The Motley Fool

Why I prefer low-risk, high-reward share investments

For some reason most people seem to think that shares are incredibly risky things. It’s certainly true that shares are more volatile than most other assets, but I’m not sure the stock market should count as ‘risky’.

People occasionally see a scary headline of “shares crash 5% due to XYZ” and are put off. The GFC caused a lot of temporary damage to the stock yet – yet look at where the American stock market is now. A lot of individual Aussie shares are doing very well, even if the overall index hasn’t recovered to its all-time high yet.

However, it is true that there have been a number of blow-ups in recent times. GetSwift Ltd (ASX: GSW) and Big Un Ltd (ASX: BIG) are two examples.

A lot of Australian blue chips are low-reward options because they have already achieved as much expansion growth in Australia as they can, but they’re unlikely to expand overseas. However, that doesn’t mean you need to go for high-risk options either.

By high risk I mean the chance that one unfortunate situation could ruin the company. For example, Genworth Mortgage Insurance Australia (ASX: GMA) is a provider of lenders mortgage insurance. If Australia had a major recession and people stopped paying their mortgages, there’s a chance that Genworth could run into major trouble.

If interest rates rise faster than expected then heavily-indebted businesses could topple over due to higher interest charges or breaching debt covenants. The market is worried about that with Retail Food Group Limited (ASX: RFG).

Foolish takeaway

There is no truly safe share on the ASX. However, businesses like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Ramsay Health Care Limited (ASX: RHC) and National Veterinary Care Ltd (ASX: NVL) are a lot less likely to disappear than some of the above names I’ve mentioned.

Indeed, this top growth stock is actually likely to do better in a recession than good times.

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Motley Fool contributor Tristan Harrison owns shares of NATVETCARE FPO, Ramsay Health Care Limited, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of NATVETCARE FPO. The Motley Fool Australia has recommended Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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