What is 'Conservative Investing'

Conservative investing is an investing strategy that seeks to preserve an investment portfolio's value by investing in lower risk securities such as fixed-income and money market securities, and often blue-chip or large-cap equities.

BREAKING DOWN 'Conservative Investing'

Conservative investors have risk tolerances ranging from low to moderate. Those who have a low risk tolerance are often less comfortable with the stock market and might wish to avoid it entirely. However, although a conservative investing strategy may protect against inflation, it will not earn significant value over time.

Conservative Investing and Portfolio Strategies

Preservation of capital and current income are popular conservative investing strategies. Preservation of capital centers on maintaining current capital levels and preventing any portfolio losses. A capital preservation strategy incorporates safe, short-term instruments, such as Treasury bills and certificates of deposit. A capital preservation strategy could be appropriate for an older investor, looking to maximize her current financial assets without significant risks. Losses sustained could put her retirement at risk.

Current income strategies work to identify investments that pay above average distributions, such as dividends and interest. Current income strategies, while relatively steady overall, can be included in a range of allocation decisions across the spectrum of risk. Strategies focused on income could be appropriate for an investor interested in established entities that pay consistently (i.e. without risk of default or missing a dividend payment deadline), such as large-cap or blue-chip equities.

Coca-Cola, Disney, PepsiCo, Wal-Mart, General Electric, IBM, and McDonald’s are examples of blue chip companies. They are multinational firms that have been in operation for a number of years. They dominate their respective industries and have built highly reputable brands over the years, surviving multiple economic downturns.

A current income strategy can be appropriate for older investors with a lower risk tolerance, looking for a way to continue to earn a steady flow of money post-retirement and without their usual salary.

Both of these strategies sit below more aggressive strategies, such as a growth portfolio. For example, a capital growth strategy seeks to maximize capital appreciation or the increase in a portfolio’s value over the long term. Such a portfolio could invest in high risk small-cap stocks, such as new technology companies, junk or below investment grade bonds, international equities in emerging markets, and derivatives.

In general, a capital growth portfolio will contain approximately 65-70% equities, 20-25% fixed-income securities and the remainder in cash or money market securities. Although growth-oriented strategies seek high returns by definition, the mixture still somewhat protects the investor against severe losses.

RELATED TERMS
  1. Preservation Of Capital

    Preservation of capital is a conservative investment strategy ...
  2. Balanced Investment Strategy

    A balanced investment strategy is a method of portfolio allocation ...
  3. Conservative Growth

    Conservative growth is an investment strategy that aims to preserve ...
  4. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment ...
  5. Capital Growth Strategy

    An asset allocation strategy that seeks to maximize capital appreciation, ...
  6. Investing Style

    Investing style is an overarching strategy or theory used by ...
Related Articles
  1. Investing

    Asset Allocation Models: Comparing 3 Traditional Strategies

    Learn about the three most common asset allocation models: conservative, moderate and aggressive.
  2. Trading

    What Is Your Risk Tolerance?

    Forget the cliches and uncover how much volatility you can really stand.
  3. Personal Finance

    Your Risk Tolerance May Change, So Your Portfolio Should Too

    It is important to rebalance your portfolio when your risk tolerance changes.
  4. Investing

    How to Build Your Optimally-Balanced Portfolio

    How do you build an optimally balanced portfolio? A lot depends on your appetite for risk, and your understanding of rebalancing.
  5. Investing

    Fixed-income trader: job description and salary

    Learn about the skill requirements and average salary of a fixed income trader, along with the necessary licenses and daily activities.
  6. Financial Advisor

    Risk Tolerance Only Tells Half The Story

    Just because you're willing to accept a risk, doesn't mean you always should.
  7. Financial Advisor

    Risk Tolerance: Why Advisors, Investors Mess It Up

    Quantifying the amount of risk that a client is willing to take can be a deceptively difficult task. Here's why.
  8. Retirement

    Save More for Your Retirement by Managing Risks

    To fund your lifestyle in retirement you need to balance your risk capacity and tolerance.
RELATED FAQS
  1. What percentage of a diversified portfolio should large cap stocks comprise?

    Learn more about achieving optimal diversification of an investment portfolio, and specifically about the percentage of large-cap ... Read Answer >>
  2. Have hedge funds eroded market opportunities?

    Learn why there is still plenty of opportunity for investors even though hedge funds have grown substantially. Read about ... Read Answer >>
Hot Definitions
  1. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  2. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  3. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  4. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  5. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  6. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
Trading Center