What Is Conservative Investing?
Mar 10, 2023 By Rick Novak

Are you looking for an investment strategy that is conservative and reliable? With the volatile nature of today's stock market, it can be difficult to know which strategies are most likely to yield a favorable return on investment. Fortunately, a tried-and-true approach to investing is known as "conservative investing.

This type of investing focuses on spreading one's investments across multiple asset classes to protect against sudden losses from any particular security or sector. We'll explore what conservative investing entails and offer tips on how you can incorporate these concepts into your portfolio. Keep reading for more information about risk management techniques, diversification strategies, and wise choices when selecting assets.

Conservative Investing

Conservative investing is an investment strategy that seeks to minimize risk by diversifying investments across various asset classes. This type of investing is geared toward providing a steady and reliable rate of return, as opposed to seeking higher returns with more aggressive strategies like stock trading or day trading.

The main idea behind conservative investing is that investors should spread their investments among different asset classes to reduce the potential for loss due to extreme market conditions. By spreading the risk across multiple asset classes, the investor can ensure that gains from another will offset any losses from one class.

How does Conservative Investing work?

It is important to diversify the portfolio to achieve a conservative investment strategy. This means investing in different asset classes such as stocks, bonds, real estate, commodities, and cash. Diversification helps reduce the portfolio's overall risk and offers stability during market volatility.

When selecting investments for your portfolio, it is important to consider factors such as liquidity (ease of selling without deep discounts) and safety (low default risk). Investments with lower liquidity may not be suitable for those looking to exit their positions quickly. At the same time, higher-grade bonds or other securities that offer a high degree of safety can provide peace of mind during market uncertainty.

Types of Conservative Investing Strategies

Several types of conservative investment strategies can be employed.

1. Asset Allocation

Asset allocation is a strategy that involves diversifying investments across various asset classes to reduce risk and increase returns. This strategy considers the investor’s goals, objectives, and risk tolerance when selecting which securities make up the portfolio.

2. Buy-and-Hold Investing

Buy-and-hold investing is an approach in which investors purchase and hold securities for a long period, often several years or more. This strategy seeks to minimize losses during periods of market volatility and allow the investor to benefit from any potential increases in value over the long term.

3. Value Investing

Value investing is an approach to investing that focuses on buying securities at a price that is lower than the company’s intrinsic value. This strategy seeks to take advantage of pricing discrepancies to generate returns over the long term.

These strategies can be used individually or combined to create an effective portfolio tailored to meet an investor’s goals and objectives.

Benefits of Conservative Investing

  • Lower Risk: Conservative investing generally involves less risk than other investment strategies. Your investments will likely remain stable and secure during market volatility or economic downturns.
  • Low Volatility: With a conservative approach, you can expect lower volatility which reduces the chance of suffering large losses due to extreme swings in the market price of an asset.
  • Long-term Stability: Since conservative investments have low-risk levels, they offer long-term stability for investors who wish to build wealth over time without taking on unnecessary risks.
  • Diversification Benefits: By diversifying across multiple asset classes, investors can better spread their risk and protect their investments from large losses due to market downturns.
  • Secure Returns: Conservative investments typically offer more secure returns than other strategies, meaning investors can expect a steady return over the long term without worrying about sudden fluctuations in the market’s value.
  • Tax Advantages: Certain conservative investments, such as bonds, can also offer tax advantages by allowing investors to deduct certain amounts from their taxable income.

These are just some of the benefits that conservative investing can offer. Understanding these concepts and incorporating them into your portfolio ensures that your investments remain stable and secure even during market volatility or economic uncertainty. Good luck!

Drawbacks of Conservative Investing

While conservative investing does have many benefits, some drawbacks must be considered.

  • Lower Returns: One of the main drawbacks to this type of investing is the lower returns it can provide compared to more aggressive strategies. Since conservative investments tend to be less volatile and offer more stability, they do not offer as much potential for high returns as other strategies.
  • Difficulty in Selecting Investments: For those who lack experience or expertise in financial markets, selecting suitable investments for a conservative portfolio may prove difficult. Investors should ensure they understand different asset classes and their associated risks before selecting any specific investments.
  • Opportunity Cost: By focusing on lower-risk investments, investors may take advantage of the potential returns of more aggressive strategies. This is known as opportunity cost and should be considered when making investment decisions.

The drawbacks of conservative investing must always be weighed against the benefits to ensure it is the right approach for any investor. By understanding what conservative investments involve, investors can make informed decisions about whether this type of strategy is appropriate for their needs.

Setting up a budget and determining the right ratio of stocks and bonds to fit your needs

Creating a budget is the first step in setting up a conservative investing portfolio. This will help you determine the appropriate level of risk for your investments and how much money you can allocate to different asset classes. Once you have created your budget, it’s time to decide on the right ratio of stocks and bonds to fit your needs.

It’s best to keep a higher proportion of stocks if you seek higher returns over longer periods, as they tend to be more volatile than bonds. On the other hand, if you’re looking for more stability or lower risk, then keeping a larger portion of bonds may be a better choice. Diversifying within each asset class is also important to further reduce risk.

For example, if you’re investing in stocks, you should consider buying different companies from different sectors or countries so that your portfolio is not heavily dependent on any one security. Finally, it's wise to regularly monitor your investments and adjust when necessary. This will help ensure that your conservative portfolio remains balanced and continues to yield favorable returns over time.


What is the safest type of investment?

The safest type of investment depends on your risk tolerance and goals. Generally speaking, bonds are considered among the least risky investments as they typically offer consistent returns with minimal fluctuations in value.

How can I double my money in 5 years?

Doubling your money in 5 years is an ambitious goal and may not be possible with conservative investing. To achieve this, you must take on more risk by investing in higher-return asset classes such as stocks or commodities. It’s important to understand the risks associated with these investments and adjust your portfolio accordingly.

What is the rule of 7s investing?

The rule of 7s investing is a strategy that states that an investor should divide their investment portfolio into seven equal parts and invest each part in different asset classes. This approach allows for diversification and helps reduce risk while allowing the potential for higher returns over time.


Conservative investing is a safe and reliable way to make money while protecting your financial future. It focuses on stability, security, and low volatility, emphasizing preserving capital. This means that you’re likely to see slower returns than more aggressive or speculative forms of investing but with less risk of capital losses. You may also benefit from tax advantages and potential dividend income.