SRI 8%)12.4% equities, 82.1% fixed income, 4.5% gold, 1.0% cash7.3%
General Investing (SRI 10%)19.1% equities, 74.0% fixed income, 5.8% gold, 1.0% cash8.3%
General Investing (SRI 12%)27.6% equities, 64.0% fixed income, 7.5% gold, 1.0% cash9.2%

Note: All figures are accurate as of 31 May 2024. Returns are in SGD terms. For full details, refer here. Performance figures are gross of fees. Past performance is not indicative of future returns. 

StashAway’s ultra-low-risk options

Underlying investmentsReturnsManagement fee
Simple30% LionGlobal SGD Money Market Fund, 70% LionGlobal SGD Enhanced Liquidity Fund3.7% p.a. (projected)0.15% p.a.
Simple Plus20% LionGlobal SGD Enhanced Liquidity Fund, 20% Nikko AM Shenton Short Term Bond Fund, 60% LionGlobal Short Duration Bond Fund4.5% p.a. (yield to maturity)0.2% p.a.
USD Cash Yield0-3 month maturity US Treasuries5.4% p.a. (yield to maturity)0.3% p.a.

Note: All figures are accurate as of 30 April 2024. Performance figures are gross of fees. Yield to maturity is a projection provided by the underlying fund manager, and not a guarantee for future returns. Past performance is not indicative of future returns.

Practical strategies using low-risk investing 

Whether you're taking your first steps into investing, or looking to preserve your wealth, low-risk investing is versatile enough to suit any financial strategy.

  • For beginners, low-risk investing can form a solid foundation for future growth. A new investor can use their low-risk portfolio as a springboard to diversify into assets with higher risk-return profiles.
  • For more experienced investors, fixed income can be used as a defensive component for a diversified portfolio. During market downturns, these safer investments can help counterbalance potential losses from riskier holdings, ultimately mitigating overall portfolio volatility.
  • For those approaching retirement, low-risk investing takes on a new level of importance. At this stage, an investor can gradually shift their portfolio towards safer options, safeguarding wealth while generating reliable returns.

Here's our life hack for building wealth: leverage the power of low-risk investing as a foundation for higher returns, which helps to keep risk in check. It's a simple, hands-free investing strategy.


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