What Is a Conservative Mutual Fund or Stock?

Investors rely on conservative investments as retirement gets closer.

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Conservative investments are those that do not expose investors to an excessive amount of risk. Conservative mutual funds or stocks do not always deliver the highest profits, but they are unlikely to cause severe financial losses either. A conservative mutual fund is an investment portfolio managed by a professional who invests in financial securities fitting the low-risk profile. Conservative stocks are equity securities that are issued by financially stable companies and trade in the public stock market.


Mutual funds generally follow a specific strategy for investing. Conservative mutual funds focus on investing in asset classes, which are investment categories, that will at least protect an investor's capital while producing modest gains. Stocks, by nature, are volatile, which means they can decline in response to actual or perceived negative events. The most conservative stocks are those that have strong balance sheets with cash flow and low debt.


A conservative mutual fund is likely to invest in government bonds. These securities are backed by the federal government and among all fixed income securities -- ranging from corporate to municipal bonds -- carry the least amount of risk for default. A conservative stock could be one that, similar to a bond security, generates income. Income stocks are those that pay investors dependable dividends from excess cash. Investors can gain the highest yield, or return relative to stock price, by investing both in U.S.-based and international dividend stocks, according to a 2012 article on the Smart Money website.


Conservative mutual funds include those that invest in stocks with a large market capitalization, or market cap, which is an indication of a company's size. These companies are often industry leaders and have withstood both strong and weak market cycles. Large cap stocks include those valued greater than $8 billion, according to Fidelity Investments. Conservative mutual funds are likely to allocate no more than half of investment assets into stocks, with the remainder invested in bonds, according to Morningstar data cited in "U.S. News and World Report."


Market conditions change and what was once considered a conservative mutual fund or stock might not always fit that description. In 2012, investment grade bonds, which historically are among the safest fixed income securities, were in danger of beginning to trade more like volatile stocks, according to a 2012 article in the "Wall Street Journal." This was due to an extremely low interest rate environment coupled with changing regulation that led to less investment bank participation in the bond market.