Investing in Safe Stocks and Low-Volatility Stocks

Although we all might love the idea of investing in risk-free stocks, there's no such thing.

Even the best companies can face unexpected trouble. Plus, it's common for even the most stable corporations to experience significant stock price volatility.

We saw this during the 2008-09 financial crisis when many strong companies experienced dramatic drops in their stock prices. We saw it again when the COVID-19 pandemic created widespread uncertainty in the market. And we saw it in the 2022 bear market as inflation and interest rates surged.

These are just a few examples from recent history. And they certainly won't be the last periods of market volatility we'll experience.

Despite what you might read on social media, stocks that never go down don't exist. If you want a completely safe investment with no chance you'll lose money, Treasury securities or certificates of deposit (CDs) may be your best bet.

Still, some stocks are significantly safer than others. If a company is in good financial shape, has pricing power over its rivals, and sells products people buy even during deep recessions, it's likely a relatively safe investment.

Best safe stocks to buy

Best safe stocks to buy in 2025

What is the safest investment you can make in the stock market? Unfortunately, there's no perfect answer to this.

The good news is that we can identify some excellent companies with the potential for little volatility and excellent returns. With that in mind, here are seven (relatively) safe stocks that should deliver strong returns over time:

1. Berkshire Hathaway

Berkshire Hathaway (BRK.A 0.82%)(BRK.B 0.55%) is a conglomerate that owns a collection of more than 60 subsidiary businesses, including auto insurance giant GEICO, rail transport business BNSF, and battery manufacturer Duracell.

Many (like these three) are noncyclical businesses that generally do well in any economic climate. For example, people still pay their auto insurance bills even in tough times.

Berkshire also owns a massive stock portfolio with large positions in several mature businesses, including Apple (AAPL -0.21%), Bank of America (BAC 0.56%), Coca-Cola (KO 0.7%), and many more. In a nutshell, owning Berkshire is like owning many different investments in a single stock. Most of the stocks were selected by CEO Warren Buffett, one of the greatest investors of all time.

In addition, Berkshire has more than $330 billion in cash on its balance sheet, giving it unmatched financial flexibility -- a major asset during turbulent economic times.

2. The Walt Disney Company

Most people know Disney (DIS -0.37%) for its theme parks, movie franchises, and characters. While these are certainly impressive, there's much more to this entertainment giant.

Disney also owns a massive cruise line, the Pixar, Marvel, and Lucasfilm movie studios, the ABC and ESPN television networks, and the Hulu, ESPN+, and Disney+ streaming services.

Its theme parks have tremendous pricing power and do well in most economic climates. Disney's movie franchises are among the most valuable in the world, and its streaming businesses are producing a large (and rapidly growing) stream of recurring revenue.

Disney is not completely immune to recessions. The company's theme parks, cruise line, and movie theaters all depend on the ability and willingness of consumers to spend money. However, the strong demand for Disney's theme parks, even as many consumers are cutting back on spending, shows the strength of its business.

3. Vanguard High-Dividend Yield ETF

Technically, this isn't a stock but is an exchange-traded fund, or ETF.

Dividends are a good indicator of a company's stability. Moreover, dividend-paying stocks tend to be more stable during tough times than stocks that don't pay dividends.

The Vanguard High Dividend Yield ETF (VYM 0.75%) is a fund that invests in a portfolio of stocks paying above-average dividends. Top holdings include Broadcom (AVGO -2.28%), JPMorgan Chase (JPM 1.19%), Home Depot (HD 0.86%), and Exxon Mobil (XOM 2.09%), but the fund invests in more than 500 stocks.

4. Procter & Gamble

Procter & Gamble (PG 1.34%), or P&G, makes products people need in any economic environment. P&G is the parent company behind the brands of household staples, such as Pampers, Downy, Tide, Charmin, Gillette, Old Spice, and Febreze.

Here's how steady and consistent Procter & Gamble's business has been over time. The company has been paying dividends for 134 years and increased its payout for 68 consecutive years. That's one of the best dividend histories in the entire stock market.

5. Vanguard Real Estate Index Fund

Real estate is an example of an asset that tends to produce excellent long-term growth without too much risk.

Real estate investment trusts (REITs) allow investors to gain portfolio exposure to commercial properties, such as office buildings, malls, and apartment buildings. These properties generate recurring rental income and have intrinsic value, making them relatively stable assets.

The Vanguard Real Estate Index Fund (VNQ 0.69%) invests in a diverse index of real estate stocks. It pays an above-average dividend yield and could be a low-risk but high-potential investment opportunity.

To be sure, REITs aren't immune to short-term volatility, and that's especially true when interest rates are rising rapidly. But the long-term investment thesis is sound, and the safety of real estate is intact, especially when you're investing in a diverse index fund like this one.

6. Starbucks

You'd be hard-pressed to find a brand with a bigger competitive advantage than Starbucks (SBUX 2.46%).

