Low-Risk vs. High-Risk Investments: What’s the Difference?

Risk is fundamental to investing. There’s no discussion of returns or performance that’s meaningful without acknowledging it. For both new and experienced investors, understanding where risk truly lies and the differences between low-risk and high-risk investments remains a key challenge in the mid-2020s.

Below, we take you through how to differentiate and assess low- versus high-risk investments.

How To Think About Risk

When assessing risk, you’re considering the probability of the following:

• You lose the total value of an investment (e.g., the surefire crypto mentioned on Reddit goes to zero).
• That the investment doesn’t do as well as you had hoped (e.g., you bought an S&P 500 index fund the year it gained only about 10%, not the 20% bump your friends had the year before).
• That one or both of the above happening means you have to shift your goals (e.g. problems in the stock market mean you’ll have to put off retirement another six months or longer).

Key Ways To Measure Risk

More risk-related data than ever is freely available, but admittedly, using Greek or mathematical terms doesn’t make them seem as approachable as other measures of risk are. Here in plain English is what the three most common measures mean so you can understand them as easily as you understand what a change in stock price means:

1. Beta: How will this asset do if the market takes a nosedive?

Where to find it: Prominently displayed on the Investopedia market page for any stock or exchange-traded fund (ETF). For example, if you click on the link in this ticker for Apple Inc. (AAPL), you’ll see beta under the chart in the section labeled price history, with other data.

What the numbers mean: The number offers a comparison with the overall market (typically represented by the S&P 500 Index), which is 1.0.

• Beta above 1.0 = higher risk than the market (more dramatic price swings)
• Beta around 1.0 = similar level of risk to the market (Apple falls in this category)
• Beta below 1.0 = less risk than the market (more stable price movements)
• Beta near 0 = very low risk compared with the market (price barely moves with market changes)

Example: Apple’s beta of 1.03 (as of May 2025) means it’s slightly riskier (about 3%) than the market.

2. Bollinger Bands: Your volatility range

Where to find it: On any Investopedia market page for a stock, click on “Indicators” at the top of the chart, type or scroll to “Bollinger” and select “Bollinger Bands.”

What it’s telling you:

• The wider the bands, the riskier the investment is right now.
• The narrower the bands, the less risky the investment is right now.
• High-risk investments (like volatile tech stocks) typically show very wide Bollinger Bands.
• Low-risk investments (like utility stocks) typically show much narrower Bollinger Bands.
• When bands suddenly widen, risk is increasing.
• When bands contract, risk is decreasing.

Example: In May 2025, Apple’s Bollinger Bands had been expanding since earlier in the year, showing an increase in risk and volatility.

3. Price to Earnings (P/E) Ratio: Is this stock overpriced?

• Where to find it: On any Investopedia market page for a stock, check under the “Valuation” metrics underneath the chart and you’ll find the P/E ratio there.
• What the number means: The P/E ratio shows how expensive a stock is compared with its earnings.
• The higher the P/E, the more investors are paying for each dollar of earnings.
• The lower the P/E ratio, the lower the risk that the market has overpriced the stock.
• P/E ratios below 15 are potentially undervalued, those over 25 are potentially overvalued, though this is often the case for tech stocks and the like where high expectations are built in.

Example: Apple’s P/E ratio of 33.23 means investors are paying $33.23 for every $1 of annual earnings.

High-Risk Investments

A high-risk investment typically has one or both of these elements:

• A high chance of underperforming
• A comparatively high chance of a devastating loss

Examples of High-Risk Investments

1. Cryptocurrencies: Highly volatile with a history of significant price swings.
2. Biotech stocks: The vast majority of new experimental treatments fail, and so, many biotech companies and their stocks fail. This creates both a high percentage chance of underperformance and a large potential for total loss.
3. High-yield “junk” bonds: Bonds issued by companies with lower credit ratings offer higher yields but come with increased default risk, especially during economic downturns.
4. Highly leveraged companies: Firms with substantial debt may struggle to meet obligations during economic slowdowns, potentially leading to bankruptcy.
5. Alternative investments: These include venture capital, private equity, exotic collectibles (rare wines, art), and peer-to-peer lending platforms.

Low-Risk Investments

True low-risk investments not only have a very low probability of a total loss, but also, potential losses are often limited.

