As a follow up to my previous post "Are you a risk averse or risk seeking investor?", I want to look today at different investment tools that a risk averse investor can use. Someone who is risk averse wishes to keep as little risk as possible in their investment portfolio.
The first obvious tool for the risk averse investor is treasury bonds. Treasury 
bonds are the safest form of investment going. Treasury bonds are offered directly by the U.S. government and serve as debt financing instruments for the government. Recent market turmoil has shown the true flight to quality that brings money toward this type of investment. Treasury bonds currently yield from around 4% on the 3 year, and up to 4.68% on the 30 year.
Certificates of Deposit, or CD's, are a common financial product that is a good investment for a risk averse investor. CD's feature federal deposit insurance of up to $100,000, so the investment is very safe. Most CD's pay a fixed interest rate until they reach maturity, but there are some that offer variable rates. The FDIC website has a good rundown of what to look for when investing in CD's. Some short-term CD's in the six to twelve month range now yield as high as 5.5%, so they are a very viable option.
For the risk averse investor who still wants to have some of their money invested in the stock market, there are targeted mutual funds which keep risks quite low. Conservative allocation funds offer investors the best of both worlds. These funds generally keep about half their portfolio in stocks, half in bonds, and keep some cash on hand as well. The T. Rowe Price Personal Strategic Income Fund (PRSIX) is a good example of how successful a low risk fund like this can be. The fund has averaged a return of about 10% over the past five years, while keeping risks very low. Balanced and moderate allocation funds like the Dodge and Cox Balanced Stock Fund (DODBX) also offer great returns with smaller risks than the overall market. These funds are generally more along the lines of 2/3 stocks and 1/3 bonds, but the stocks that the funds own are safer stocks and not high-flying growth stocks.
The risk averse investor has many tools at their disposal to both maximize their returns and at the same time feel comfortable with their investment portfolio.
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