No matter how strong the economy or how bulletproof the industry, no specific stock can ever claim to be a perfectly safe investment. Individual companies can be undone by lawsuits, internal fraud, management changes, product failures, new technology, stronger competitors, and many other factors. For a safer investment, spread your money across an entire industry through an industry-specific investment fund or an industry-focused exchange-traded fund (ETF). In this article, we will look at industries that offer the safest long-term investments.
What Is a Safe Investment?
U.S. government Treasury bonds are considered 100 percent safe because their returns are predictable and guaranteed. The predictability and certainty of returns is the important criteria to assess how safe an investment is. For an entire industry sector, predicting the continued usage of the industry’s products and services can provide a fair assessment. For example, what is the certainty that in 20 years people will still be using social networking sites? What is the certainty in 20 years that people will still be eating food? (Related Industries That Will Never Go Away)
- Food Industry: Businesses associated with food like grains, cereals, beverages, and associated functions like food processing and food packaging, constitute the food industry. As the food industry is essential for human life, it will likely continue to flourish. Most countries have regulations and measures for efficient production, purchase, and supply of food items. All this makes the food industry one of the safest industries for investment.
- Fast-Moving Consumer Goods (FMCG): Fast-moving consumer goods include a wide variety of daily-use products like soaps and toiletries, detergents, cosmetics, dental hygiene products, batteries, and paper products. Consumers put less thought into purchasing these, as these are daily essentials, which makes FMCG a safe investment sector. Profit margins are low for such products due to fierce competition in the sector. However, volume is high which makes up for the low profit margins. FMCG companies usually also pay regular dividends, which offers the benefit of regular income potential.
- Textile Sector: Fashion trends may come and go, but people will continue to need clothes. Excluding the dynamic stream of the fashion industry, the overall textile sector offers a safe investment destination for your money. Textiles include the production and processing of raw material like cotton, linen, and silk.
- Legal and Compliance Sector: No matter how many presidents or prime ministers are elected and new laws are passed, the world will continue to be full of conflicts, challenges, and legal troubles. The service-oriented legal and compliance sector hence qualifies as one of the safest investment sectors. Barring a complete breakdown of law and order and the reversion of society to a primitive state, legal and compliance businesses will continue to flourish for decades to come. (See related World's Top 10 Law Firms)
- Energy Utilities Sector: History is full of examples of nations waging war over energy security. People need electricity to run appliances at home and fuel to power cars, trains, and airplanes. Energy can come from many sources including fossil fuels like oil and coal, natural gas, and nuclear reactors. Also in the sector are renewables like hydroelectric and solar energy. The unending global demand for power makes the energy industry a safe bet for investment.
- Water Sector. This includes the transport, treatment, and packaging of water. Some pundits even predict that the next major wars will be fought over water. Requirements for potable water and for industrial consumption is expected to increase and businesses operating in water treatment, transport, and packaging are expected to benefit. Water, even more than food, is essential for human life (you need water to grow food). This makes water a safe sector for investment.
- Healthcare Sector: There have been significant advancements in the healthcare sector enabling humans to live a healthy life with increased lifespan. However, the regular outbreak of global epidemics (like Ebola or swine flu) or seasonal recurrences of the flu and colds, reminds us of our dependence on the healthcare sector. Despite preventative measures including vaccinations, the world will keep seeing new diseases requiring healthcare pharmaceuticals. Healthcare will be a relatively safe sector for decades.
The Bottom Line
After the 2007-2008 global financial crisis and the European debt crisis, investors have become more risk conscious and are looking for safer investments. The above-mentioned sectors are expected to offer good returns in the long run. Instead of betting on individual businesses, investors should diversify by investing in industry-specific mutual funds, ETFs, and index funds.