When it comes to low-risk stocks, boring is often better. While low-risk stocks might not produce the highest returns, they typically offer some type of growth and are not nearly as volatile as other securities. Certain sectors of the economy are considered "defensive," which means they tend to weather an unstable market environment better than other sectors. This makes it easier for investors to identify which stocks are low risk.
Medical, healthcare and pharmaceutical companies are grouped among defensive stocks because their profitability is not dependent on economic conditions. Consumers continue to purchase healthcare products, including medicine, even when the markets are declining or the economy is weak. For example, in July 2012, when the broad stock market posted persistent losses over several weeks, several healthcare stocks advanced to their highest levels in a year, according to an article on the MarketWatch website.
Dividend-paying stocks distribute extra cash to investors in quarterly payouts. It is not unusual for investors to rely on these distributions as a source of income. Many companies continue to pay dividends even when stock prices are under pressure. Despite the income stream, however, not all dividend stocks fall into the low-risk category. In addition to a dividend-paying history, low-risk dividend companies are those with consistent sales and profit growth and stable management.
Consumer staple stocks are another low-risk investment. These stocks include companies that make everyday household goods such as shampoo and detergent. Demand for staple items remains high regardless of economic cycles, which allows these companies to continue to earn profits despite market conditions. Given their low volatility, consumer staple stocks more closely resemble bonds than stocks, according to a 2012 article on the Fidelity Investments website. Consumer staples declined no more than 1 percent over any three-year period between the years 1996 and 2012.
Utility stocks are considered low-risk for a couple of reasons. First, many operate as monopolies, meaning customers who want electric or natural gas service have only one choice. This means most utilities have a built-in customer base and steady stream of revenue. Many utilities also pay regular dividends, so investors can look forward to regular income. While the share price of utilities trades in response to weather patterns -- in mild weather, they don't make as much money -- they are much less vulnerable to economic conditions than other sectors.
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