Extremely Low-Risk Investment Options

A 30-something profesional who has been into investing for quite some time recently asked the following question: “Is there an investment option with zero risk that guarantees my principal? Oh, and I want to make decent returns.”

You might be one of the firsts to tell him: “only in your dream.” But you would be wrong.

Risk is always one of the first things to consider when investing. This is especially true if you are a first-time or a small-time investor and you don’t want or can’t afford to lose your money, but also if you are a seasoned investor who wants an investment option that you just don’t need to worry about.

While it is true that low risk is often associated with low returns, there are more than a few investment options in Indonesia you can try that still pay and are worth your time.

1. Government Bonds

This type of investment is considered one of the safest as the principal and income are guaranteed by the government and the bonds will always pay off in full at maturity. The expected yield of a 10-year-old bond is at 6.8%. But remember that you will have to pay a commission, costing around 1%, when buying these bonds because you have to buy them through your bank or an asset management company.

2. Divident Stocks

Do a little research and find out which companies that usually pay a substantial dividend yield. For example, Bank Pembangunan Daerah Jawa Barat dan Banten (BJB), whose shares are traded under the “BJBR” ticker code, paid a dividend yield of 8% in 2015. The BJB is known to be among companies that frequently pay dividend. While investing in stocks is not totally risk-free, many investors consider dividend-paying stocks as generally having less risks compared to other stocks.

3. Preferred Stocks

If you are interested in investing in stocks, you might want to try the preferred ones. They are not traded on the Indonesian stock exchange, but some big companies are offering this kind of stocks, including PT Unilever Indonesia Tbk. and PT Bank Rakyat Indonesia Tbk. If a company is issuing a cash dividend, preferred stockholders will be getting paid before common stockholders are paid. This also applies if a company is liquidated; preferred stockholders will be paid ahead of common stockholders.

4. Peer-to-Peer Lending

Peer-to-peer lending has emerged as a new asset class over the past couple of years in Indonesia and it is getting more and more popular among newcomer and veteran investors alike as it offers substantially higher returns than many other investment alternatives out there.

Peer-to-peer lending platforms are marketplaces for loans, connecting borrowers with people who are willing to invest their money on those loans. Among those that are surging in popularity among Indonesian investors is Mekar (PT Sampoerna Wirausaha), a P2P lending platform where investors can invest on small business loans. Mekar offers attractive returns of an average 10% a year, much higher than bank time deposits that usually pay an annual rate of around 4.5% up to 6.5%.

Is this kind of investment entirely risk-free? Most platforms would say no. Borrowers can default on a loan that you have invested on, and when that happens, you will most likely lose your money. But not if you have invested through Mekar.

When you invest in one or more small business loans on Mekar’s website, Mekar.id, 100% of your principal is guaranteed. This means that if a loan goes into default, which is a very rare event in Mekar, you will lose your potential earnings but still get back the money you invested.

This guarantee is provided by Mekar’s lending partners. Mekar’s partners are savings and loans cooperatives that have years of extensive experience in lending to small businesses and they have extremely low non-performing loans ratio at below 2%.

If you are looking for a worry-free investment with extremely low risk and good returns, you might want to try peer-to-peer lending. Just remember to choose your platform carefully and understand the risks before you invest.