Examples of Low-Risk Investments

1. U.S. Treasurys: Backed by the full faith and credit of the U.S. government, these offer virtually guaranteed returns, though typically lower than other investments. Even with the fluctuations of the mid-2020s and talk of de-dollarization, these remain among the safest options.
2. High-yield savings accounts: Despite Federal Reserve rate adjustments, these accounts continue to offer competitive interest rates with Federal Deposit Insurance Corp. insurance up to $250,000 per account.
3. Certificates of deposit (CDs): These time deposits offer guaranteed returns if held to maturity, with penalties for early withdrawal. Short-term CDs provide better liquidity while maintaining safety.
4. Money market funds: These invest in high-quality, short-term debt instruments, offering better yields than savings accounts with relatively low risk.
5. Investment-grade corporate bonds: Issued by financially stable companies with high credit ratings, these offer higher yields than government securities with manageable risk.
6. Exchange-Traded Funds (ETFs) focused on low-volatility stocks: These funds prioritize stocks with historically lower price fluctuations, providing some market exposure with reduced volatility. Some funds hold bonds and other assets with less risk.

Dealing With the Risks of Today

The mid-2020s have market conditions arising from an economic climate that’s proving challenging for many investors: New tariff policies have significantly increased economic uncertainty. Economists estimate tariffs could reduce U.S. gross domestic product growth by 0.7% to 1.1% in 2025 alone.

In addition, the combination of slowing growth and persistent inflation could spark stagflation. Meanwhile, the rules-based global economic system is experiencing significant disruption, with the International Monetary Fund warning of a “new era” with uncertain rules and greater unpredictability in trade relations.

The reason all this matters is that certain assets become more risky during economic downturns. As the risk of a recession increases, cyclical assets and growth stocks tend to do poorly while defensive stocks tend to outperform.

Higher-Risk Assets During Recessions:

• Consumer discretionary stocks (luxury goods, restaurants, travel)
• Small-cap stocks with high debt levels
• Industrial and manufacturing companies
• High-yield “junk” bonds
• Commodities linked to industrial production (copper, oil)
• Cryptocurrencies have shown themselves to be the first assets to be sold off when the markets turn bearish.

Lower Risk Assets During Recessions:

• Consumer staples stocks (food, household essentials)
• Utilities (electricity, water, gas)
• Healthcare stocks
• U.S. Treasury bonds
• Gold
• Defensive stocks that pay dividends
• Cash and cash equivalents

The Power of Diversification in Uncertain Times

Diversification remains the cornerstone of risk management, particularly in today’s volatile economic landscape:

• Diversify among asset classes: Experts generally suggest balancing your portfolio across stocks, bonds, real assets, and cash equivalents to reduce the impact of any single market downturn.
• Diversify geographically: While U.S. markets have traditionally dominated portfolios, many investors are looking abroad given specific risks in the U.S. markets with the potential for trade wars and other inflationary pressures.
• Diversify for economic risk factors: Make sure your investments don’t all move in the same direction when economic conditions change. For example, Treasury Inflation-Protected Securities (TIPS) protect against inflation, short-term bonds like those held by the Vanguard Short-Term Bond ETF (BSV) react differently than long-term bonds like those held by the iShares 20+ Year Treasury Bond ETF (TLT), and consumer staples stocks like Procter & Gamble (PG) tend to hold up better during downturns.
• Diversify for your different time horizons: Organize your investments based on when you’ll need the money. For example, you would keep funds you need in the next couple of years in high-yield savings accounts, money market funds like Vanguard Federal Money Market Fund (VMFXX), or short-term CDs; for funds you need in the medium term, you might look at an ETF like iShares Core U.S. Aggregate Bond ETF (AGG), and then stock index funds for the longer term (five or more years). This way, market dips only affect the money you won’t need for years, giving your long-term investments time to recover.

The Bottom Line

You can’t rid your portfolio of risk. But you can choose among a range of low- and high-risk investments to fit your risk tolerance. You can also make sure the risks you’re taking are intentional—that you know what’s involved in the assets you or your financial advisor are choosing, as well as the potential gains for each extra bit of risk you take on.

Most successful investors don’t try to predict every market move but instead build resilient portfolios designed to weather various economic scenarios while remaining positioned for long-term growth in their portfolios.