What Is a Low Volatility Investment Strategy?

Many investors seek stability through a low volatility investment strategy. These strategies are designed to minimize the swings in asset prices, offering a smoother ride for investors who may be wary of dramatic market shifts. A low-volatility investment strategy aims to reduce risk and provide a more consistent return over time by focusing on investments with lower price fluctuations. This approach can be particularly appealing to conservative investors, retirees or anyone looking to preserve capital while still achieving modest growth.

Whether you're looking for conservative investments or prefer to take on more risk, a financial advisor can walk you through different strategies for your portfolio.

What Is a Low Volatility Investment Strategy?

A low volatility investment strategy focuses on selecting assets or securities that have historically exhibited lower price fluctuations compared to the broader market. The primary goal of this strategy is to provide steady returns with less risk, making it an attractive option for risk-averse investors . When you minimize your exposure to highly volatile assets, you can better protect your portfolio from significant losses during market downturns while still participating in potential gains.

Low volatility investment strategies often involve diversification strategies that use different asset classes, sectors and geographic regions to further reduce risk. This approach can include investing in stocks with stable earnings, bond funds , or other fixed-income securities offering predictable income streams. Low volatility strategies may also focus on companies with strong balance sheets, consistent cash flows and a history of dividend payments , as these characteristics often contribute to reduced price volatility .

5 Examples of Low Volatility Investment Strategies

Several investment strategies could help you achieve low volatility. Here's a roundup of five general strategies to help you reach that goal.

Dividend-Paying Stocks

Investing in dividend-paying stocks involves selecting companies that regularly distribute profits to shareholders through dividends. These companies are typically well-established, financially stable and have a history of consistent earnings, which can lead to less price volatility. Dividends provide a steady income stream, reducing reliance on capital gains and making these stocks an appealing choice for conservative investors seeking stability.

Investment-Grade Bonds

Investment-grade bonds are issued by corporations or governments with high credit ratings, indicating low default risk. These bonds offer fixed interest payments and can be less susceptible to market fluctuations when compared with stocks. By investing in investment-grade bonds, investors could achieve predictable returns with lower risk, making them an integral part of a low volatility investment strategy.

Balanced Funds

With balanced funds , an investor can use a mix of stocks and bonds to earn growth and income with reduced volatility. These funds are managed to maintain a specific allocation between equities and fixed-income securities, offering diversification that can help mitigate market risks. Balanced funds are ideal for investors seeking a one-stop solution for achieving a well-rounded, low volatility portfolio.

Low Volatility ETFs

Low volatility exchange-traded funds (ETFs) are designed to track indices that focus on stocks with historically lower volatility. These ETFs provide exposure to a diversified portfolio of securities that tend to exhibit less dramatic price swings, offering a simple way for investors to incorporate low volatility strategies into their portfolios. By investing in low volatility ETFs, investors can benefit from reduced risk and potential market returns without the need for individual stock selection.

Stable Value Funds

Stable value funds are investment options often found in employer-sponsored retirement plans , such as 401(k)s. They invest in high-quality, short- to intermediate-term fixed-income securities, offering principal preservation and consistent returns. These funds are an excellent choice for risk-averse investors seeking stability and reliable income, as they can provide protection against market fluctuations.

Bottom Line

A low volatility investment strategy can offer a practical approach to achieving steady returns while minimizing risk. By focusing on stable, less volatile assets, investors can build a resilient portfolio that provides protection against market fluctuations and supports long-term financial goals.This can help investors achieve a balanced risk-return profile that aligns with their preferences and objectives.

Investment Planning Tips

• A financial advisor can help you analyze investments and manage them to reach different goals. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now .
• If you want to figure out how your portfolio will perform over time, SmartAsset's investment calculator can help you get an estimate .

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