Starbucks' trusted brand gives the company pricing power over rivals, and its massive scale gives it efficiency advantages. Starbucks can charge more money while benefiting from the cost advantages that come with being such a large company.

Starbucks continues to increase its footprint and revenue year after year. While the stock isn't totally immune to fluctuations over time, it's tough to imagine a world where Starbucks isn't the go-to destination for higher-end coffee drinks.

The company's "Back to Starbucks" plan, implemented by CEO Brian Niccol, is especially promising. This is a massive and iconic business, and its best days could still be ahead of it.

7. Apple

Apple (AAPL -0.21%) has the durable advantage of having both an extremely loyal customer base and an ecosystem of products designed to work best in conjunction with one another.

In other words, iPhone and Mac users tend to remain iPhone and Mac users.

It's no secret that Apple products cost significantly more than comparably equipped phones, computers, and tablets from rivals -- a sign of Apple's tremendous pricing power. Apple's sales could be rather cyclical, meaning they can rise and fall a bit with the strength of the economy, but this is a durable brand.

Finding safe stocks

How to find safe companies to invest in

Although no stock is perfect, you can certainly set yourself up with a portfolio of relatively safe stocks if you incorporate a few guidelines into your stock analysis.

If safety is a priority, consider these five benchmarks:

1. Steady, growing revenue: Look for companies that increase their revenue steadily year after year. Erratic revenue tends to correlate with erratic stock prices; consistent revenue is more common among stocks with less volatility.
2. Free cash flow: This is the money left over after a company pays its operating costs. If you're looking for a green light that a business is sustainable, pay attention when you see it reporting positive free cash flow.
3. Lack of cyclicality: Cyclicality describes companies' sensitivity to economic cycles. The economy goes through cycles of expansion and recession, and cyclical companies typically perform well in expansions and less well during recessions. For example, the auto industry is cyclical because people buy fewer new vehicles during recessions. However, utilities aren't cyclical because people always need electricity and water.
4. Dividend growth: A good way to gauge a company's long-term stability is to take a look at its dividend history (if it pays a dividend). If a company has rarely (or never) cut its dividend and has a strong history of increasing its payout, even in tough economies, that's a great sign. A Dividend Aristocrat® is a stock that has increased its dividends for at least 25 consecutive years, so a list of those stocks would be a good place to start.
5. Durable competitive advantages: This could be the most important thing to consider. Competitive advantages come in several forms, such as a well-known brand name, a cost-advantaged manufacturing process, or high barriers to entry in an industry. By identifying competitive advantages, you can find companies likely to maintain or expand their market share over time.

Red flags

Red flags that a stock is unsafe

There are also some telltale factors that indicate a stock is a less safe investment:

• Penny stocks: There's no set-in-stone definition of a penny stock, but the term generally refers to stocks that trade for less than $5 per share. Although not all the stocks that meet this description are bad investments, almost all are cheap for a reason. It's a common myth that trading penny stocks is a great way to get rich; it's more likely to have the opposite effect. If you're looking for safe stocks to invest in, steer clear of those with tiny share prices.
• Dividend cuts: If a stock has a frequent history of slashing or suspending its dividend during tough times, it may not be a stable business in all economic climates. If a stock doesn't have to halt its dividend during times like the 2008-2009 financial crisis or the 2020 COVID-19 pandemic lockdowns, that's a great sign of stability.
• Declining or unstable revenue: Most U.S. companies take a revenue hit in difficult times, but safe stocks will trend back to relative stability over the long term. If a company's revenue is frequently up one year and down the next, it's tough to make the case that it's a stable business. Consistently declining revenue is an obvious sign of an unsafe stock, but unstable revenue can be just as worrisome.
• High payout ratio: This one applies only to stocks that pay dividends (some great companies don't). If a company pays a dividend, check out the stock's earnings per share for the past 12 months and compare them to the dividend paid. If the dividend represents a high percentage of the earnings (say, more than 70%), that could be a sign that the dividend is unsustainable.

Related investing topics

Investing in safe stocks

The recipe for investing in safe stocks

If you're looking to invest in safe stocks, the list above will get you started. But before you begin, remember two caveats:

First, diversifying is one of the best ways to make your portfolio safer. As previously noted, no stock is completely safe from volatility and competition. So, by finding relatively safe stocks and spreading your money across a bunch of them, you'll give yourself much more of a safety net than if you just purchased one or two.

Second, the stocks mentioned here (and any others that seem safe) aren't necessarily "safe" over short periods. Even the best-run companies experience short-term price swings.

Don't worry about stock prices over days or weeks; keep your focus on companies that are most likely to do well over the long haul. And when it comes to safe, long-term stocks like these, short-term share price weakness can make for excellent buying opportunities.

Essentially, the recipe for safe stock investing is to find stable companies, buy a bunch of their stocks, and hold on for the long haul.

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