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Competitor: This article comes from Chris at JumboCDInvestments.com.

Entry Category: Best Ways to Earn and Save Money

We are all told that the stock market produces higher returns over long periods of time. Certainly, past performances bear this out. Of course, a big part of successful long-term investing depends on picking the right low risk investment options . For most people, that is a difficult task.

The Tortoise and the Hare

As children we were treated to the fable about the Tortoise and the Hare. The Hare gets cocky, takes a nap and the Tortoise wins the race by being diligent and consistent. The Hare, of course, tries to make up for lost ground, but to no avail. I would also bet he was pretty anxious when he realized he was going to lose.

Quick dashes up can certainly make us feel good about our portfolio, but a quick dash down the next day can cause quite a bit of stress. The stress of the ups and downs can cause great consternation, so I would like to demonstrate how slow and steady investing provides a better return in the long run.

Benefits of Low Risk Investment Options

Lets start with a hypothetical portfolio of $100,000. The first year you earn 10% and are feeling good. During the 2nd year, however, you lose 10%. On the surface, it appears you come out even, but in fact, you are down $1,000 from where you started.

Shooting for high-yield investments can provide a better return, but they can also result in a greater loss. High-risk investment options may be more exciting, but low-risk investment options could win the race.

Now that you are behind, you feel like you have some catching up to do. So you add more risk, hoping for more reward. This time, you make 50% and you are back on track and then some. So you roll the dice again for the second year. You lose 50%.

Now your current balance after four years is $74,250.00. You have a total loss of 25.75%, or a -6.43% average rate. Of course, those figures are based on extreme swings, but given the market drop a few years back and return to a now almost high, not really out of the ordinary.

Our second example is two imaginary portfolios with some more reasonable ups and downs. Portfolio A (Hare) has a 6% average return and Portfolio B (Tortoise) returns 4.4%.

At first glance the Hare should have better overall earnings. The Hare picked much more high risk investment options.